How to Succeed? Make Employees Happy

By Justin Fox

Long, long ago--in what they are pretty sure was the 1974-75 school year--John Mackey and Kip Tindell shared a house with three other students near the University of Texas campus in Austin. They played a lot of poker--Tindell always won--but never became particularly close. After that year, they drifted out of touch.

Their lives, though, continued along parallel paths. Both men dropped out after long undergraduate careers ("I crammed a four-year program into about eight years," Tindell jokes). Then, in 1978, both started businesses: Mackey, with his then girlfriend, opened a health-food store in Austin; Tindell, with a guy he had worked with at Montgomery Ward, opened a store in Dallas that sold containers.

From these beginnings have emerged two great retailing successes: Mackey's Whole Foods Market is the leading natural-foods supermarket chain; Tindell's Container Store has the storage-and-organization category it invented pretty much to itself. And lately, ceos Mackey and Tindell have reconnected--partly to bask in the shared joys of being rich former slackers ("You have a Frisbee golf course on your ranch too?!?") but mainly to discuss the approach they say has enabled their success. I got to sit in on such a chat at Whole Foods' headquarters in Austin. (A transcript is at time.com/mackeytindell.

"Simultaneously we hit upon the philosophy that I think will be the dominant philosophy in business in the 21st century," Mackey says. "It's this principle that the purpose of business is not primarily to maximize shareholder value."

That's a little like saying the purpose of religion isn't to achieve salvation. The idea that corporations exist to please their owners, the shareholders, was supreme during the booming 1990s. It had its roots in scholarly arguments that striving to satisfy multiple constituencies--employees, customers, the community--is a recipe for underperformance.

Mackey and Tindell both started out striving mainly to satisfy customers. What other choice is there for a new business? As their companies grew, the emphasis shifted to employees. Whole Foods and the Container Store pay better than most retailers, offer good benefits and entrust workers at all levels with sensitive financial data. The idea is that happy, empowered employees beget happy customers. Happy suppliers help too. All this stakeholder joy eventually redounds to the benefit of shareholders--but the magic fades if shareholders become the focus. "There's a harmonic effort that takes place, like a chorus is so much more beautiful than a single voice," says Tindell. "It not only provides a higher return--compensation for the employees, return for the shareholders, this crafting of a mutually beneficial relationship with the vendors--but it enriches the lives of those people."

This view of business as harmony doesn't entirely square with the ferocious competitiveness displayed at times by Mackey, who made headlines last year for posting pseudonymous Internet messages disparaging another supermarket chain. When I bring this up, Mackey tells me he thinks competitors are stakeholders too. "I want to beat them," he says. "But I also have a philosophical view that if we didn't have competitors, we wouldn't be as good a company as we are."

The stakeholder approach has its limits. It seems better suited to new, growing companies than established ones, where it can be an excuse for complacency. But when the stock market is going nowhere--as it has been since 2000--trying to please shareholders can be awfully discouraging work. There's a lot to be said for focusing on other priorities.

Extra Money To read Justin Fox's daily take on business and the economy, go to time.com/curiouscapitalist