Quantifying Progress: Whole Foods vs. Milton Friedman

five year anniversary

Spooner's Milton Friedman

Five years ago, 3p founder Nick Aster covered the exchange between Milton Friedman and John Mackey featured on Reason.com. On one side of the ring was Friedman, swinging away on behalf of profit at all social and environmental costs, echoing his infamous assertion that the only “social responsibility of business is to increase its profits.”  On the other side was Mackey counter-punching, explaining that by focusing on creating value for all of its stakeholders instead of just shareholders, Whole Foods built a lucrative empire of happy people and shareholders alike.

Aster asked, “[Profit] is certainly a lot easier to quantify than something like ‘happiness’, but the intangible benefits of good, honest business clearly go way beyond pure finance….Must the word ‘profit’ always refer to money in the strictest sense?”

A very relevant question indeed. Mackey believes that to merely focus on the quantifiable would be to miss many of dimensions along which human happiness and value exists, and would in fact constrain his company’s ability to deliver value to a broader set of stakeholders.  He defended the philanthropic donations of Whole Foods by referencing Adam Smith’s lesser known work, The Theory of Moral Sentiments, wherein the father of free market economics describes human nature as a desire to serve more than ones self-interest, but to act out of sympathy, empathy, and love.  Mackey goes onto imply that corporations that only focus on profit are less socialized entities (pun intended, I suppose), much like children:

“When we are small children we are egocentric, concerned only about our own needs and desires. As we mature, most people grow beyond this egocentrism and begin to care about others–their families, friends, communities, and countries. Our capacity to love can expand even further… potentially to unlimited love for all people and even for other sentient creatures.”

According to Mackey, this approach of serving a broader constituency and its diversified needs is how Whole Foods raked in over $8 billion in revenues and $146 million in net income in 2009 with a current market capitalization of roughly $6 billion.

Fast forward five years, and Mackey finds himself amidst a publicity firestorm, alienating many constituents of the Whole Foods happy stakeholder family. First, Mackey very publicly announced from the pulpit of his socially responsible bottom line that health care is not a basic human right.  Whether you agree with him or not is irrelevant to the fact that with the soaring costs of medical treatment, every American needs health insurance yet many cannot afford it.  There may be no such a thing as an inherent human right to health care, just as there may not be such thing as a social responsibility of business.  But there is such a thing as the well-being of society, or to use Mackey’s own words, “unlimited love for all people,” which should probably include the ability to avoid gangrene, amputations, and a person’s teeth from rotting out of their head (and by that I mean, access to health care), and should also include business that cares for the people and environment upon which all enterprise depends.

Then Mackey slips on his own organic banana peel and gets into trouble for focusing too much on the numbers.  However, this time we aren’t talking about profits, we are talking about numbers that define a person’s health.  Earlier this year, Whole Foods rolled out a new corporate policy called the “Team Member Healthy Discount Incentive,” which offers deeper discounts on food to skinnier employees.  While the program is voluntary, Whole Foods has been accused of discriminating against larger-bodied employees based on the very one-dimensional metric of body mass index (BMI), an indicator that does not take into account healthy behaviors—such as eating healthful foods and leading an active lifestyle.  By this new policy, a meth-addict would qualify for greater discounts than a food-conscious, active, fat person.

Thus it appears that Mackey contradicts his own theory of focusing on non-quantifiables, such as happiness and well-being.  Which, frankly, isn’t all that surprising.  Like religion (and science to a lesser degree), business philosophy far from embodies an absolute truth, but rather provides the theater upon which ideological battles and the rationalization of pre-existing beliefs may take place.

The most important question we can ask is not what the precise quantifiable nature of business is—or health, or happiness—but rather what type of world we would like to live in and how we might achieve such a vision.  Like the drunk who loses his watch along a dark street but searches for it beneath a lamppost because that’s where the light is, business struggles to understand the bigger picture outside of what is quantifiable.  While we will continue to innovate and find new metrics that show the long-term financial benefits of social and environmental responsibility, the reality is that some things—like happiness and well-being—will never be perfectly quantified.

In the business world, numbers are the primary catalyst for action, and without better numbers to quantify social and environmental costs and benefits, the business community will be slow to act.  An over-obsession with financial numbers combined with a lack of regard for what is right are largely responsible for the financial meltdown and the recession we will continue to enjoy for years to come.

Perhaps where we sit now is the one place from which humans notoriously flee—the gray, the uncertain, the hard to define subjective zone that characterizes most of our existence despite our best attempts.  Nonetheless as they say, it doesn’t take a weatherman to know which way the wind is blowing, and it doesn’t always take numbers to act in the interest of people, planet, and profit.  In fact focusing too much on the numbers can severely constrain value creation for stakeholders and shareholders alike.  Just ask John Mackey.

Carly has a BA from Stanford and recently finished her MBA in sustainable management at Presidio Graduate School in San Francisco. Her interests revolve around sustainable food production, sports, renewable energy, finance, and sustainable business consulting. She lives in Oakland where she spends her spare time cycling, home brewing, gardening, cooking, and surfing (when she can make it over the bridge).