[Paleopsych] Reason: Rethinking the Social Responsibility of Business

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Rethinking the Social Responsibility of Business
http://www.reason.com/0510/fe.mf.rethinking.shtml
5.10

    A Reason debate featuring Milton Friedman, Whole Foods John Mackey,
    and Cypress Semiconductors T.J. Rodgers

    Thirty-five years ago, Milton Friedman wrote a famous article for The
    New York Times Magazine whose title aptly summed up its main point:
    The Social Responsibility of Business Is to Increase Its Profits. The
    future Nobel laureate in economics had no patience for capitalists who
    claimed that business is not concerned merely with profit but also
    with promoting desirable social ends; that business has a social
    conscience and takes seriously its responsibilities for providing em-
    ployment, eliminating discrimination, avoiding pollution and whatever
    else may be the catchwords of the contemporary crop of reformers.

    Friedman, now a senior research fellow at the Hoover Institution and
    the Paul Snowden Russell Distinguished Service Professor Emeritus of
    Economics at the University of Chicago, wrote that such people are
    preaching pure and unadulterated socialism. Businessmen who talk this
    way are unwitting puppets of the intellectual forces that have been
    undermining the basis of a free society these past decades.

    John Mackey, the founder and CEO of Whole Foods, is one businessman
    who disagrees with Friedman. A self-described ardent libertarian whose
    conversation is peppered with references to Ludwig von Mises and
    Abraham Maslow, Austrian economics and astrology, Mackey believes
    Friedmans view is too narrow a description of his and many other
    businesses activities. As important, he argues that Friedmans take
    woefully undersells the humanitarian dimension of capitalism.

    In the debate that follows, Mackey lays out his personal vision of the
    social responsibility of business. Friedman responds, as does T.J.
    Rodgers, the founder and CEO of Cypress Semiconductor and the chief
    spokesman of what might be called the tough love school of laissez
    faire. Dubbed one of Americas toughest bosses by Fortune, Rodgers
    argues that corporations add far more to society by maximizing
    long-term shareholder value than they do by donating time and money to
    charity.

    Reason offers this exchange as the starting point of a discussion that
    should be intensely important to all devotees of free minds and free
    markets. Comments should be sent to letters at reason.com.

    Putting Customers Ahead of Investors

    John Mackey

    In 1970 Milton Friedman wrote that there is one and only one social
    responsibility of businessto use its resources and engage in
    activities designed to increase its profits so long as it stays within
    the rules of the game, which is to say, engages in open and free
    competition without deception or fraud. Thats the orthodox view among
    free market economists: that the only social responsibility a
    law-abiding business has is to maximize profits for the shareholders.

    I strongly disagree. Im a businessman and a free market libertarian,
    but I believe that the enlightened corporation should try to create
    value for all of its constituencies. From an investors perspective,
    the purpose of the business is to maximize profits. But thats not the
    purpose for other stakeholdersfor customers, employees, suppliers, and
    the community. Each of those groups will define the purpose of the
    business in terms of its own needs and desires, and each perspective
    is valid and legitimate.

    My argument should not be mistaken for a hostility to profit. I
    believe I know something about creating shareholder value. When I
    co-founded Whole Foods Market 27 years ago, we began with $45,000 in
    capital; we only had $250,000 in sales our first year. During the last
    12 months we had sales of more than $4.6 billion, net profits of more
    than $160 million, and a market capitalization over $8 billion.

    But we have not achieved our tremendous increase in shareholder value
    by making shareholder value the primary purpose of our business. In my
    marriage, my wifes happiness is an end in itself, not merely a means
    to my own happiness; love leads me to put my wifes happiness first,
    but in doing so I also make myself happier. Similarly, the most
    successful businesses put the customer first, ahead of the investors.
    In the profit-centered business, customer happiness is merely a means
    to an end: maximizing profits. In the customer-centered business,
    customer happiness is an end in itself, and will be pursued with
    greater interest, passion, and empathy than the profit-centered
    business is capable of.

    Not that were only concerned with customers. At Whole Foods, we
    measure our success by how much value we can create for all six of our
    most important stakeholders: customers, team members (employees),
    investors, vendors, communities, and the environment. Our philosophy
    is graphically represented in the opposite column.

    There is, of course, no magical formula to calculate how much value
    each stakeholder should receive from the company. It is a dynamic
    process that evolves with the competitive marketplace. No stakeholder
    remains satisfied for long. It is the function of company leadership
    to develop solutions that continually work for the common good.

    Many thinking people will readily accept my arguments that caring
    about customers and employees is good business. But they might draw
    the line at believing a company has any responsibility to its
    community and environment. To donate time and capital to philanthropy,
    they will argue, is to steal from the investors. After all, the
    corporations assets legally belong to the investors, dont they?
    Management has a fiduciary responsibility to maximize shareholder
    value; therefore, any activities that dont maximize shareholder value
    are violations of this duty. If you feel altruism towards other
    people, you should exercise that altruism with your own money, not
    with the assets of a corporation that doesnt belong to you.

    This position sounds reasonable. A companys assets do belong to the
    investors, and its management does have a duty to manage those assets
    responsibly. In my view, the argument is not wrong so much as it is
    too narrow.

    First, there can be little doubt that a certain amount of corporate
    philanthropy is simply good business and works for the long-term
    benefit of the investors. For example: In addition to the many
    thousands of small donations each Whole Foods store makes each year,
    we also hold five 5% Days throughout the year. On those days, we
    donate 5 percent of a stores total sales to a nonprofit organization.
    While our stores select worthwhile organizations to support, they also
    tend to focus on groups that have large membership lists, which are
    contacted and encouraged to shop our store that day to support the
    organization. This usually brings hundreds of new or lapsed customers
    into our stores, many of whom then become regular shoppers. So a 5%
    Day not only allows us to support worthwhile causes, but is an
    excellent marketing strategy that has benefited Whole Foods investors
    immensely.

    That said, I believe such programs would be completely justifiable
    even if they produced no profits and no P.R. This is because I believe
    the entrepreneurs, not the current investors in a companys stock, have
    the right and responsibility to define the purpose of the company. It
    is the entrepreneurs who create a company, who bring all the factors
    of production together and coordinate it into viable business. It is
    the entrepreneurs who set the company strategy and who negotiate the
    terms of trade with all of the voluntarily cooperating
    stakeholdersincluding the investors. At Whole Foods we hired our
    original investors. They didnt hire us.

    We first announced that we would donate 5 percent of the companys net
    profits to philanthropy when we drafted our mission statement, back in
    1985. Our policy has therefore been in place for over 20 years, and it
    predates our IPO by seven years. All seven of the private investors at
    the time we created the policy voted for it when they served on our
    board of directors. When we took in venture capital money back in
    1989, none of the venture firms objected to the policy. In addition,
    in almost 14 years as a publicly traded company, almost no investors
    have ever raised objections to the policy. How can Whole Foods
    philanthropy be theft from the current investors if the original
    owners of the company unanimously approved the policy and all
    subsequent investors made their investments after the policy was in
    effect and well publicized?

    The shareholders of a public company own their stock voluntarily. If
    they dont agree with the philosophy of the business, they can always
    sell their investment, just as the customers and employees can exit
    their relationships with the company if they dont like the terms of
    trade. If that is unacceptable to them, they always have the legal
    right to submit a resolution at our annual shareholders meeting to
    change the companys philanthropic philosophy. A number of our company
    policies have been changed over the years through successful
    shareholder resolutions.

    Another objection to the Whole Foods philosophy is where to draw the
    line. If donating 5 percent of profits is good, wouldnt 10 percent be
    even better? Why not donate 100 percent of our profits to the
    betterment of society? But the fact that Whole Foods has
    responsibilities to our community doesnt mean that we dont have any
    responsibilities to our investors. Its a question of finding the
    appropriate balance and trying to create value for all of our
    stakeholders. Is 5 percent the right amount to donate to the
    community? I dont think there is a right answer to this question,
    except that I believe 0 percent is too little. It is an arbitrary
    percentage that the co-founders of the company decided was a
    reasonable amount and which was approved by the owners of the company
    at the time we made the decision. Corporate philanthropy is a good
    thing, but it requires the legitimacy of investor approval. In my
    experience, most investors understand that it can be beneficial to
    both the corporation and to the larger society.

    That doesnt answer the question of why we give money to the community
    stakeholder. For that, you should turn to one of the fathers of
    free-market economics, Adam Smith. The Wealth of Nations was a
    tremendous achievement, but economists would be well served to read
    Smiths other great book, The Theory of Moral Sentiments. There he
    explains that human nature isnt just about self-interest. It also
    includes sympathy, empathy, friendship, love, and the desire for
    social approval. As motives for human behavior, these are at least as
    important as self-interest. For many people, they are more important.

    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 otherstheir families, friends,
    communities, and countries. Our capacity to love can expand even
    further: to loving people from different races, religions, and
    countriespotentially to unlimited love for all people and even for
    other sentient creatures. This is our potential as human beings, to
    take joy in the flourishing of people everywhere. Whole Foods gives
    money to our communities because we care about them and feel a
    responsibility to help them flourish as well as possible.

    The business model that Whole Foods has embraced could represent a new
    form of capitalism, one that more consciously works for the common
    good instead of depending solely on the invisible hand to generate
    positive results for society. The brand of capitalism is in terrible
    shape throughout the world, and corporations are widely seen as
    selfish, greedy, and uncaring.This is both unfortunate and
    unnecessary, and could be changed if businesses and economists widely
    adopted the business model that I have outlined here.

    To extend our love and care beyond our narrow self-interest is
    antithetical to neither our human nature nor our financial success.
    Rather, it leads to the further fulfillment of both. Why do we not
    encourage this in our theories of business and economics? Why do we
    restrict our theories to such a pessimistic and crabby view of human
    nature? What are we afraid of?

    Making Philanthropy Out of Obscenity

    Milton Friedman

    By pursuing his own interest [an individual] frequently promotes that
    of the society more effectually than when he really intends to promote
    it. I have never known much good done by those who affected to trade
    for the public good.

    Adam Smith, The Wealth of Nations

    The differences between John Mackey and me regarding the social
    responsibility of business are for the most part rhetorical. Strip off
    the camouflage, and it turns out we are in essential agreement.
    Moreover, his company, Whole Foods Market, behaves in accordance with
    the principles I spelled out in my 1970 New York Times Magazine
    article.

    With respect to his company, it could hardly be otherwise. It has done
    well in a highly competitive industry. Had it devoted any significant
    fraction of its resources to exercising a social responsibility
    unrelated to the bottom line, it would be out of business by now or
    would have been taken over.

    Here is how Mackey himself describes his firms activities:

    1) The most successful businesses put the customer first, instead of
    the investors (which clearly means that this is the way to put the
    investors first).

    2) There can be little doubt that a certain amount of corporate
    philanthropy is simply good business and works for the long-term
    benefit of the investors.

    Compare this to what I wrote in 1970:

    Of course, in practice the doctrine of social responsibility is
    frequently a cloak for actions that are justified on other grounds
    rather than a reason for those actions.

    To illustrate, it may well be in the long run interest of a
    corporation that is a major employer in a small community to devote
    resources to providing amenities to that community or to improving its
    government.

    In each of thesecases, there is a strong temptation to rationalize
    these actions as an exercise of social responsibility. In the present
    climate of opinion, with its widespread aversion to capitalism,
    profits, the soulless corporation and so on, this is one way for a
    corporation to generate goodwill as a by-product of expenditures that
    are entirely justified in its own self-interest.

    It would be inconsistent of me to call on corporate executives to
    refrain from this hypocritical window-dressing because it harms the
    foundations of a free society. That would be to call on them to
    exercise a social responsibility! If our institutions and the
    attitudes of the public make it in their self-interest to cloak their
    actions in this way, I cannot summon much indignation to denounce
    them.

    I believe Mackeys flat statement that corporate philanthropy is a good
    thing is flatly wrong. Consider the decision by the founders of Whole
    Foods to donate 5 percent of net profits to philanthropy. They were
    clearly within their rights in doing so. They were spending their own
    money, using 5 percent of one part of their wealth to establish,
    thanks to corporate tax provisions, the equivalent of a 501c(3)
    charitable foundation, though with no mission statement, no separate
    by-laws, and no provision for deciding on the beneficiaries. But what
    reason is there to suppose that the stream of profit distributed in
    this way would do more good for society than investing that stream of
    profit in the enterprise itself or paying it out as dividends and
    letting the stockholders dispose of it? The practice makes sense only
    because of our obscene tax laws, whereby a stockholder can make a
    larger gift for a given after-tax cost if the corporation makes the
    gift on his behalf than if he makes the gift directly. That is a good
    reason for eliminating the corporate tax or for eliminating the
    deductibility of corporate charity, but it is not a justification for
    corporate charity.

    Whole Foods Markets contribution to societyand as a customer I can
    testify that it is an important oneis to enhance the pleasure of
    shopping for food. Whole Foods has no special competence in deciding
    how charity should be distributed. Any funds devoted to the latter
    would surely have contributed more to society if they had been devoted
    to improving still further the former.

    Finally, I shall try to explain why my statement that the social
    responsibility of business [is] to increase its profits and Mackeys
    statement that the enlightened corporation should try to create value
    for all of its constituencies are equivalent.

    Note first that I refer to social responsibility, not financial, or
    accounting, or legal. It is social precisely to allow for the
    constituencies to which Mackey refers. Maximizing profits is an end
    from the private point of view; it is a means from the social point of
    view. A system based on private property and free markets is a
    sophisticated means of enabling people to cooperate in their economic
    activities without compulsion; it enables separated knowledge to
    assure that each resource is used for its most valued use, and is
    combined with other resources in the most efficient way.

    Of course, this is abstract and idealized. The world is not ideal.
    There are all sorts of deviations from the perfect marketmany, if not
    most, I suspect, due to government interventions. But with all its
    defects, the current largely free-market, private-property world seems
    to me vastly preferable to a world in which a large fraction of
    resources is used and distributed by 501c(3)s and their corporate
    counterparts.

    Put Profits First

    T.J. Rodgers

    John Mackeys article attacking corporate profit maximization could not
    have been written by a free market libertarian, as claimed. Indeed, if
    the examples he cites had not identified him as the author, one could
    easily assume the piece was written by Ralph Nader. A more accurate
    title for his article is How Business and Profit Making Fit Into My
    Overarching Philosophy of Altruism.

    Mackey spouts nonsense about how his company hired his original
    investors, not vice versa. If Whole Foods ever falls on persistent
    hard timesperhaps when the Luddites are no longer able to hold back
    the genetic food revolution using junk science and fearhe will quickly
    find out who has hired whom, as his investors fire him.

    Mackey does make one point that is consistent with, but not supportive
    of, free market capitalism. He knows that shareholders own his stock
    voluntarily. If they dont like the policies of his company, they can
    always vote to change those policies with a shareholder resolution or
    simply sell the stock and buy that of another company more aligned
    with their objectives. Thus, he informs his shareholders of his
    objectives and lets them make a choice on which stock to buy. So far,
    so good.

    It is also simply good business for a company to cater to its
    customers, train and retain its employees, build long-term positive
    relationships with its suppliers, and become a good citizen in its
    community, including performing some philanthropic activity. When
    Milton Friedman says a company should stay within the rules of the
    game and operate without deception or fraud, he means it should deal
    with all its various constituencies properly in order to maximize
    long-term shareholder value. He does not mean that a company should
    put every last nickel on the bottom line every quarter, regardless of
    the long-term consequences.

    My company, Cypress Semiconductor, has won the trophy for the Second
    Harvest Food Bank competition for the most food donated per employee
    in Silicon Valley for the last 13 consecutive years (1 million pounds
    of food in 2004). The contest creates competition among our divisions,
    leading to employee involvement, company food drives, internal social
    events with admissions paid for by food donations, and so forth. It is
    a big employee morale builder, a way to attract new employees, good
    P.R. for the company, and a significant benefit to the communityall of
    which makes Cypress a better place to work and invest in. Indeed,
    Mackeys own proud example of Whole Foods community involvement
    programs also made a profit.

    But Mackeys subordination of his profession as a businessman to
    altruistic ideals shows up as he attempts to negate the empirically
    demonstrated social benefit of self-interest by defining it narrowly
    as increasing short-term profits. Why is it that when Whole Foods
    gives money to a worthy cause, it serves a high moral objective, while
    a company that provides a good return to small investorswho simply put
    their money into their own retirement funds or a childrens college
    fundis somehow selfish? Its the philosophy that is objectionable here,
    not the specific actions. If Mackey wants to run a hybrid
    business/charity whose mission is fully disclosed to his
    shareholdersand if those shareholder-owners want to support that
    missionso be it. But I balk at the proposition that a companys
    stakeholders (a term often used by collectivists to justify
    unreasonable demands) should be allowed to control the property of the
    shareholders. It seems Mackeys philosophy is more accurately described
    by Karl Marx: From each according to his ability (the shareholders
    surrender money and assets); to each according to his needs (the
    charities, social interest groups, and environmentalists get what they
    want). Thats not free market capitalism.

    Then there is the arrogant proposition that if other corporations
    would simply emulate the higher corporate life form defined by Whole
    Foods, the world would be better off. After all, Mackey says
    corporations are viewed as selfish, greedy, and uncaring. I, for one,
    consider free market capitalism to be a high calling, even without the
    infusion of altruism practiced by Whole Foods.

    If one goes beyond the sensationalistic journalism surrounding the
    Enron-like debacles, one discovers that only about 10 to 20 public
    corporations have been justifiably accused of serious wrongdoing.
    Thats about 0.1 percent of Americas 17,500 public companies. Whats the
    failure rate of the publications that demean business? (Consider the
    New York Times scandal involving manufactured stories.) Whats the
    percentage of U.S. presidents who have been forced or almost forced
    from office? (Its 10 times higher than the failure rate of
    corporations.) What percentage of our congressmen have spent time in
    jail? The fact is that despite some well-publicized failures, most
    corporations are run with the highest ethical standardsand the public
    knows it. Public opinion polls demonstrate that fact by routinely
    ranking businessmen above journalists and politicians in esteem.

    I am proud of what the semiconductor industry doesrelentlessly cutting
    the cost of a transistor from $3 in 1960 to three-millionths of a
    dollar today. Mackey would be keeping his business records with hordes
    of accountants on paper ledgers if our industry didnt exist. He would
    have to charge his poorest customers more for their food, pay his
    valued employees less, and cut his philanthropy programs if the
    semiconductor industry had not focused so relentlessly on increasing
    its profits, cutting his costs in the process. Of course, if the U.S.
    semiconductor industry had been less cost-competitive due to its own
    philanthropy, the food industry simply would have bought cheaper
    computers made from Japanese and Korean silicon chips (which happened
    anyway). Layoffs in the nonunion semiconductor industry were actually
    good news to Whole Foods unionized grocery store clerks. Where was
    Mackeys sense of altruism when unemployed semiconductor workers needed
    it? Of course, that rhetorical question is foolish, since he did
    exactly the right thing by ruthlessly reducing his recordkeeping costs
    so as to maximize his profits.

    I am proud to be a free market capitalist. And I resent the fact that
    Mackeys philosophy demeans me as an egocentric child because I have
    refused on moral grounds to embrace the philosophies of collectivism
    and altruism that have caused so much human misery, however tempting
    the sales pitch for them sounds.

    Profit Is the Means, Not End

    John Mackey

    Let me begin my response to Milton Friedman by noting that he is one
    of my personal heroes. His contributions to economic thought and the
    fight for freedom are without parallel, and it is an honor to have him
    critique my article.

    Friedman says the differences between John Mackey and me regarding the
    social responsibility of business are for the most part rhetorical.
    But are we essentially in agreement? I dont think so. We are thinking
    about business in entirely different ways.

    Friedman is thinking only in terms of maximizing profits for the
    investors. If putting customers first helps maximize profits for the
    investors, then it is acceptable. If some corporate philanthropy
    creates goodwill and helps a company cloak its self-interested goals
    of maximizing profits, then it is acceptable (although Friedman also
    believes it is hypocritical). In contrast to Friedman, I do not
    believe maximizing profits for the investors is the only acceptable
    justification for all corporate actions. The investors are not the
    only people who matter. Corporations can exist for purposes other than
    simply maximizing profits.

    As for who decides what the purpose of any particular business is, I
    made an important argument that Friedman doesnt address: I believe the
    entrepreneurs, not the current investors in a companys stock, have the
    right and responsibility to define the purpose of the company. Whole
    Foods Market was not created solely to maximize profits for its
    investors, but to create value for all of its stakeholders. I believe
    there are thousands of other businesses similar to Whole Foods
    (Medtronic, REI, and Starbucks, for example) that were created by
    entrepreneurs with goals beyond maximizing profits, and that these
    goals are neither hypocritical nor cloaking devices but are intrinsic
    to the purpose of the business.

    I will concede that many other businesses, such as T.J. Rodgers
    Cypress Semiconductor, have been created by entrepreneurs whose sole
    purpose for the business is to maximize profits for their investors.
    Does Cypress therefore have any social responsibility besides
    maximizing profits if it follows the laws of society? No, it doesnt.
    Rodgers apparently created it solely to maximize profits, and
    therefore all of Friedmans arguments about business social
    responsibility become completely valid. Business social responsibility
    should not be coerced; it is a voluntary decision that the
    entrepreneurial leadership of every company must make on its own.
    Friedman is right to argue that profit making is intrinsically
    valuable for society, but I believe he is mistaken that all businesses
    have only this purpose.

    While Friedman believes that taking care of customers, employees, and
    business philanthropy are means to the end of increasing investor
    profits, I take the exact opposite view: Making high profits is the
    means to the end of fulfilling Whole Foods core business mission. We
    want to improve the health and well-being of everyone on the planet
    through higher-quality foods and better nutrition, and we cant fulfill
    this mission unless we are highly profitable. High profits are
    necessary to fuel our growth across the United States and the world.
    Just as people cannot live without eating, so a business cannot live
    without profits. But most people dont live to eat, and neither must a
    businesses live just to make profits.

    Toward the end of his critique Friedman says his statement that the
    social responsibility of business [is] to increase its profits and my
    statement that the enlightened corporation should try to create value
    for all of its constituencies are equivalent. He argues that
    maximizing profits is a private end achieved through social means
    because it supports a society based on private property and free
    markets. If our two statements are equivalent, if we really mean the
    same thing, then I know which statement has the superior marketing
    power. Mine does.

    Both capitalism and corporations are misunderstood, mistrusted, and
    disliked around the world because of statements like Friedmans on
    social responsibility. His comment is used by the enemies of
    capitalism to argue that capitalism is greedy, selfish, and uncaring.
    It is right up there with William Vanderbilts the public be damned and
    former G.M. Chairman Charlie Wilsons declaration that whats good for
    the country is good for General Motors, and vice versa. If we are
    truly interested in spreading capitalism throughout the world (I
    certainly am), we need to do a better job marketing it. I believe if
    economists and business people consistently communicated and acted on
    my message that the enlightened corporation should try to create value
    for all of its constituencies, we would see most of the resistance to
    capitalism disappear.

    Friedman also understands that Whole Foods makes an important
    contribution to society besides simply maximizing profits for our
    investors, which is to enhance the pleasure of shopping for food. This
    is why we put satisfying and delighting our customers as a core value
    whenever we talk about the purpose of our business. Why dont Friedman
    and other economists consistently teach this idea? Why dont they talk
    more about all the valuable contributions that business makes in
    creating value for its customers, for its employees, and for its
    communities? Why talk only about maximizing profits for the investors?
    Doing so harms the brand of capitalism.

    As for Whole Foods philanthropy, who does have special competence in
    this area? Does the government? Do individuals? Libertarians generally
    would agree that most bureaucratic government solutions to social
    problems cause more harm than good and that government help is seldom
    the answer. Neither do individuals have any special competence in
    charity. By Friedmans logic, individuals shouldnt donate any money to
    help others but should instead keep all their money invested in
    businesses, where it will create more social value.

    The truth is that there is no way to calculate whether money invested
    in business or money invested in helping to solve social problems will
    create more value. Businesses exist within real communities and have
    real effects, both good and bad, on those communities. Like
    individuals living in communities, businesses make valuable social
    contributions by providing goods and services and employment. But just
    as individuals can feel a responsibility to provide some philanthropic
    support for the communities in which they live, so too can a business.
    The responsibility of business toward the community is not infinite,
    but neither is it zero. Each enlightened business must find the proper
    balance between all of its constituencies: customers, employees,
    investors, suppliers, and communities.

    While I respect Milton Friedmans thoughtful response, I do not feel
    the same way about T.J. Rodgers critique. It is obvious to me that
    Rodgers didnt carefully read my article, think deeply about my
    arguments, or attempt to craft an intelligent response. Instead he
    launches various ad hominem attacks on me, my company, and our
    customers. According to Rodgers, my business philosophy is similar to
    those of Ralph Nader and Karl Marx; Whole Foods Market and our
    customers are a bunch of Luddites engaging in junk science and fear
    mongering; and our unionized grocery clerks dont care about layoffs of
    workers in Rodgers own semiconductor industry.

    For the record: I dont agree with the philosophies of Ralph Nader or
    Karl Marx; Whole Foods Market doesnt engage in junk science or fear
    mongering, and neither do 99 percent of our customers or vendors; and
    of Whole Foods 36,000 employees, exactly zero of them belong to
    unions, and we are in fact sorry about layoffs in his industry.

    When Rodgers isnt engaging in ad hominem attacks, he seems to be
    arguing against a leftist, socialist, and collectivist perspective
    that may exist in his own mind but does not appear in my article.
    Contrary to Rodgers claim, Whole Foods is running not a hybrid
    business/charity but an enormously profitable business that has
    created tremendous shareholder value.

    Of all the food retailers in the Fortune 500 (including Wal-Mart), we
    have the highest profits as a percentage of sales, as well as the
    highest return on invested capital, sales per square foot, same-store
    sales, and growth rate. We are currently doubling in size every three
    and a half years. The bottom line is that Whole Foods stakeholder
    business philosophy works and has produced tremendous value for all of
    our stakeholders, including our investors.

    In contrast, Cypress Semiconductor has struggled to be profitable for
    many years now, and their balance sheet shows negative retained
    earnings of over $408 million. This means that in its entire 23-year
    history, Cypress has lost far more money for its investors than it has
    made. Instead of calling my business philosophy Marxist, perhaps it is
    time for Rodgers to rethink his own.

    Rodgers says with passion, I am proud of what the semiconductor
    industry doesrelentlessly cutting the cost of a transistor from $3 in
    1960 to three-millionths of a dollar today. Rodgers is entitled to be
    proud. What a wonderful accomplishment this is, and the semiconductor
    industry has indeed made all our lives better. Then why not
    consistently communicate this message as the purpose of his business,
    instead of talking all the time about maximizing profits and
    shareholder value? Like medicine, law, and education, business has
    noble purposes: to provide goods and services that improve its
    customers lives, to provide jobs and meaningful work for employees, to
    create wealth and prosperity for its investors, and to be a
    responsible and caring citizen.

    Businesses such as Whole Foods have multiple stakeholders and
    therefore have multiple responsibilities. But the fact that we have
    responsibilities to stakeholders besides investors does not give those
    other stakeholders any property rights in the company, contrary to
    Rodgers fears. The investors still own the business, are entitled to
    the residual profits, and can fire the management if they wish. A
    doctor has an ethical responsibility to try to heal her patients, but
    that responsibility doesnt mean her patients are entitled to receive a
    share of the profits from her practice.

    Rodgers probably will never agree with my business philosophy, but it
    doesnt really matter. The ideas Im articulating result in a more
    robust business model than the profit-maximization model that it
    competes against, because they encourage and tap into more powerful
    motivations than self-interest alone. These ideas will triumph over
    time, not by persuading intellectuals and economists through argument
    but by winning the competitive test of the marketplace. Someday
    businesses like Whole Foods, which adhere to a stakeholder model of
    deeper business purpose, will dominate the economic landscape. Wait
    and see.