Leadership Style at Whole Foods Market : Whole Foods Market (NASDAQ: WFMI) is a foods supermarket chain based in Austin, Texas which emphasizes "natural" and organic products. As of September 2009, the company operates 302 stores: 291 stores in 38 U.S. states and the District of Columbia; six stores in Canada; and six stores in the United Kingdom.[2]
The company is consistently ranked among the most socially responsible businesses[3] and placed third on the U.S. Environmental Protection Agency's list of Top 25 Green Power Partners.[4]

When it comes to Whole Foods Market Inc., founder John Mackey usually gets all the attention.

Mackey, of course, helped found the company three decades ago and has been the driving force behind its growth into a Fortune 500 company and the pre-eminent natural foods grocer in the country.

Mackey has also been an occasional lightning rod for criticism, such as when he weighed in on the national health care debate last year, angering many customers with his critique of the Obama administration's overhaul plan.

But behind the headlines, there is a less evident fact: The company isn't steered by Mackey alone.

For the past 10 years, a tightknit team of five senior executives have functioned as a sort of CEO committee, collectively making decisions on strategy, finances and other company matters. Despite the fact that he's long been the public face of the company, Mackey insists he's not the final authority in the group.

"I've made a valuable contribution to Whole Foods, but so have thousands of other people," Mackey said in an interview with the American-Statesman. "That's one of our secrets, is the fact that we do really have a team approach to the organization, an empowerment approach."

That sort of group leadership is rare in corporate America, where many companies are run by a strong, hard-charging CEO — think Apple Inc.'s Steve Jobs or Warren Buffett of Berkshire Hathaway Inc.

But earlier this year, Whole Foods' 30th anniversary, Mackey elevated Walter Robb to co-CEO and indicated his desire to keep the five-member executive team together for years to come.

The team also includes Chief Operating Officer A.C. Gallo ; Chief Financial Officer Glenda Flanagan ; and Jim Sud, Whole Foods' executive vice president of growth and business development.

Mackey and the others who run Whole Foods say their style of leadership is a natural outgrowth of the company culture, which emphasizes shared decision-making and the power of the group mind.

It's part of the reason that Whole Foods emerged from the recession so quickly, Mackey said. And it's a style they think has something to teach the rest of the business world.

When Wall Street or outsiders look at a company, there's a tendency to focus on the one person in charge, Robb said.

"Our answer to that is, 'No, there's a different way to do that, and that is to have a team,' " he said.

Team concept: ideas, not egos

Whole Foods has always gone its own route on management and other issues. Since 2007, Mackey has been paid only $1 a year — his own idea — and executive salaries are capped at 19 times the average full-time salary.

The team leadership approach applies at the store level as well as in the executive suite.

Mackey compared his leadership philosophy to playing basketball competitively, something he has enjoyed for years.

"I believe in the collaboration — that the team that really is unselfish and plays together, it's very difficult to beat," he said. "You know, there's really not too much you can't accomplish in the world if you don't care who gets credit."

By all accounts, what employees call the "E-Team" is tightly knit. Members regularly take vacations together. That has led to a degree of closeness and trust that allows them to harness their collective intelligence, they say.

Although the team formally meets every quarter as part of a larger leadership meeting, there's no regularly scheduled gathering of the management team.

Among the group, there is no ultimate authority, Mackey said. Individuals might exert influence in certain areas — Robb and Gallo in operations, Flanagan in finance, Sud in real estate and acquisitions, and Mackey in strategy, for example.

Mackey described a process of give-and-take dialogues and ideas building on each other.

"Honestly, the collective mind is so much more powerful than any individual mind — provided people are willing to participate and their egos don't get in the way and they don't sabotage the collective mind," he said.

That's easier said than done, especially in the corporate world, where backstabbing and infighting can be a fact of life. But when asked about conflicts among the team, Mackey and the others struggled to come up with examples.

When disagreements arise, the best ideas win, Mackey said. If team members aren't attached to their own ideas, conflicts are solved fairly quickly.

"You learn to trust the intelligence of the group," Mackey said. "If the whole group disagrees with you, chances are, since they're coming from a good place, then you examine your own thoughts about it."

He gave an example: The team members have been discussing what do to do with the company's healthy amount of cash. Ideas were tossed around, such as paying off debt or resuming the dividend that Whole Foods suspended in 2008. Sud and Flanagan kicked around the idea of purchasing some Whole Foods store sites, investing in the real estate.

Mackey had his doubts. He thought about how the Internet is changing the retail sector, with large chains going bankrupt and plenty of "for lease" signs in area shopping centers. If there's a glut of commercial real estate, Mackey thought, does Whole Foods really want to own all that land?

That's how the decision-making process works, he said. And the group is still deliberating on what to do with the money.

"You have a dialogue, then we push back on it," Mackey said. "That dialogue is not over."

Mackey credits the group leadership with helping Whole Foods recover from the recession.

The team was able to come together quickly on strategy, especially on a few crucial points — the need to cut prices, raise capital and reduce spending.

During the downturn, Whole Foods began a campaign to focus on value and its lower-priced house brands, cut capital spending, and sold a 17 percent stake to a private equity firm for $425 million.

The company's sales growth rate has rebounded, and its stock price is up 35 percent this year.

Analysts have credited Whole Foods with being able to cut costs while also becoming a better retailer.

"We pulled together, and it has unified us even stronger in our resolve," Sud said. "I think the results of our company, effectively turning on a dime and taking the steps we did ... I think we surprised a lot of people."

Theory of the top dog

When Eddie Erlandson hears the word "consensus," he gets nervous.

The Austin-based executive coach and his wife, Kate Ludeman, have seen firsthand the challenges of power-sharing in the executive suite.

Clients of their firm, Worth Ethic Corp., have included executives at the USAA financial services company and pro baseball's Boston Red Sox. Several years ago, Ludeman helped Dell Inc. founder Michael Dell and then-CEO Kevin Rollins figure out a workable arrangement for sharing authority and responsibilities running the computer giant.

Erlandson credited Whole Foods for what he called an innovative form of management, but said that companies still need an ultimate decision maker.

Striving for consensus can have pitfalls, Erlandson said. For one, it can result in watered-down decisions or a delayed process.

"If consensus creates a slowing down and a dilution of ideas, then you're probably at risk," he said.

Mackey acknowledged that the flip side of group leadership is the potential for group-think and conformity.

What's necessary to avoid that is having a team "who all are willing to think for themselves, who all are responsible and have the courage to make the tough calls and argue for their positions," he said.

There have been several times in the executive team, he said, when one person stands against the group and eventually persuades the others, he said.

'CEO celebrity' culture

The management-by-team approach is not common in the U.S., experts say. And a formal structure in which power is shared equally is extremely rare, said Craig Crossland , an assistant professor of management at the University of Texas McCombs School of Business.

Of the current Fortune 500 companies, only two other companies — Motorola Inc. and American Financial Group — list multiple CEOs. Compared with other countries, a chief executive in the U.S. tends to have much more discretion and latitude, Crossland said.

What's more common in America is the superstar CEO, who earns plaudits for single-handedly building great empires or rescuing companies in distress — Jack Welch at General Electric, Ed Whitacre at General Motors.

"We have more CEO celebrities over here" than in other countries, Crossland said.

That hasn't always been the case. Decades ago, top decisions were made by a larger group of executives, said Tim Quigley, a Penn State University doctoral student who studies managerial discretion and CEO succession.

But as shareholder pressure has grown, there is now a tendency to grant one person greater authority to deliver results, Quigley said.

American companies have "this common pattern today where we appoint this person — he's in charge, he has all the authority," he said. "It wasn't that way 50 years ago."

CEO stock options are designed to tie their pay more directly to their performance. That encourages a "swing for the fences" mentality, as CEOs make moves that produce big outcomes — both positive and negative, Quigley said.

"They swing hard," he said. "And a lot of the time, they drag the company down with them."

Ten-year game plan

Whole Foods' leadership style is something that Mackey wove into the company's culture from the very beginning, Flanagan said.

"We all have the authority to make a broad range of decisions on our own, but it's extremely rare for any of us to make a decision of any consequence without consulting the full team, or many people on the team," she said. "We just don't do it that way."

That philosophy of shared responsibility and decision-making is similar throughout the company.

"We have very consensus-driven decisions made at the store level," Sud said. "Our stores are divided into teams and the teams vote on new hires. So it's really not unique to Whole Foods, but I guess it's unique to the way things are typically done."

Whole Foods is also a mission-driven company, which attracts a certain kind of employee to begin with, team members said.

"Our senior leadership is a happy family," Mackey said. "And so it has all the benefits that any happy family would have: trust, security, and confidence. It's fun and you like coming to work. Things just flow along, and the organization flows along with it."

It also helps when things are going well, he acknowledged. With a string of good earnings reports, Whole Foods certainly fits in that category.

Robb's ascension to co-CEO doesn't mean that Mackey is ready to retire. The two men are about the same age, noted Mackey, who is 57.

"And I don't want to leave," he said.

During a recent earnings conference call, Mackey indicated his intention to keep the E-Team together for another decade.

"This is like the start of the fourth quarter," he said, returning to the basketball analogy. "We've done 30 years. If 10 years is a quarter, we've finished the first three quarters."

[email protected]; 912-5932

THE E-TEAM'S STARTING FIVE

John Mackey, 57

Co-chief executive officer and co-founder

Mackey and his girlfriend started a small natural foods store in Austin called Saferway in the late 1970s. In 1980, they created Whole Foods Market after a merger with Clarksville Natural Grocery. He has been the public face of the company since its inception.

Walter Robb, 57

Co-chief executive officer

Robb has a history in the natural foods business as a retailer and consultant. He joined Whole Foods in 1991 after selling his California grocery store to the company. He oversees six of Whole Foods' 12 regions and serves on the Whole Planet Foundation board. He splits his time living in Austin and San Rafael, Calif.

A.C. Gallo, 57

President and 
chief operating officer

With a background in the grocery and restaurant businesses, Gallo worked for the Bread & Circus natural foods store before it was bought by Whole Foods; he later joined the company in 1993. He moved into regional management as vice president of the northeast region and later became regional president. Gallo now oversees six of Whole Foods Market's 12 regions. He lives in Massachusetts and works out of the company's regional office in Boston.

Glenda Flanagan, 56

Executive vice president and chief financial officer

Before joining Whole Foods in 1988, Flanagan worked at accounting, retail and business consulting firms. During her time as Whole Foods' finance chief, the company has grown from six stores to more than 290.

Jim Sud, 58

Executive vice president of growth and business development

A founding shareholder of Whole Foods and a childhood friend of Mackey, Sud served on the company's board of directors from 1992 until 1997, when he joined the senior management team. Before joining Whole Foods, Sud was president of a privately held independent oil and gas production and oilfield services company.
The political left went off the deep end a couple months ago when John Mackey, CEO of Whole Foods and ostensibly "one of them," penned an opinion piece in the Wall Street Journal on health care. Since it didn't conform to the kool-aid of single payer, the firestorm erupted. Somehow I thought that just a few years ago that same group was pushing the concept that debate and protest was patriotic. Go figure. Of course beginning his article with the following quote probably didn't help matters:

"The problem with socialism is that eventually you run out of other people's money."
—Margaret Thatcher

Yep, that dose of common sense tends to infuriate any well-meaning liberal, especially as we approach the tax tipping point. John Mackey was interviewed in the WSJ on Saturday and offered some interesting perspectives on his proposals and the reaction since the original article.

"I honestly don't know why the article became such a lightning rod," says John Mackey, CEO and founder of Whole Foods Market Inc., as he tries to explain the firestorm caused by his August op-ed on these pages opposing government-run health care. "I think a lot of people who got angry haven't read what I actually wrote. There was a lot of emotional reaction—fear and anger. I just wanted to get people to think about whether there was a better way to reform the system."

"President Obama called for constructive suggestions for health-care reform," he explains. "I took him at his word."

"I regret the controversy that it caused for Whole Foods, but I don't regret writing it, because I think what I said is true and it needed to be said. I wasn't seeing anyone else saying it." Then he adds, half-jokingly: "I've written one op-ed piece in 31 years. It might be 31 more before I write another one."

You'd think the left would adore this guy, and they used to. Before he made the horrible mistake of offering an opinion... an alternative to the kool aid. Perhaps you could even call it a refreshing beer.

Mr. Mackey has flown into Washington, D.C., for a board meeting of the Global Animal Partnership, a group that advocates for the humane treatment of animals. There was no private jet: He arrived on Southwest Airlines from Austin, Texas, and he bought the "Wanna Getaway" bottom basement fare. "I barely got the last aisle seat," he says. While in town he stays in the bedroom of his regional president, who lives in Maryland.

I like that style. My first official act when I assumed the big chair at my company was to yank out the "Reserved for President" parking sign. Well, actually there's no longer a chair either. Such perks of power run smack into the face of the respect for people side of lean manufacturing, making true lean impossible to achieve. Whole Foods exudes Mackey's philosophy.

For the 12th straight year, Mr. Mackey's company has been praised as one of the "100 Best Companies to Work For" by Fortune Magazine. Whole Foods sells healthy food, practices "socially responsible trade," and prides itself on promoting foods that are grown to support "biodiversity and healthy soils." Mr. Mackey donates 5% of company profits to charity and has been one of America's loudest critics of runaway compensation on Wall Street. And he pays himself $1 a year. He would seem to be a model corporate citizen.

So what evil thoughts did Mackey espouse?

What Mr. Mackey is proposing is more or less what he has already implemented at his company—a plan that would allow more health savings accounts (HSAs), more low-premium, high-deductible plans, more incentives for wellness, and medical malpractice reform. None of these initiatives are in any of the Democratic bills winding their way through Congress. In fact, the Democrats want to kill HSAs and high-deductible plans and mandate coverage options that would inflate health insurance costs.

The Whole Foods health-care story has been largely ignored by proponents of a government-run system. But it could be a template for those in Washington who want to drive down costs and insure the uninsured.

That's too bad. My company switched from a traditional PPO to an HSA this year and it has been a great success. Educating employees on the high deductible concept and the adjunct HSA savings account has taken time, but once they understand it has been very positive. Employees have skin in the game and therefore closely monitor and manage their health care needs and shop for the best services. After the deductible is met there is the peace of mind that there will be no further cash costs. If the savings account is used, unused funds roll over to the next year, making the cash deductible cost even lower. Premiums are lower and all preventive care is covered at no cost and no deductible. I'll say that again as that is an oft-repeated misconception of HSA's: all preventive care is covered at no deductible. This is a standard Blue Cross plan, nothing special. And it works.

That's the big problem with the proposals winding their way through Congress... no skin in the game by the consumer. No incentive by the consumer to reduce costs. Just mandates and fines and voodoo accounting based on unreasonable expectations of savings and growth. There's a lot I like, and those are the components that both sides apparently agree on and should be implemented - portability and eliminating pre-existing condition barriers for example. Let's get that in place and avoid the temptation to screw up what already works.

This type of plan does not excite proponents of a single-payer system, who think that individuals can't make wise health-care choices, and that this type of system is "antiwellness" because it discourages spending on preventive care.

Mr. Mackey scoffs at that idea: "The assumption behind that is that people don't care about their own health, and that somebody else has to—a nanny or somebody—has to take care of me because people are too stupid to make these decisions themselves. That's not been our experience. We find our team members [employees], not surprisingly, seem to care a whole lot about their health."

Bingo. Our experience exactly, especially since our preventive care is covered 100%, no deductible. People are smarter than government bureaucrats give them credit for.

Mackey has a few more comments in the interview. First, on unions.

I ask if he thinks the attacks were instigated by unions. While many other grocery chains are unionized, Whole Foods is not. So why aren't they choosing it? "Because it's not in their best interest," he insists. "We have better benefits and higher pay" than Whole Foods' unionized competitors. "We wish the unions would respect people's right to not have a union." Do they keep agitating? "Yeah, they do."

That's what a lot of people don't seem to understand. A prior Fortune-50 employer of mine had a bunch of factories in the U.S. and only one was unionized. That plant had a benefits package far inferior to the rest of us, and we could never figure out why they stayed unionized. Until some union officials got busted for coercion.

I'm not against unions - usually they are a legitimate result of a failure of management to appreciate and respect the employees. But union work rules and inflexibility have also seriously hampered lean transformations and productivity that leads to competitive advantage.

Mackey also has some good words on capitalism, and this will probably earn him the ire of his detractors.

"Before I started my business, my political philosophy was that business is evil and government is good. I think I just breathed it in with the culture. Businesses, they're selfish because they're trying to make money."

At age 25, John Mackey was mugged by reality. "Once you start meeting a payroll you have a little different attitude about those things." This insight explains why he thinks it's a shame that so few elected officials have ever run a business. "Most are lawyers," he says, which is why Washington treats companies like cash dispensers.

Mr. Mackey's latest crusade involves traveling to college campuses across the country, trying to persuade young people that business, profits and capitalism aren't forces of evil. He calls his concept "conscious capitalism."

Well said. I had a similar epiphany when I started my own company and had to meet a payroll... and the payroll taxes... and workmans comp taxes... and... You get the picture. It does change you. I completely agree that most government officials don't understand reality because they have never truly run anything, let alone anything that involved creating jobs and paying people. Sort of like how Michael Moore is now denouncing the same capitalism that financed his films, paid the people that pay to see his films, and made him rich. Go figure.

How about CEO pay?

I ask Mr. Mackey why he doesn't collect a paycheck. "I'm an owner. I have the exact same motivation any shareholder would have in the Whole Foods Market because I'm not drawing a salary from the company. How much money does anybody need?" More to the point, he says, "If the business prospers, I prosper. If the business struggles, I struggle. It's good for morale." He hastens to add that "I'm not saying anybody else should do what I do."

Well, that's not exactly true. Mr. Mackey has been vocal in his opposition to recent CEO salaries. "I do think that it's the responsibility of the leadership of an organization to constrain itself for the good of the organization. If you look at the history of business in America, CEOs used to have much more constraint in compensation and it's gone up tremendously in the last 30 years."

He bemoans the trend that once a Fortune 500 CEO made about 25 times the average worker pay, and now that's climbed to 300 times average employee pay. He says this violates the principle of "internal equity—what your leadership is getting paid relative to everyone else in the organization."

Very true. CEO pay is out of touch with reality, but I also believe that it is the responsibility of shareholders to reign it in. Not artificial constraints.

And what really needs to change?

But there's one other institution John Mackey thinks needs a makeover—and that's government. He describes what the Federal Reserve has done with massive money creation as "debauchery of the currency." He thinks the bailouts were a travesty.

"I don't think anybody's too big to fail," he says. "If a business fails, what happens is, there are still assets, and those assets get reorganized. Either new management comes in or it's sold off to another business or it's bid on and the good assets are retained and the bad assets are eliminated. I believe in the dynamic creativity of capitalism, and it's self-correcting, if you just allow it to self-correct."

That's something Washington won't let happen these days, which helps explain why Mr. Mackey felt compelled to write that the Whole Foods health-insurance program is smarter and cheaper than the latest government proposals.
Amen. But I'm not holding my breath.

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Great post Kevin. Like you I'm puzzled by the kool aid as you call it. Just as we're being pushed to more government intervention, Canada is moving to allow privatization to reverse a growing "two class" system where the wealthy can go overseas to reduce waits. France just announced cutbacks and additional co-pays as their healthcare system goes broke. Germany and several other Eurozone countries are easing to the right and cutting taxes while we try to add more taxes on the 1% that already contribute nearly 50% of the revenue. Tipping point indeed, but more importantly how much can you further burden the folks that pay before they say screw it and give up or leave. You've talked about that "flight of capital." California is a prime example on the state level.
 
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