By Kevin Meyer
The political left went off the deep end a couple months ago when John Mackey, CEO of Whole Foods and ostensibly "one of them," penned an opinion piece in the Wall Street Journal on health care. Since it didn't conform to the kool-aid of single payer, the firestorm erupted. Somehow I thought that just a few years ago that same group was pushing the concept that debate and protest was patriotic. Go figure. Of course beginning his article with the following quote probably didn't help matters:
"The problem with socialism is that eventually you run out
of other people's money."
—Margaret Thatcher
Yep, that dose of common sense tends to infuriate any well-meaning liberal, especially as we approach the tax tipping point. John Mackey was interviewed in the WSJ on Saturday and offered some interesting perspectives on his proposals and the reaction since the original article.
"I honestly don't know why the article became such a lightning rod," says John Mackey, CEO and founder of Whole Foods Market Inc., as he tries to explain the firestorm caused by his August op-ed on these pages opposing government-run health care. "I think a lot of people who got angry haven't read what I actually wrote. There was a lot of emotional reaction—fear and anger. I just wanted to get people to think about whether there was a better way to reform the system."
"President Obama called for constructive suggestions for health-care reform," he explains. "I took him at his word."
"I regret the controversy that it caused for Whole Foods, but I don't regret writing it, because I think what I said is true and it needed to be said. I wasn't seeing anyone else saying it." Then he adds, half-jokingly: "I've written one op-ed piece in 31 years. It might be 31 more before I write another one."
You'd think the left would adore this guy, and they used to. Before he made the horrible mistake of offering an opinion... an alternative to the kool aid. Perhaps you could even call it a refreshing beer.
Mr. Mackey has flown into Washington, D.C., for a board meeting of the Global Animal Partnership, a group that advocates for the humane treatment of animals. There was no private jet: He arrived on Southwest Airlines from Austin, Texas, and he bought the "Wanna Getaway" bottom basement fare. "I barely got the last aisle seat," he says. While in town he stays in the bedroom of his regional president, who lives in Maryland.
I like that style. My first official act when I assumed the big chair at my company was to yank out the "Reserved for President" parking sign. Well, actually there's no longer a chair either. Such perks of power run smack into the face of the respect for people side of lean manufacturing, making true lean impossible to achieve. Whole Foods exudes Mackey's philosophy.
For the 12th straight year, Mr. Mackey's company has been praised as one of the "100 Best Companies to Work For" by Fortune Magazine. Whole Foods sells healthy food, practices "socially responsible trade," and prides itself on promoting foods that are grown to support "biodiversity and healthy soils." Mr. Mackey donates 5% of company profits to charity and has been one of America's loudest critics of runaway compensation on Wall Street. And he pays himself $1 a year. He would seem to be a model corporate citizen.
So what evil thoughts did Mackey espouse?
What Mr. Mackey is proposing is more or less what he has already implemented at his company—a plan that would allow more health savings accounts (HSAs), more low-premium, high-deductible plans, more incentives for wellness, and medical malpractice reform. None of these initiatives are in any of the Democratic bills winding their way through Congress. In fact, the Democrats want to kill HSAs and high-deductible plans and mandate coverage options that would inflate health insurance costs.
The Whole Foods health-care story has been largely ignored by proponents of a government-run system. But it could be a template for those in Washington who want to drive down costs and insure the uninsured.
That's too bad. My company switched from a traditional PPO to an HSA this year and it has been a great success. Educating employees on the high deductible concept and the adjunct HSA savings account has taken time, but once they understand it has been very positive. Employees have skin in the game and therefore closely monitor and manage their health care needs and shop for the best services. After the deductible is met there is the peace of mind that there will be no further cash costs. If the savings account is used, unused funds roll over to the next year, making the cash deductible cost even lower. Premiums are lower and all preventive care is covered at no cost and no deductible. I'll say that again as that is an oft-repeated misconception of HSA's: all preventive care is covered at no deductible. This is a standard Blue Cross plan, nothing special. And it works.
That's the big problem with the proposals winding their way through Congress... no skin in the game by the consumer. No incentive by the consumer to reduce costs. Just mandates and fines and voodoo accounting based on unreasonable expectations of savings and growth. There's a lot I like, and those are the components that both sides apparently agree on and should be implemented - portability and eliminating pre-existing condition barriers for example. Let's get that in place and avoid the temptation to screw up what already works.
This type of plan does not excite proponents of a single-payer system, who think that individuals can't make wise health-care choices, and that this type of system is "antiwellness" because it discourages spending on preventive care.
Mr. Mackey scoffs at that idea: "The assumption behind that is that people don't care about their own health, and that somebody else has to—a nanny or somebody—has to take care of me because people are too stupid to make these decisions themselves. That's not been our experience. We find our team members [employees], not surprisingly, seem to care a whole lot about their health."
Bingo. Our experience exactly, especially since our preventive care is covered 100%, no deductible. People are smarter than government bureaucrats give them credit for.
Mackey has a few more comments in the interview. First, on unions.
I ask if he thinks the attacks were instigated by unions. While many other grocery chains are unionized, Whole Foods is not. So why aren't they choosing it? "Because it's not in their best interest," he insists. "We have better benefits and higher pay" than Whole Foods' unionized competitors. "We wish the unions would respect people's right to not have a union." Do they keep agitating? "Yeah, they do."
That's what a lot of people don't seem to understand. A prior Fortune-50 employer of mine had a bunch of factories in the U.S. and only one was unionized. That plant had a benefits package far inferior to the rest of us, and we could never figure out why they stayed unionized. Until some union officials got busted for coercion.
I'm not against unions - usually they are a legitimate result of a failure of management to appreciate and respect the employees. But union work rules and inflexibility have also seriously hampered lean transformations and productivity that leads to competitive advantage.
Mackey also has some good words on capitalism, and this will probably earn him the ire of his detractors.
"Before I started my business, my political philosophy was that business is evil and government is good. I think I just breathed it in with the culture. Businesses, they're selfish because they're trying to make money."
At age 25, John Mackey was mugged by reality. "Once you start meeting a payroll you have a little different attitude about those things." This insight explains why he thinks it's a shame that so few elected officials have ever run a business. "Most are lawyers," he says, which is why Washington treats companies like cash dispensers.
Mr. Mackey's latest crusade involves traveling to college campuses across the country, trying to persuade young people that business, profits and capitalism aren't forces of evil. He calls his concept "conscious capitalism."
Well said. I had a similar epiphany when I started my own company and had to meet a payroll... and the payroll taxes... and workmans comp taxes... and... You get the picture. It does change you. I completely agree that most government officials don't understand reality because they have never truly run anything, let alone anything that involved creating jobs and paying people. Sort of like how Michael Moore is now denouncing the same capitalism that financed his films, paid the people that pay to see his films, and made him rich. Go figure.
How about CEO pay?
I ask Mr. Mackey why he doesn't collect a paycheck. "I'm an owner. I have the exact same motivation any shareholder would have in the Whole Foods Market because I'm not drawing a salary from the company. How much money does anybody need?" More to the point, he says, "If the business prospers, I prosper. If the business struggles, I struggle. It's good for morale." He hastens to add that "I'm not saying anybody else should do what I do."
Well, that's not exactly true. Mr. Mackey has been vocal in his opposition to recent CEO salaries. "I do think that it's the responsibility of the leadership of an organization to constrain itself for the good of the organization. If you look at the history of business in America, CEOs used to have much more constraint in compensation and it's gone up tremendously in the last 30 years."
He bemoans the trend that once a Fortune 500 CEO made about 25 times the average worker pay, and now that's climbed to 300 times average employee pay. He says this violates the principle of "internal equity—what your leadership is getting paid relative to everyone else in the organization."
Very true. CEO pay is out of touch with reality, but I also believe that it is the responsibility of shareholders to reign it in. Not artificial constraints.
And what really needs to change?
But there's one other institution John Mackey thinks needs a makeover—and that's government. He describes what the Federal Reserve has done with massive money creation as "debauchery of the currency." He thinks the bailouts were a travesty.
"I don't think anybody's too big to fail," he says. "If a business fails, what happens is, there are still assets, and those assets get reorganized. Either new management comes in or it's sold off to another business or it's bid on and the good assets are retained and the bad assets are eliminated. I believe in the dynamic creativity of capitalism, and it's self-correcting, if you just allow it to self-correct."
Amen. But I'm not holding my breath.
Evolving Excellence
Great post Kevin. Like you I'm puzzled by the kool aid as you call it. Just as we're being pushed to more government intervention, Canada is moving to allow privatization to reverse a growing "two class" system where the wealthy can go overseas to reduce waits. France just announced cutbacks and additional co-pays as their healthcare system goes broke. Germany and several other Eurozone countries are easing to the right and cutting taxes while we try to add more taxes on the 1% that already contribute nearly 50% of the revenue. Tipping point indeed, but more importantly how much can you further burden the folks that pay before they say screw it and give up or leave. You've talked about that "flight of capital." California is a prime example on the state level.
Then people wonder why our industry is not competitive and we're losing jobs to foreign countries. Why are we always following, without learning the lessons?
Posted by: Jim P | 04 October 2009 at 07:43 AM
I am currently battling the exact union resistance to even the smallest lean implementation. I'm ready to leave and go to work for Mr. Mackey!
Great post, and your thoughts were spot on, as well as Mr. Mackey's.
Posted by: Emmer | 05 October 2009 at 06:51 AM