Socially Conscious Business Leaders Show Generosity that May Affect Investors

Paul Dykewicz

Socially conscious business leaders show generosity may affect investors and customers by participating in philanthropic endeavors such as Giving Tuesday, a global movement celebrated on Dec. 3 aimed at unleashing the power of people and organizations to help their communities and the world.

Created in 2012 with the idea of dedicating Dec. 3 each year to assist others, the movement has given socially conscious business leaders a chance to distinguish themselves in the eyes of investors and consumers from their less civic-minded competitors. Since the movement’s launch, the idea has gained popularity to spur hundreds of millions of people, along with public and private corporations, to give generously.

One American business leader who has championed “conscious capitalism” is John Mackey, who co-founded Whole Foods Market in 1980 and sold the business in August 2017 for $13.7 billion to Amazon.com (NASDAQ:AMZN). Mackey, whose accolades include induction into the Entrepreneurs Hall of Fame and becoming Ernst & Young’s Entrepreneur of the Year in 2003, also is an unabashed supporter of free-market economics and one of the most influential advocates in the organic food movement.

Chart courtesy of www.stockcharts.com

Whole Foods Market Co-Founder Is a Socially Conscious Business Leader 

At last July’s FreedomFest conference in Las Vegas, Mackey debated Kevin O’Leary, a no-nonsense investor and a billionaire panelist on the “Shark Tank” television program, about the proper role of business leaders to make a positive difference in the world while also pursuing profits to provide shareholders with a favorable return on their investments. Mackey grew his startup health food business into an international powerhouse by carving out his own management style with a focus on trying to serve the interests of all the company’s stakeholders, whereas O’Leary countered that businesses must be profitable above all else and seek to dominate their competitors. 

O’Leary criticized corporate giving when it hurts the returns of shareholders. I met with him for an interview at the Palms Resort Casino after the debate where he shared wine and sushi with guests at the hotel’s Shark Bar that featured a view of artist’s Damien Hirst’s nearly 60-foot headless bronze sculpture “Demon with Bowl.”

Paul Dykewicz interviews “Mr. Wonderful” Kevin O’Leary at the Palms Casino Resort in Las Vegas; Photo credit: John Phillips

‘Shark Tank’ Panelist Prioritizes Profits Ahead of Socially Conscious Business Leadership

“Business is a war; it’s an absolute war,” O’Leary said. “If you don’t have that attitude of wiping out your competition, stealing their market share and salting the ground that they used to be on, then I don’t want to invest with you because your competitor is going to do that to you.”

O’Leary enjoys collecting items he loves such as the best guitars, watches, wines and art that could be sold profitably later he if chooses. He donates money but seeks to separate those activities from funding and guiding successful businesses. 

“This is a global competition today,” O’Leary said. “Most of my companies compete with Chinese, Indian and Vietnamese knockoffs. We can’t even litigate them. We have to fight them every way we can. We try and bring the heavy hand of law here on them. And we do everything in our power to fight them, and it is a war. You don’t have to like everybody you invest with. You need winners, not losers.”

O’Leary said he uses his analogy of business as war as a “pet speech” that he gives to those whose businesses he chooses for investment.

Socially Conscious Business Leaders May Sacrifice Shareholder Returns for Philanthropy 

War is a “terrible metaphor” for competition in business, Mackey said.

O’Leary disagrees. He explains the rules of business are set out by the governments in each jurisdiction where you compete.

“There are no rules in China,” O’Leary said. “They just steal from me there, which is why I’m very happy that we have a new administration that is going to hold them to the fire.”

Operate Businesses for Profitability, Not for Popularity with the Socially Conscious, O’Leary Says 

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O’Leary said he has endured the theft of intellectual property in China for 15 years and he is “sick of it.”

Mackey said there is competition in business to serve customers better, to compete for higher quality, as well as provide lower prices and an overall better experience.

“Competition is not a synonym for war,” Mackey said. “In war, you try to kill people. Are your entrepreneurs permitted to go out and shoot people?”

O’Leary Shuns Socially Conscious Business Leadership to Drive Competitors out of Business

O’Leary responded that he is okay with his entrepreneurs putting others “out of business.” 

Mackey countered that competition does not equal war. 

“To describe business as war plays into hands of the enemies of business and the enemies of capitalism by making it seem ruthless and uncaring,” Mackey said. “Because there are no rules of war, the Geneva Convention aside, people do things in war that are horrible.”

In war, people are killed, Mackey said.

‘Greed’ May Be a Bad Word to Socially Conscious Business Leaders, But Not to O’Leary

O”Leary said “greed” has its place in business. However, Mackey responded that roughly 40 percent of Millennials have acknowledged not liking capitalism.

Mark Skousen, a free-market economist who leads the Forecasts & Strategies investment advisory service, said while moderating the debate that he has attended lectures by Mackey at college campuses and has witnessed “standing-room-only” crowds of students listen to the ideas championed by the business leader in his book, “Conscious Capitalism: Liberating the Heroic Spirit of Business.” Mackey defends capitalism but promotes conducting business while remaining grounded in ethical consciousness.

Socially Conscious Business Leader Mackey Cut His Own Pay to $1 a Year

The Conscious Capitalism Movement, co-founded by Mackey, represents his values that were exemplified when he cut his pay to $1 a year in 2006 while continuing to work for Whole Foods Market to steer the business toward realizing its potential to fulfill a deeper purpose than simply turning a profit. Mackey speaks of feeling joy in leading a great company and trying to serve the interests of customers, employees and others. 

In the 200 years of capitalism, it has been economically and politically “volatile,” O’Leary said. But business leaders are not always vilified, he added.            

Socially Conscious Criticism of Business Leaders as ‘Devils’ Leaves O’Leary Undeterred 

“There are periods in certain jurisdictions where, in being a business leader, you are the devil, and that too passes,” O’Leary said.

As far as more than 40 percent of Millennials not liking capitalism, they may change their minds when receiving their first paycheck and seeing how much is taxed, O’Leary responded.

“Then things start to change,” O’Leary said. “They become very conservative as they get older. I too was very liberal when I was an 18-year-old until got my first job.  Then I became a capitalist.”

Millennials Favor Socially Conscious Business Leadership 

Mackey countered that he employs about 75,000 Millennials at Whole Foods and mentioned that they don’t necessarily change their views as they age.

“The world is evolving, and we need to change the narrative of business,” Mackey said. “Yes, there is competition and there is a struggle to satisfy people, but business is fundamentally good. It is a value creator, and that is the narrative we should be telling.”

O’Leary, who wrote the book “Cold, Hard Truth: On Business, Money & Life,” shared that he rises at 4:30 a.m., goes to bed at midnight and expects everyone who works for him to keep the same hours, Skousen mentioned during the debate. 

“I do not impose hours on my employees,” O’Leary said. “I don’t care about 9 to 5.”

Achieve Financial Performance with or without Socially Responsible Business Leaders

Instead, O’Leary said he prefers for his managers to set a goal for the next financial quarter and do whatever it takes to achieve it, regardless of the hours.

“If we both agree on the goal and what we can achieve, you won’t hear from me until the quarter is over,” O’Leary said.

“If you miss your goals that we agree to together for three consecutive quarters, I am going to fire you,” O’Leary said. “And I do because we agreed to those goals.”

Mackey disagreed with that rigid policy and said it could be counterproductive.

“I expect people at Whole Foods to work really hard, and they do, but I also know that they have lives and they have families,” Mackey said. “It’s important that the job be something that they care deeply about and that they have a sense of purpose from it, but I do expect people also to care about other things in life. It is not Whole Life Market, it is Whole Foods Market.”

Socially Conscious Business Leaders Still Need to Be Accountable

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When O’Leary asked Mackey if he holds people accountable, the latter executive replied, “of course.”

“If you don’t have accountability, they won’t be successful,” Mackey said.

However, Mackey said he does not necessarily fire people for not achieving their goals.

“I don’t think you should try to manage people by fear,” Mackey said. 

One risk of that kind of management is that employees may start to under-budget to avoid missing a performance number that otherwise might lead to their termination. 

Socially Responsible Business Leaders May Not Produce Worthy Returns, Kramer Says

“There’s a long and noble tradition of corporate managers giving back to the community, whether that’s through cash donations or targeted philanthropy,” said Hilary Kramer, who hosts a national radio investment program called “Millionaire Maker” and leads the 2-Day Trader service that has netted profits in 20 of its first 25 trades for an average return of 8.70 percent.

“Companies like Coca-Cola (NYSE:KO) worked it into their long-term strategy and even today they donate hundreds of millions to cleaner water, recycling, diet relief and other outreach around the world. The motive is simple: healthier global consumers can keep buying more soda for the foreseeable future, so you’re protecting your market. And in the meantime, the right gift with your name on it is literally the best advertising you can buy, balancing your corporate image by associating good things with your brand.

“Is that the kind of thing I would do if I were running Coca-Cola? Definitely. A lot of conscious capitalism revolves around creating the kind of ethical business you want to see in the world… investing your time and talent in ventures that share your values, giving good people a livelihood and ultimately building a stronger, mutually rewarding future together. Your hard work helps fund that project with the promise of sharing in more than financial dividends.” 

However, investors still may decide not to become passive investors in Coca-Cola to help advance the company’s philanthropy, said Kramer, who also leads the GameChangers advisory service that has booked 33 profitable trades in its last 39 closed positions.

“Coke is a mature conglomerate and it’s more concerned with spending what it has than creating wealth,” Kramer said. “Investing is investing, and charity is charity. The goal behind the investment portfolio is to create more wealth that you can then push back to favorite causes and help build the institutions you believe in. Mixing the two motives means you’ll need to accept sub-standard cash returns because so many of the real dividends of conscious capitalism are hard to quantify in economic terms.”

Business leaders such as Mark Zuckerberg, the chief executive officer of Facebook (NASDAQ:FB), and his “family foundation” are okay with that, said Kramer, who also leads the Turbo Trader, High Octane Trader and Inner Circle advisory services. “I think saving the world is often better left to the experts, who do it for love and a sense of responsibility,” she added. 

Chart courtesy of www.stockcharts.com

“Just look at Elon Musk and Tesla (NASDAQ:TSLA),” Kramer said. “He wants to save the world. Did he build a great charity to clean up the planet and do scientific research? No, he built a theoretically for-profit company. And it’s not in my portfolio.”

Chart courtesy of www.stockcharts.com

Creative Employees May Thrive with Socially Conscious Business Leaders

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“I think when your people are scared, they are less creative,” Mackey said. “I think it’s important that you create a work environment where people feel safe, secure and valued. And as you do that, you still have to hold them accountable. If people consistently fail and don’t do the job, then Kevin’s right, you have to remove them.”

O’Leary said he recently compared investing in two financial services companies. One had a “very philanthropic CEO” who was making decisions involving hundreds of millions of dollars at a time to support charities that he liked, O’Leary continued.

As a shareholder at the time, O’Leary said he challenged the CEO, even though he had set up committees to help direct the charitable giving.

Shareholders May Have Divergent Goals from Socially Responsible Business Leaders

“None of the charities that you support are ones that I believe in and I would prefer you gave me my portion of the profits so that I could distribute it the charities that mean something to my family,” O’Leary said he told the CEO. “Yet you’ve made the decision for me, and I think it’s a fair question that any shareholder can ask.”   

The CEO replied that charitable giving is a “great marketing vehicle,” O’Leary said. The return on assets (ROA) on the banking company’s balance sheet was lower than that of another financial institution which had a similar market capitalization that was led by a female executive, he added. 

“She had slightly higher distributions to her shareholders because she didn’t give it away to charity,” O’Leary said. “Who’s right?”

Mackey agreed that CEOs should not give away shareholders’ money for “lots of good reasons.”

However, businesses and non-profits may be better suited for addressing certain problems in society than government, Mackey said.

“Collectively, we can solve all the world’s problems because human creativity is limitless,” Mackey said. 

Socially Responsible Living Involves Trying to Have a Positive Impact

Life is “too short” not to follow one’s heart to have the biggest positive impact on the world possible, Mackey told the FreedomFest attendees. 

Skousen said the 2020 FreedomFest event will feature keynote speaker Jordan Peterson, who has been called the “most dangerous, polarizing figure since Gandhi”….“the most influential public intellectual in the Western world today”….and “the most important spokesman for liberty and civil justice since Milton Friedman. To learn about the conference and possibly sign up now for a deeply discounted price, click here. A short video about what to expect can be viewed here.

Socially conscious business leaders can be found in our society who have made and will continue to effect positive change in the world. The question is whether such individuals can achieve returns to satisfy investors such as O’Leary who may prefer the highest profits regardless of whether a management team focuses on anything else.  

Paul Dykewicz, www.pauldykewicz.com, is an accomplished, award-winning journalist who has written for Dow Jones, the Wall Street JournalInvestor’s Business DailyUSA Today, the Journal of Commerce, Seeking Alpha, GuruFocus and other publications and websites. Paul is the editor of StockInvestor.com and DividendInvestor.com, a writer for both websites and a columnist. He further is the editorial director of Eagle Financial Publications in Washington, D.C., where he edits monthly investment newsletters, time-sensitive trading alerts, free e-letters and other investment reports. Paul previously served as business editor of Baltimore’s Daily Record newspaper. Paul also is the author of an inspirational book, “Holy Smokes! Golden Guidance from Notre Dame’s Championship Chaplain,” with a foreword by former national championship-winning football coach Lou Holtz. Follow Paul on Twitter @PaulDykewicz.

 

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