How to Make Conscious Capitalism Whole: Thank You Whole Foods

With today’s completion of Amazon’s acquisition of Whole Foods, Conscious Capitalism lost its leading proponent. As a wholly owned subsidiary of Amazon, Whole Foods lost its independence and position as thought leader for the Conscious Capitalism movement.

Although Conscious Capitalism and John Mackey have put a positive spin on the acquisition and expressed optimism about their ability to inspire Amazon to adopt the principles of Conscious Capitalism, the reality of this happening is remote. Amazon is incorporated in Washington State whose corporate law follows Delaware where the corporation exists solely to maximize stockholder welfare. Amazon is unlikely to adopt Whole Foods’ multiple stakeholder, multiple purpose approach to business on its relentless march to become the world’s dominant retailer.

As discussed in a prior post, Conscious Capitalism is a round peg in a square hole because it espouses a multiple stakeholder, multiple purpose philosophy in the context of a single stakeholder, single purpose legal framework. The benefit corporation, with its multiple stakeholder, multiple purpose legal framework, is the obvious corporate vehicle of choice for Conscious Capitalism based companies.  It’s time for Conscious Capitalism to shed its stubborn libertarian resistance to the benefit corporation out of a misplaced belief that it can successfully ply its philosophy within the existing legal framework over the long term.

If Whole Foods had been a Delaware public benefit corporation, its board of directors may have been better able to fend off Jana Partners, the activist stockholder who precipitated the company’s sale to Amazon. As a conventional corporation, Whole Foods was limited to arguing that its plans to revitalize its business would produce a greater stockholder return over time than selling it now. The doctrine of shareholder primacy gave Jana Partners leverage to force a sale transaction because it reduced Whole Foods’ strategic options to selling at a premium that maximized stockholder welfare in the short term.

As a Delaware public benefit corporation, Whole Foods’ board would have been able to make a more considered decision because it would have been required to balance the pecuniary interests of the stockholders, the interests of those affected by a sale transaction and the company’s chosen public benefits instead of focusing on maximizing stockholder welfare. If it had been a benefit corporation, with its inherent commitment to operate in a responsible and sustainable manner, and a charter with enumerated public benefits such as bringing healthy organic food to everyone and transforming agriculture through sustainable, regenerative practices, Whole Foods may have attracted enough institutional impact investors to have counterbalanced Jana’s push for a new board and a quick exit, and supported the board’s plans to remain independent to create long term stockholder value.

Despite its espousal of the Conscious Capitalism philosophy, Whole Foods remained, at the core, a conventional corporation, which exists solely to maximize stockholder welfare, and was therefore more vulnerable to activist stockholders to be forced into a sale transaction. Conscious Capitalism could make itself whole by adopting the benefit corporation as its vehicle of choice. Whole Foods will not be the last Conscious Capitalism based company to face pressures from activist stockholders. The benefit corporation gives such companies more tools to remain independent and realize their heroic purpose of creating long-term value for all of their stakeholders, including stockholders.

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