Capitalism

Should Businesses Only Focus on Shareholder Value? A Soho Forum Debate

Ayn Rand Institute's Yaron Brook says yes, Whole Foods' John Mackey says no.

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At each of Whole Foods Market's more than 500 American stores, managers ask every team member—from the meat clerks to the baristas to the janitorial staff—to orient their work around a shared purpose, which is to make natural and healthy food widely available.  This goal, according to Whole Foods CEO and co-founder John Mackey, is in no way inconsistent with maximizing shareholder value, often seen as the essential purpose of a corporation. 

As Mackey writes in his new book about leadership, "At the heart of Conscious Capitalism is a radical refutation of the negative perceptions of business, and a rejection of the split between purpose and profit." Mackey believes that this is the key to defending capitalism against those who condemn it for having no inspiring ideals. 

At a Reason-sponsored Soho Forum debate held on February 18, 2020, Ayn Rand Institute Chairman of the Board Yaron Brook challenged this view. He believes that maximizing profit should always be the primary goal of companies, and it's that focus which explains why capitalism has lifted the broad masses out of poverty. That's the message businesses should be emphasizing, he said, and it's inspiring enough.

The debate, which played out in front of 200 people in The Villages, Florida, was moderated by Soho Forum Director Gene Epstein. It was an Oxford-style debate, meaning the winner is the person who moves the most people in his direction.

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  1. There are plenty of businesses out there that are purpose driven. As long as I can choose to use/not use them, or whether or not to invest in them, I don’t see much problem with it.

    I can’t say I’ve ever invested in a company that wasn’t profit driven, but you can put your money wherever you want.

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  2. I would say Whole Foods is profit driven. They think delivering that type of product in that manner is a good way to profits.
    You want to talk about companies willing to sacrifice (some) profit for “conscience”, let’s review Google, Amazon, Facebook, and Twitter.

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    3. Whole Foods has as a part of their vision attracting people who value virtue signaling so that they will pay too much for food. No conflict with the profit motive at all – rather a very astute view of their market.

    4. Whole Foods is owned by Amazon so yes they are profit driven they are just appealing to a certain part of the market.

    5. ^^^ this.
      If the PR message of being “purpose driven” didn’t generate profits, businesses relying on it wouldn’t be in business or would be beaten by competitors.

      It’s a marketing strategy.

  3. If you can draw investors without profits and continue to stay in business, good on you. Let me know how it works out.

  4. John Mackey has made a tremendous amount of money for his company by focusing on more than shareholder value, which is another way of saying that not exclusively focusing on shareholder value may have been the best possible way for Whole Foods to focus on shareholder value.

    1. So, yeah, the answer is that companies should focus exclusively on shareholder value, which sometimes is being smart about your marketing strategy. It can be argued that some companies really do a good job of that, and others not so much. Whole Foods is a great example of a company maximizing profits by not focusing exclusively on shareholder value, where the My Pillow guy might have done himself a favor by keeping his mouth shut. He got to where he was by holding certain positions–and then he went too far at the wrong time. Whether he was correct, of course, doesn’t really matter in the context of what’s best for your company. At some point, maximizing his profits would have been better served by keeping his mouth shut.

      1. There seems to something about fame that makes people crazy.

        1. An interesting thing about the Dominion lawsuit is they are alleging that he did this to boost sales using promocodes like FightforTrump , Proof, QAnon. Obviously that add campaign back fired if true; he said they stand to loose 65 million in revenue this year and he denies it was a marketing ploy. Reminded me of Gillette toxic men campaign; anyone know how they are doing after that debacle?

      2. Grocery stores just focus on different segments of the market. Most places have them running from high discount like Aldis all the way to high end like Whole Foods which is owned by Amazon. They are all profit drivin.

        1. Are you being serious right now?

  5. It should be whatever the owners say it should be. If they want to lose more customers from higher prices than they gain from virtue signalling, that is the owners’ business, literally. If they want to focus on profits, guess what, that also is literally their business.

    1. Yes but sometimes higher prices are the point. Exclusivity sells.

    2. Shareholders are the owners. Maybe you mean voting stock holders?

  6. “Stakeholders:”

    You want to buy something? How about an investment?

    No, well go fuck yourselves.

  7. Yes, in the sense that companies should focus on what their owners value.

  8. >>managers ask every team member—from the meat clerks to the baristas to the janitorial staff—to orient their work around a shared purpose

    is the Office Space banner in active form.

    1. Nothing motivates like jingoism.

    2. It works if it is real but if it is just BS the workers will see right through it.

      I have been in situations where management tried to boost morale with encouraging messages but we would just laugh.

      I don’t know how they do it but Chick fil A seems to have a formula that works. The workers go out of their way to do things.

  9. This is only a ‘debate’ because shareholders have been rendered virtually irrelevant in business decisions/governance.

    ‘Maximizing profit’ is merely a phrase that is intended to be used by agents to assume what they believe the principal should do. Why should the agent have that default control?

    Mackey’s operational goal is a useful way of summarizing how an entire company should be focused on what it is actually going to do – and profits is almost NEVER a useful actionable item for anyone at/below middle management. But again – WHO is holding a Mackey accountable for that? If its shareholder – fine. If its some generic stakeholder well of course that’s BS

    Reality is – we’ve done everything we can to tilt the governance field away from shareholders and towards agents.

    1. And California is starting to tell companies who they have to hire to put on their board.

  10. “…orient their work around a shared purpose, which is to make natural and healthy food widely available”

    So they’re selling it at cost? Doesn’t seem likely.

  11. To serve the public (and their shareholders), a company should seek to maximize its profits.
    Profit is the difference between how much society values the products and services of the company, and how much value in resources the company consumes to produce those products and services.
    More profit = more value created for less cost.

    1. I worked for a company which grew quickly and brought in new management. It was all about the money and the mission and core values lost. You could see that it was no longer about why we were doing this in the first place. It ended up bankrupt.

  12. It’a floor polish and a dessert topping. You can have both and should have both.

    That said, there are definite ways both of their respective organizations could do much better.

    Hey, Mackey, how about at least a “value menu” of cheaper but quality products for those of us who can’t afford to play with our food and call it “virtue signalling?” Maybe cheaper quality products that are also play-purties for the pet cause! It seems to have worked for Walmart and Target and Dollar General. Hmmm…ya think?

    And hey, Yaron, how about show the world how to run a non-profit and send back the PPP money the Ayn Rand Institute got earlier during the on-going COVID-19 crisis. “Everybody else is doing it, so why can’t we?” is Kindergarten morality, not “Man At His Best.” Best yet, make The Ayn Rand Institute for profit! Wow, jinx!

    1. That is a good point. You can’t take cost out of it. The regular grocery chain where we were had organic sections and local products for people into that sort of thing. They also had tags on the shelfs of the regular aisles showing which products were heart healthy, gluten free or whatever. They hired nutritionists to work on stuff like that.

      So that sort of thing sells and doesn’t have to cost a lot.

  13. I think the other factor in this is morale within a company. When people feel they are doing something positive, say causing less pollution, they will be more productive.

    1. People go to work to get paid.

  14. They should do what the majority of shareholders want. Generally this will be maximizing share value through profit, but there arise times when the shareholders may prefer to prioritize other objectives. Obvious examples include maintaining product quality and brand reputation, but could just as well include increasing compensation/benefits, maintaining price point, preserving long-running business relationships, or even signalling their virtue. Too often we jump to the conclusion that failing to maximize profits means minimizing profits, there is area between 0% and 100%.

    The idea that business exists solely to extract maximum profit at the expense of everything around it is Marxist propaganda and we should feel ashamed for disseminating it so readily.

  15. There should be no debate. Each business should be free to decide those things for themselves.

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  17. I would say that there needs to be a balance between short-term profitability and long-term success. I think a lot of publicly traded companies get caught in the quarterly earnings trap. Ensuring that you can create an environment where people enjoy work and you can attract and cultivate great employees may not always make short-term profits, but will pay off in the long run.

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