Case Study – Whole Foods (2 page Essay, APA Format) READ BUS. ETHICS CASE 3 BOOK ATTACHED

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CASE 13 Whole Foods Strives to Be an Ethical Corporate Citizen*

In a period of time when green is on everyone’s mind, it seems fitting that Whole Foods Markets are popping up with their distinctive green signs in neighborhoods across the country. Beginning with their first expansion in 1984, Whole Foods has consistently grown domestically. In 2007 Whole Foods began opening stores in the United Kingdom. While continually opening new stores, the company has fueled its expansion by acquiring other food chains as well. For instance, it acquired one of its largest competitors—Wild Oats—in 2007, and in 2014 purchased four New Frontiers Natural Marketplace stores. The company currently has more than 400 stores located throughout the United States, Canada, and the United Kingdom. Whole Foods consistently ranks as one of the World’s Most Ethical companies because of its emphasis on organic food, healthy living, customer satisfaction, quality, and sustainability. The firm has also been elected as one of Fortune’s top 100 companies to work for every year since the list was created in 1998. Although customers are considered to be the company’s highest valued stakeholder, Whole Foods adopts a stakeholder orientation that focuses on the needs of all of its stakeholders, including its employees and the community. Whole Foods spearheaded efforts in the grocery industry to source its food products responsibly and search for innovative solutions to improve its environmental footprint. The company emphasizes healthy living and seeks to contribute to the communities where it does business. However, despite Whole Foods’s significant accomplishments in business ethics, it has not been free from criticism. In pursuit of growth, it has been accused of running local stores out of business and received mixed responses from some consumers. Other ethical issues include antitrust investigations and questionable activity by co-CEO John Mackey. This case begins by providing brief historical background information on Whole Foods. Next, its mission and values are examined, followed by a look at how the company strives to live out its values to become a good corporate citizen. We also consider ethical issues Whole Foods has faced to demonstrate the complexity companies may experience when engaging in ethical decision making. *This material was developed by Casey Caldwell, Erica Lee Turner, and Jennifer Sawayda under the direction of O.C. Ferrell and Linda Ferrell. Julian Mathias provided editorial assistance. This case is intended for classroom discussion rather than to illustrate effective or ineffective handling of administrative, ethical, or legal decisions by management. All sources for this case were obtained through publicly available material © 2015.

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CASE 13 Whole Foods Strives to Be an Ethical Corporate Citizen*

In 1978 two entrepreneurs in their twenties used a $45,000 loan to open a small natural foods store in Austin, Texas. John Mackey and his then-girlfriend Rene Lawson Hardy wanted to help people live better. At the time, there were fewer than a dozen natural foods markets in the nation. The couple named their business SaferWay as a spoof on Safeway. The entrepreneurs had a rocky start. At one time they used the store as a residence after being kicked out of their apartment for storing food products. After two years Mackey and Hardy agreed to merge SaferWay with Clarksville Natural Grocery, owned by Craig Weller and Mark Skiles. The newly merged company called themselves Whole Foods Market. The company continued to face challenges. Less than a year after opening, a devastating flood hit Austin, wiping out Whole Foods’s inventory. With no insurance and $400,000 in damages, the company’s future looked dire. Yet with the help of the community, the store reopened four weeks after the flood. In 1984 the company expanded into Houston and Dallas. Four years later they acquired a store in New Orleans, followed by one in Palo Alto, California, a year later. The company continued to grow during the 1990s as Whole Foods merged with over a dozen smaller natural groceries across the nation. Whole Foods continued to thrive in the early twenty-first century and today earns more than $14 billion in revenue, owns more than 400 stores, and employs more than 87,000 workers (compared to nineteen workers in 1980). John Mackey continues to lead Whole Foods as the company’s co-CEO. From the onset, Mackey desired to create a company that incorporated the values of healthy living and conscious capitalism. Conscious capitalists believe “that a new form of capitalism is emerging that holds the potential for enhancing corporate performance while simultaneously trying to advance the quality of life for billions of people.”1* For Mackey, businesses should seek to balance the needs of all stakeholders rather than simply try to earn a profit. As a result, Whole Foods places the customer as first priority. The company adopted criteria such as the Whole Foods Trade Guarantee and the Eco-Scale Rating system to ensure customers receive the highest quality organic products. Although Whole Foods sells a number of brands, it also sells its own private labels including its 365 Everyday Value and Whole Market. Its 365 Everyday Value private brand comprises 2,600 products that are targeted toward customers who desire high-quality organic food but who also wish to save money. Because organic food usually costs more, the 365 Everyday Value is meant to appeal to more budget-conscious consumers. However, although Whole Foods recognizes the importance of customers, it also considers the health and well-being of its other stakeholders, including employees and communities. Its mission statement consists of three goals: (1) whole foods, (2) whole people (3) and whole planet. According to its mission statement, Whole Foods has adopted a stakeholder orientation to guide its activities. This approach, along with a strong adherence to its core values, has been crucial in establishing Whole Foods’s reputation as a firm committed toward benefiting stakeholders. 1 “What is Conscious Capitalism®?” http://consciouscapitalism.org/learnmore/ (accessed September 29, 2015).

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CASE 13 Whole Foods Strives to Be an Ethical Corporate Citizen*

Whole Foods’s core values, described in Table 1, are an outreach of its mission statement. Whereas the mission statement provides a general direction, Whole Foods’s values gives additional details about how it is turning its mission into a reality. The core values also provide an idea of how Whole Foods ranks certain stakeholders. Whole Foods calls the company values its Declaration of Interdependence to emphasize how interdependent the company is upon its stakeholders. The first two values involve meeting customer needs. Whole Foods describes its commitment toward selling the highest quality natural and organic products available as attempts to be buying agents for customers and not selling agents for manufacturers. Next, Whole Foods turns its attention to the happiness of its employees. Whole Foods believes satisfying customers and employees creates wealth for shareholders. Communities, the environment, and suppliers are essential stakeholders for Whole Foods and are included in its value statements. It is clear from Whole Foods’s core values that the company strives toward a stakeholder orientation as part of its core business practice. TABLE 1 Whole Foods Market’s Core Values We Sell the Highest Quality Natural and Organic Products Available We Satisfy, Delight, and Nourish Our Customers We Support Team Member Excellence and Happiness We Create Wealth through Profits and Growth We Serve and Support Our Local and Global Communities We Practice and Advance Environmental Stewardship We Create Ongoing Win-Win Partnerships with Suppliers We Promote the Health of Our Stakeholders through Healthy Eating Education Source: Whole Foods, “Our Core Values,” http://www.wholefoodsmarket.com/mission-values/core-values (accessed February 20, 2015). LIVING ITS VALUES The success of Whole Foods can be credited to the fact that it modeled its operations around its key stakeholders. Mackey’s vision of a model company was one that earned a profit while also acting as a responsible corporate citizen by benefitting society. This vision turned Whole Foods into one of the most successful organic grocers in the world. The following section delves further into how Whole Foods meets the needs of its customers, employees, communities, and the environment. Commitment to Customers Because customers are the highest priority at Whole Foods, the company adopted a number of strategies to meet the needs of this stakeholder group.

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For instance, Whole Foods retail stores maintain an inviting environment, complete with eateries and tables both inside and outside the store for visitors to dine. Free sampling is common at Whole Foods locations to allow customers to try the products. Additionally, employees are instructed to treat customers like a valued part of the family. In 2014 the company introduced a customer reward program with the goal of becoming more competitive with retailers offering frequent sales and item discounts. For the first time since its inception, Whole Foods has also started running TV and print ads, which has significantly increased the firm’s yearly advertising expenditure but is also helping the grocery store chain attract and retain more customers. The ads are focused on redefining Whole Foods as a company that cares about the entire life cycle of the products it sells. Whole Foods is hopeful that its new advertising and in-store discounting strategy will help it move beyond the satirical “whole paycheck” reputation that is still prominent in many consumers’ minds because of Whole Foods’s pricier products. The company also builds customer relationships through the use of social media. Whole Foods actively uses Twitter and Facebook accounts to post information on sales, answering customer concerns, providing articles or tips about healthy eating, and even retweeting information from food experts. Each Whole Foods location has a social media presence, including dedicated social media pages for some store departments. This targeted approach allows Whole Foods to connect with customers and address concerns in real-time. Additionally, the company has worked on making its website more user friendly and adding features that encourage online purchases and in-store pickups. For instance, Whole Foods partnered with a grocery delivery service called Instacart, which offers home delivery of items purchased online. Implementing this delivery service is likely a move to offset the convenience that Amazon.com offers its “Prime” subscribers who get free twoday shipping (or same day delivery in select cities) on many grocery items. Whole Foods’s customer-centered focus has paid off. In the American Customer Satisfaction Survey, Whole Foods was voted second highest from 2010 to 2012 in the supermarket category after Publix. Whole Foods largely differentiates itself from its rivals by emphasizing quality over price. As consumers become more health-conscious and the trend toward organic food continues, Whole Foods has become well suited to attract this demographic. To reassure consumers its products are of the highest quality, Whole Foods offers a number of quality standards. Its Whole Trade Guarantee maintains that the company only purchases products that meet the following criteria: • Meet its quality standards. • Provide more money to producers. • Ensure better wages and working conditions for workers. • Utilize sound environmental practices.2 * QUALITY STANDARDS Whole Foods compiled a list of standards to guarantee the highest quality for the organic food it sells. The company works to eliminate all genetically-modified products in stores whenever possible. It features foods free of artificial preservatives, colors, flavors, sweeteners, and hydrogenated fats. Its private labels are also free of high fructose corn syrup, thought to be a big ingredient contributor to obesity in America. 2Whole Foods Market IP, L.P., “Our Whole Trade Guarantee®,” 2011, http://www.wholefoodsmarket.com/ products/whole-trade.php (accessed July 16, 2012).

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One way that Whole Foods differentiates itself from competitors is alerting customers to the presence of genetically-modified foods. If the company cannot find a product that is not genetically modified, then the product is labeled to inform customers they are buying something that is not completely “all natural.” Unlike some countries in Europe that require GMO labeling or ban GMO products altogether, the United States requires no such labeling. However, Whole Foods voluntarily provides GMO labeling information to consumers even though there is no law in the United States requiring it. The company has also committed to labeling all GMO food products it sells by 2018, although many items are already labeled. This commitment demonstrates the company’s intent to reduce or eliminate genetically-modified products from all parts of the supply chain. Although GMO labeling might dissuade customers from purchasing a particular product, it also gives Whole Foods a competitive advantage because customers can trust the company to be truthful. Customers tend to do more business with companies they trust, and Whole Foods’ sixth place position on the American Customer Satisfaction Index for supermarkets indicates the firm has indeed reaped the rewards of high customer trust. ECO-SCALE™ RATING SYSTEM Another set of quality standards Whole Foods has adopted pertains to the cleaning supplies it sells. Whole Foods uses what it terms the EcoScaleTM Rating System to inform users about the safety and the environmental impact of the cleaning products sold in its stores. According to Whole Foods, the Eco-Scale Rating System is the first such rating system for cleaning supplies sold in retail stores. To develop these standards, Whole Foods used a third-party audit system as a way to eliminate bias. The rating system separates products into red, orange, yellow, or green categories. Products classified in the red category are not sold at Whole Foods because they do not meet the company’s safety and environmental standards. Products in the orange category appear to be “safe” with no significant safety and environmental concerns and no animal testing. Those in the yellow category meet all the standards of the orange category and take further steps to be environmentally friendly. For instance, products in this category do not have synthetic, petroleum-based thickeners from nonrenewable resources. Products in the yellow category do not contain any ingredients with moderate environmental concerns, and those in the green category are considered to be the safest and most eco-friendly. These products do not have any petroleum-based ingredients but are made with plant- and mineral-based ingredients. Products in all of these categories have the ingredients labeled on the packaging and receive third-party verification, allowing consumers to make more informed decisions about which cleaning products to purchase. Because Whole Foods’s reputation depends upon the organic and green claims of its products, this Eco-Scale Rating System and the company’s Quality Standards ensure the truthfulness of its product quality claims. Commitment to Employees If customers are the highest priority stakeholder at Whole Foods, then employees come as a close second. Whole Foods consistently ranks as one of the “Best Companies to Work For” in Fortune magazine, and the company is committed to ensuring equality among its employees. At a time when executive pay has been highly criticized in proportion to employee salaries, Whole Foods capped the pay of its executives at 19 times the companies’ average full-time employee salary. Co-CEO John Mackey takes $1 per year in compensation. Employees receive 20 percent discounts on company products, and Whole Foods members that work at least 30 hours a week are eligible for health care coverage.

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CASE 13 Whole Foods Strives to Be an Ethical Corporate Citizen*

Employees who work between 20 and 30 hours a week can also receive health coverage after working a certain number of service hours. When employees work 6,000 service hours, they are eligible for stock options, providing them with a stake in the company. While Whole Foods desires for its customers to live healthy lives, it also desires the same for its employees. The company began the Team Member Healthy Discount Incentive Program to reward employees for living healthy lifestyles. Employees that meet certain benchmarks in cholesterol level, blood pressure, not smoking, and body mass index are eligible for an additional 10 percent discount on Whole Foods purchases. Additionally, Whole Foods is known for its diversity. Forty-five percent of the Whole Foods workforce consists of minorities, with nearly the same percentage consisting of women. Whole Foods also offers domestic-partner benefits to same-sex couples. Whole Foods’s treatment of its employees results in a low voluntary turnover rate of 9 percent, versus an average turnover rate of about 100 percent for the industry. While Whole Foods cares for its employees, it also realizes happy employees translate into happier customers—and higher profits. Yet Whole Foods does not seek to empower employees simply through benefits. It also uses the talents of its employees to improve company operations. Self-directed work teams consisting of employees make many of the day-to-day operational decisions at the store level. For instance, teams can be part of the new employee hiring process, in addition to having some control over their own scheduling. New team members are elected onto the team by two-thirds of a vote. The company provides its team members with extensive training and resources including an online site called “Whole Foods University” that provides educational information on many aspects of the Whole Foods business. Courses provided through Whole Foods University range from information on the company’s gain sharing program to the company’s quality standards. By empowering its employees through teams, perks, and education, Whole Foods has been able to turn its workforce into significant contributors of value for the company. Commitment to Other Stakeholders As Whole Foods demonstrates with its values, consumers and employees are not the only stakeholders the firm recognizes as important. Its fourth value includes creating wealth through profits and growth, which is essential for any organization to survive. The more profit Whole Foods is able to generate, the better financial return for Whole Foods stockholders and investors. Whole Foods believes meeting the needs of consumers and employees translates into more wealth for its investors. Such a stakeholder orientation recognizes the interconnectedness of all the companies’ stakeholders. Whole Foods has averaged 12 percent sales growth each year from 2011 to 2014, and its 2014 net income of $579 million jumped 235 percent from its 2010 net income. This growth is important since most grocery stores have experienced declining growth in recent years. Whole Foods’s profitability demonstrates the company can succeed with a socially responsible focus on organic foods and quality standards. Whole Foods strongly believes in giving back to the global community, and this is perhaps best emphasized through its Whole Planet Foundation established in October 2005. The Foundation was created with the mission to create economic partnerships with the poor in developing-world communities. Rather than simply providing immediate items such as food or clothing, Whole Foods creates strategic partnerships with microfinance institutions. Microfinance provides small loans, typically $200 or less, to entrepreneurs in developing countries wanting to start their own small businesses. The company’s first grant in 2006 helped develop a microfinance program in Costa Rica. Consumers and employees Copyright 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content

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CASE 13 Whole Foods Strives to Be an Ethical Corporate Citizen*

interested in donating can do so on the Foundation’s website. The foundation has raised $53.3 million since 2005, with Whole Foods suppliers contributing over $6 million. On a more local level, Whole Foods also established the Whole Kids Foundation. The Whole Kids Foundation was founded with the mission to improve the nutrition of children. The company partners with schools and other organizations to increase children’s access to healthier food. Company partnerships include the LunchBox Project, an online resource providing information for schools that want to increase their offerings of healthy food served in cafeterias, and the Let’s Move Salad Bars to Schools Initiative that provided funds to increase the number of salad bars in schools across the United States. As a grocery store committed to selling healthy and organic foods, Whole Foods has been able to link its philanthropic endeavors to its value of supporting stakeholder health through healthy eating education. In terms of supplier partnerships, Whole Foods partners with local farmers to offer a variety of produce. Whole Foods is committed to sourcing from local farmers that meet its quality standards, particularly from organic farmers who engage in sustainable agriculture. To qualify as local, food products must have traveled less than seven hours by car or truck to the store. Everyone of Whole Foods’s 11 regions has guidelines about how to use the term “local” in their stores, and some stores have chosen to adopt stricter criteria for local products by lessening the travel time. Whole Foods believes that sourcing locally grown produce embodies its values of giving back to the community, contributing to sustainability, and offering consumers a variety of high-quality product choices. For instance, because there is less of a need to package and transport products for long distances, local farmers can make more money, which they in turn can use to stimulate local economies. Additionally, Whole Foods states that support for local farmers encourages them to diversify, which increases Whole Foods’s product selection and contributes to biodiversity in the environment. Transporting products shorter distances also reduces the greenhouse gas emissions released from vehicles. These win-win relationships with farmers help Whole Foods “give back” to its suppliers and to the environment. Finally, although not specifically mentioned in its values statement, Whole Foods also considers the concerns of special interest groups. Whole Foods became the first large supermarket to adopt humane animal treatment standards for the meat products it sells. In developing these standards, Whole Foods discussed ideas with animal rights special interest groups to decide criteria for sourcing its meat products. Many companies pay little attention to special interest groups because they are considered secondary stakeholders. In other words, they are not necessarily required for the company’s survival. However, Whole Foods realized that collaborating with special interest groups would not only secure their support but also provide an opportunity for input on how the company could improve its practices to become more socially responsible. Whole Foods representatives met with members from special interest groups, farmers, and animal experts to determine humane animal-treatment standards species by species. The company eventually created a supplier certification program in partnership with the Global Animal Partnership to ensure its suppliers were adhering to company standards. The idea behind this program is not only to ensure compliance, but also to inform consumers about the meat they are purchasing. For this reason, Whole Foods adopted a ranking system consisting of five steps. Step 1 assures consumers that the animal lived outside of a crate or cage. Step 2 indicates that the farm provided some type of enrichment for the animal. Step 3 indicates that the animal had access to the outdoors, and Step 4 means the animal was free to roam or forage when outdoors. Step 5 means the animal lived its

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CASE 13 Whole Foods Strives to Be an Ethical Corporate Citizen*

entire life with all the body parts it was born with. It is also possible to achieve a Step 5+ ranking, indicating the animal met all the five standards in addition to spending its entire life on one farm. Whole Foods also introduced the similar “responsibly grown” rating system that ranks produce based on whether pesticides were used by the farmer. A “best” label indicates that a number of pesticides designated by Whole Foods were not used in the produce cultivation process. These ranking systems reiterate Whole Food’s concern for the environment as well as consumer choice. Commitment to Sustainability Last but not least, Whole Foods is strongly committed to the environment. We have already seen how Whole Foods strives to reduce its environmental impact by selling organic food, sourcing from local farmers, selling eco-friendly products, and reducing transport times for its products. However, Whole Foods also strives to incorporate green practices at an operational level as well. The firm is invested significantly in renewable energy, such as solar, wind power, and biodiesel. On the other hand, this does not necessarily mean Whole Foods relies solely on renewable energy sources—the company continues to use conventional electricity as it is difficult for any large firm to use 100 percent renewable energy. Instead, in 2006 Whole Foods decided to purchase wind energy credits to offset its nonrenewable energy use. This money goes to fund renewable energy projects associated with wind farms. Some Whole Foods stores purchased solar energy installations to power their facilities. A solar energy installation can prevent 1,650 tons of carbon dioxide from being emitted into the atmosphere. The company also began using biodiesel fuel in its trucks and modified some of its truck designs to cut back on wind resistance, which in turn conserved fuel. The trucks are equipped with a fuel-saving system that allows the engines to turn off completely when products are being loaded or delivered, which saves fuel that would have been expended if the trucks were left idling. The firm began to obtain Leadership in Energy and Environmental Design (LEED) certification for some of its stores, meaning the stores adhere to strict environmental standards and are constructed with more ecofriendly building materials such as recycled wood. Whole Foods embraces the concept of Reduce, Reuse, and Recycle in its stores. The company does not use plastic bags and encourages its customers to use renewable grocery bags when shopping. As an incentive to reduce shopping bag consumption, the stores provide a nickel refund to those who come with renewable shopping bags. The stores also use recycled paper when printing and have begun to use rechargeable batteries to cut down on the waste that results from the disposal of batteries. To reduce its energy use even further, Whole Foods began to replace its paper and plastic food containers and utensils with allfiber packaging. Finally, Whole Foods is continuing to work on selling products that are not only good for consumers but are more beneficial toward the environment. For instance, the company pledged to support more sustainable sourcing of palm oil, which has traditionally been a strong contributor to deforestation in some countries. Perhaps one of its biggest landmark commitments, however, is a dedication to seafood sustainability. Whole Foods was the first grocery chain to adopt a sustainability program for wild-caught seafood. Because overfishing has become a substantial problem, Whole Foods implemented a three-color labeling system to help consumers make informed decisions. Red labels are a sign that the seafood should be avoided because it harms the

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Case 13: Whole Foods Strives to Be an Ethical Corporate Citizen 545 environment or other marine life. Whole Foods has also developed standards for farmed seafood to make sure the fishes are being harvested responsibly. ETHICAL ISSUES It is obvious Whole Foods has made great strides in social responsibility. By adopting a stakeholder orientation, Whole Foods has received recognition for ethical business practices, environmental responsibility, and customer satisfaction. However, no company can avoid ethical issues completely, and even those that are the highest rated in social responsibility can make mistakes. The bigger the organization, the more ethical risks it assumes. As Whole Foods grew, it encountered several ethical issues that needed to be addressed. The following section describes some criticisms and legal issues that Whole Foods has faced, some of which represent risk areas for the company. Reaction toward Competitors In its more than 30 years in existence, Whole Foods grew significantly from its humble origins. Some of this growth came from acquiring other stores and caused criticism from those not wanting their smaller community grocery stores to shut down or be acquired. For instance, in the Jamaica Plain neighborhood of Boston, Whole Foods acquired a local Latin American store called Hi-Lo when it moved into the community. Many local residents objected, considering Whole Foods products to be too expensive. Most large retail chains must exert caution when moving into a new community since their arrival will almost inevitably have an impact on rival, and often smaller, retailers. While not all its acquisitions went smoothly, Whole Foods had perhaps the most trouble when it wanted to acquire its competitor, organic grocery chain Wild Oats. Wild Oats was the second largest natural grocery chain in the country, and in 2007 Whole Foods announced it was acquiring its largest competitor for $565 million. This acquisition eliminated a key competitor and gave Whole Foods access into new markets. However, the proposed acquisition generated immediate controversy—this time from regulators. The Federal Trade Commission filed a lawsuit to block the acquisition, claiming it would reduce competition in the industry and thus violate antitrust laws. Cited in the complaint were emails from CEO John Mackey stating a merger between the two companies would help avoid “price wars.” (Price wars often happen when two close competitors try to outdo one another and gain market share.) This was another sign that perhaps Whole Foods wanted to gain a strategic advantage from less competition. The FTC also revealed that John Mackey wrote blog posts under a pseudonym between 1999 and 2006 that highly criticized Wild Oats. These postings included several negative comments about Wild Oats’s stock prices and its future. While not illegal, many believed these postings were unethical and even manipulative. Whole Foods made sure to distance itself from John Mackey’s postings by stating they were done outside of the company. However, as the voice of the company, Mackey’s actions brought up serious questions about how Whole Foods approaches competing companies. Eventually, the FTC and Whole Foods reached a deal. Whole Foods agreed to sell 31 Wild Oats stores and sell the Wild Oats brand. Mackey acknowledged the company would have been better off if it had not pursued the merger, particularly as drops in stock prices and the recession caused so much damage. In fact, both Mackey and co-CEO Walter

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Robb admit that Whole Foods’s rapid expansion and inability to anticipate and respond to changing retail trends nearly crippled the company. During the 2009 recession, Whole Foods’s stock price dropped from $30 to $4 a share. Although the company recovered (with the stock price ranging from $30–$57 a share in 2015), it is important for Whole Foods to approach future acquisitions and relationships with rivals carefully with respect to laws and ethical considerations. Veering Off-Course In 2009 in the midst of a recession and a resolution with the FTC over the acquisition of Wild Oats, John Mackey admitted Whole Foods had strayed from one of its core values: healthy eating. In an interview, Mackey admitted, “We sell a bunch of junk.” He said Whole Foods had “veered off-course” by selling junk food and unhealthy products to consumers. Part of the reason to stock shelves with less healthy alternatives was most likely to court consumers, particularly with the increase in competition. Competition from Trader Joe’s and Costco had already led Whole Foods to modify some of its strategies, such as matching Trader Joe’s prices on 365 Everyday Value items. However, companies begin to encounter problems when they stray from their corporate values, and Mackey appeared to think Whole Foods was not being a leader in promoting healthy eating habits. After this admission, Whole Foods re-committed to its value of healthy eating education. The company hired Healthy Eating Specialists and began posting information on its website to educate consumers on healthy eating. The company created incentives for its employees to adopt healthier lifestyles, as described earlier. By proactively engaging in the fight against obesity, Whole Foods began to re-embrace its original core values. In 2015 Whole Foods’s stock dropped more than 30 percent after the New York City Department of Consumer Affairs found the company was overstating the price of pre-weighed packages. Whole Foods’s CEOs admitted to overcharging and apologized. Nevertheless, there was much negative publicity across the country about the incident. The CEOs claimed that overcharging was a mistake that involved both overcharging and undercharging. If the priced item was not in the consumer’s favor, they promised to give them the item for free. Unions, Health Care, and Climate Change It is no secret that Whole Foods prefers not to have unions. Mackey has cited unions as creating “an adversarial relationship in the workplace.” However, he maintains that managers cannot stop employees from unionizing if they so desire. Some disagree and have accused Whole Foods of union-busting by threatening reprisals if employees join a union. For example, Whole Foods joined with Starbucks and Costco to oppose the proposed Employee Free Choice Act that gives employees the ability to form unions if a majority signs cards suggesting they desire to have a union. The three retailers instead advocated for a secret ballot process for unionization. While it is not necessarily unethical to be against unions, union busting—or purposefully trying to prevent unions by threats or other underhanded tactics—has ethical and legal implications. Whole Foods should remain vigilant to ensure store managers and other officials respect employee rights to organize. Health care is another debate, but not because Whole Foods has a bad health care program for employees. Rather, the controversy stemmed from an op-ed article Mackey wrote against President Obama’s universal health care plan. It might be argued that since Mackey wrote the article, Whole Foods should not be dragged into the controversy.

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CASE 13 Whole Foods Strives to Be an Ethical Corporate Citizen*

However, once again because founders and/or CEOs represent a company, society often associates their actions as speaking for the firm, even if an action was done outside of it. In this case, Mackey, a strong libertarian, wrote an op-ed article in The Wall Street Journal criticizing Obama’s health care initiative and proposing alternatives for health care reform, using Whole Foods’s health care plan as an example. For instance, Whole Foods provides up to $1,800 of funds per year for employees to use for medical care. Money not spent rolls over into the next year. Afterward, Whole Foods will not cover the insurance costs until the employee meets a $2,500 deductible. According to Mackey, this encourages employees to spend the first $1,800 carefully and provides them with the opportunity to determine what their health care needs are. Mackey’s letter led to anger from supporters of the nationalized health care initiative. Some unions and consumers began to boycott Whole Foods’s stores because of Mackey’s stance, claiming he sees health care as a privilege and not a right. Others, however, refused to boycott even though they disagreed with Mackey’s views. They believed Mackey—and Whole Foods—had the right to express their opinions. Regardless, Whole Foods’s sales did seem to be somewhat affected by Mackey’s controversial remarks. Mackey stirred more sentiment a few years later for allegedly downplaying the dangers of global warming. He mentioned that climate change is a normal process that should not be used as an excuse to curb economic growth. Mackey went on to say that society would learn to cope and adapt to rising temperatures and climate change is not as big of a deal as it has been made out to be. This is an interesting ethical issue, not because it had a drastic impact on Whole Foods’s bottom line but because it brings up the issue of businesses’ and business representatives’ rights to express their viewpoints—particularly in the political limelight. These ethical issues are not always easy to settle and continue to be relevant for businesses that have major stakes in regulatory decisions. CONCLUSION Whole Foods strives to be a profitable company while also maintaining an ethical standpoint when making decisions related to its customers, employees, and all affected stakeholders. Consistently being ranked as one of the World’s Most Ethical companies and best companies to work for, Whole Foods has demonstrated its commitment toward selling organic food, satisfying customers, and incorporating quality and sustainability into its products. Whole Foods evaluates all of the products it sells so it can more effectively educate customers about what they are buying and if it meets certain quality standards. The company has continually demonstrated its commitment to the environment by implementing the Eco-Scale Rating System, aggressively promoting the use of renewable shopping bags, and beginning to obtain LEED certification for some of its stores. Whole Foods strives to make a beneficial impact within each community it operates in by adopting a stakeholder orientation. These actions contribute to Whole Foods’s current status as one of the top natural grocers in the United States. However, as Whole Foods expands, it faces many ethical challenges, some of which may extend into the future. For example, when opening new stores the company must anticipate the reactions from community members and attempt to alleviate any concerns. It also needs to continuously reexamine its expansion and acquisition strategy to ensure that pursuing the ventures will not run afoul with regulatory authorities, as it experienced with its unprofitable acquisition of Wild Oats. Finally, Whole Foods must continue to take Copyright 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party

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a stakeholder orientation toward all stakeholders—even competitors. It is important for the firm to realize that just because an action might not be illegal does not mean that it is necessarily ethical. Although Whole Foods has experienced some negative backlash, overall the company has developed a strong positive reputation among its stakeholders. As a desire for green product options and a concern for corporate social responsibility continually evolve among stakeholders, Whole Foods’s careful attention to stakeholder needs and a strong commitment to core values provide it with a significant competitive advantage. QUESTIONS FOR DISCUSSION 1. How has a commitment to corporate values contributed to Whole Foods’s success? 2. Describe how Whole Foods’s adoption of a stakeholder orientation has influenced the way it operates. 3. What are some ways that Whole Foods might have neglected certain stakeholders in the past? SOURCES “The 12 greatest entrepreneurs of our time,” NDTV Photos, http://www.ndtv.com/photos/business/12-greatestentrepreneurs-of-our-time-14280 (accessed February 23, 2015); Amanda Alix, “Whole Foods Market: A Steady Diet of Growth and Profit,” The Motley Fool, February 21, 2012, http://www.fool.com/investing/general/2012/02/21/ whole-foods-market-a-steady-diet-of-growth-and-pro.aspx (accessed February 23, 2015); American Customer Satisfaction Index, “Benchmarks by Industry: Supermarkets,” http://www.theacsi.org/index.php?option=com_ content&view=article&id=147&catid=&Itemid=212&i=Supermarkets (accessed February 20, 2015); Associated Press, “Whole Foods CEO’s anonymous online life,” CNBC, July 12, 2007, http://www.msnbc.msn.com/ id/19718742/ns/business-us_business/t/whole-foods-ceos-anonymous-online-life/ (accessed February 23, 2015); George A. Bray, Samara Joy Nielsen, and Barry M. Popkin, “Consumption of high-fructose corn syrup in beverages may play a role in the epidemic of obesity,” American Journal of Clinical Nutrition 79, no. 4 (2004): 537–543; Joseph Brownstein, “Is Whole Foods’ Get Healthy Plan Fair?” ABC News, January 28, 2010, http:// abcnews.go.com/Health/w_DietAndFitnessNews/foods-incentives-make-employees-healthier/story?id=9680047 (accessed February 23, 2015); Conscious Capitalism®, “What is Conscious Capitalism?” http://www. consciouscapitalism.org/learnmore/ (accessed February 23, 2015); Kerry A. Dolan “America’s Greenest Companies2011,” Forbes, April 18, 2011, http://www.forbes.com/2011/04/18/americas-greenest-companies.html (accessed February 23, 2015); Catherine Dunn, “2014 Best Companies All Stars,” Fortune, January 16, 2014, http:// fortune.com/2014/01/16/2014-best-companies-all-stars-fortunes-best-companies-to-work-for/ (accessed February 20, 2015); Hadley Freeman, “Over the top and over here: ‘Disney World’ of food opens first UK store,” The Guardian, June 6, 2007, http://www.guardian.co.uk/business/2007/jun/07/retail.supermarkets (accessed February 23, 2015); Katherine Goldstein, “Whole Foods Backlash: Bloggers Outraged over CEO’s Anti ‘Obamacare’ Column,” Huffington Post, May 25, 2011, http://www.huffingtonpost.com/2009/08/18/the-whole-foods-healthca_n_262471.html (accessed February 23, 2015); Alison Griswold “Whole Foods Desperately Wants Customers to Feel Warm and Fuzzy again,” Slate, October 20, 2014, http://www.slate.com/blogs/moneybox/2014/10/20/whole_ foods_ad_campaign_can_values_matter_marketing_erase_the_whole_paycheck.html (accessed February 20, 2015); Maria Halkias, “Container Store, Whole Foods aim for conscious capitalism,” The Dallas Morning News, August 8, 2010, http://www.dallasnews.com/business/headlines/20100808-Container-Store-Whole-Foodsaim-540.ece (accessed February 23, 2015); Josh Harkinson, “Are Starbucks and Whole Foods Union Busters?”

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Mother Jones, April 6, 2009, http://www.motherjones.com/politics/2009/04/are-starbucks-and-whole-foodsunion-busting (accessed February 23, 2015); Susanna Kim, “7 Companies Offering Health Care Benefits to PartTime Workers,” ABC News, October 25, 2011 http://abcnews.go.com/Business/companies-offering-health-carebenefits-perks-part-time/story?id=14805107#4 (accessed February 23, 2015); Paul R. La Monica, “Whole Foods Stock Cheaper Than 6 Bottles of Asparagus Water,” CNN Money, August 11, 2015, http://money.cnn. com/2015/08/11/investing/whole-foods-lawsuit-john-oliver-asparagus-water/index.html (accessed August 11, 2015); Allison Linn, “Whole Foods up, Wal-Mart down in customer satisfaction survey,” MSN, February 21, 2012, http://lifeinc.today.msnbc.msn.com/_news/2012/02/21/10437549-whole-foods-up-wal-mart-down-in-customersatisfaction-survey?lite (accessed February 23, 2015); Donald Luskin, “Whole-Foods-Style Health Care,” SmartMoney, August 21, 2009, http://www.smartmoney.com/invest/markets/whole-foods-health-care/ (accessed July 17, 2012); Jacqui MacKenzie, “Why I Follow Whole Foods,” Social Media Today, May 7, 2012, http:// socialmediatoday.com/jacqui-mackenzie/503334/why-i-follow-whole-foods (accessed February 23, 2015); John Mackey, “The Whole Foods Alternative to ObamaCare,” The Wall Street Journal, August 11, 2009, http://online. wsj.com/article/SB10001424052970204251404574342170072865070.html (accessed February 23, 2015); John Mackey and Grist staff, “An interview with John Mackey, founder of Whole Foods,” Grist, December 18, 2004, http://grist.org/article/little-mackey/ (accessed February 23, 2015); MarketWatch Inc., “Annual Financials for Whole Foods Market Inc.,” MarketWatch, 2015, http://www.marketwatch.com/investing/stock/wfm/financials (accessed February 20, 2015); Katy McLaughlin and Timothy W. Martin, “As Sales Slip, Whole Foods Tries Health Push, Wall Street Journal, August 5, 2009, http://online.wsj.com/article/SB124941849645105559.html (accessed February 23, 2015); Melanie J. Martin, “Data on Employee Turnover in the Grocery Industry,” Chron.com, http:// smallbusiness.chron.com/data-employee-turnover-grocery-industry-18817.html (accessed February 23, 2015); Timothy W. Martin, “Whole Foods to Sell 31Stores in FTC Deal,” The Wall Street Journal, March 7, 2009, http://online.wsj.com/article/SB123634938198152983.html?_nocache=1342806303055&user=welcome&mg=id-wsj (accessed February 23, 2015); “New Labelling Laws: What Has Changed?” GMO Compass, December 15, 2005, http://www.gmo-compass.org/eng/regulation/labelling/93.new_labelling_laws_gm_products_eu.html (accessed February 23, 2015); Non GMO Project, “GMO Facts,” 2015, http://www.nongmoproject.org/learn-more/ (accessed February 23, 2015); Whole Foods Market, “GMO: Your Right to Know,” http://www.wholefoodsmarket.com/gmoyour-right-know (accessed February 23, 2015); Hayley Peterson, “More Bad News for Whole Foods,” Business Insider, August 10, 2015, http://www.businessinsider.com/more-bad-news-for-whole-foods-2015-7 (accessed August 11, 2015); Holly Rosenkrantz, “Whole Foods, Costco Offer Alternative to Union Bill,” Bloomberg, March 22, 2009, http://www.bloomberg.com/apps/news?pid=newsarchive&sid=atnjqq9F6._c (accessed February 23, 2015); Christopher S. Rugaber, “Whole Foods attacks government case against Wild Oats acquisition,” Denver Post, July 31, 2007, http://www.denverpost.com/business/ci_6508028 (accessed February 23, 2015); Brad Stone, “Whole Foods, Half Off,” Bloomberg, January 29, 2015, http://www.bloomberg.com/news/articles/2015-01-29/ in-shift-whole-foods-to-compete-with-price-cuts-loyalty-app (accessed February 20, 2015); Michael Theis, “Whole Foods plans customer reward program, report says,” Austin Business Journal, September 17, 2014, http:// www.bizjournals.com/austin/blog/retail/2014/09/whole-foods-plans-customer-reward-program-report.html (accessed February 20, 2015); Bruce Watson, “Whole Foods drama continues: Unions join in fight against CEO,” Daily Finance, August 27, 2009, http://www.dailyfinance.com/2009/08/27/whole-foods-drama-continues-unionsjoin-in-fight-against-ceo/ (accessed February 23, 2015); “Whole Foods CEO On Climate Change: John Mackey Says Warming Is ‘Not Necessarily Bad’,” The Huffington Post, January 24, 2013, http://www.huffingtonpost. com/2013/01/24/whole-foods-ceo-climate-change_n_2511482.html (accessed February 23, 2015); “Whole Foods’ Controversy at Jamaica Plan,” Organic Guide, January 21, 2011, http://www.organicguide.com/organic/news/ whole-foods-controversy-at-jamaica-plain/ (accessed February 23, 2015); Whole Foods Market, “365 Everyday Value® products,” 2015, http://www.wholefoodsmarket.com/about-our-products/product-lines/365-everydayvalue (accessed July 23, 2015); Whole Foods Market,, “Animal Welfare,” 2015, http://www.wholefoodsmarket.com/ meat/welfare.php (accessed February 23, 2015); Whole Foods Market, “Declaration of Interdependence,” 2015, http://www.wholefoodsmarket.com/company/declaration.php (accessed February 23, 2015); Whole Foods Market, “Green Mission,” 2015, http://www.wholefoods.com/greenmission (accessed February 23, 2015); Whole

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Foods Market, “Health Starts Here,” 2015, http://www.wholefoodsmarket.com/healthstartshere/ (accessed February 23, 2015); Whole Foods Market, “How to Make the Best Seafood,” 2015, http://www.wholefoodsmarket. com/seafood-ratings/ (accessed February 23, 2015); Whole Foods Market, “Locally Grown: The Whole Foods Promise,” 2015, http://www.wholefoodsmarket.com/products/locally-grown/ (accessed February 23, 2015); Whole Foods Market, “Our Quality Standards,” 2015, http://www.wholefoodsmarket.com/products/quality-standards. php (accessed February 23, 2015); Whole Foods Market, “Newsroom,” 2015, http://media.wholefoodsmarket.com/ fast-facts/ (accessed February 20, 2015); Whole Foods Market, “Seafood Sustainability,” 2015, http://www. wholefoodsmarket.com/values/seafood.php (accessed February 23, 2015); Whole Foods Market, “Training & Development,” 2012, http://www.wholefoodsmarket.com/careers/training.php (accessed July 17, 2012); Whole Foods Market, “Whole Foods Market Eco-Scale™ Rating System for Household Cleaning Products,” http://www. wholefoodsmarket.com/eco-scale/ratingsystem.php (accessed February 23, 2015; Whole Foods Market, “Whole Foods Market’s team members put company on FORTUNE Magazine’s ‘100 Best Companies to Work For’,” January 21, 2010, http://media.wholefoodsmarket.com/news/whole-foods-markets-team-members-putcompany-on-fortune-magazines-100-best- (accessed February 20, 2015); Whole Foods Market, “Whole Trade,” http://www.wholefoodsmarket.com/products/whole-trade.php (accessed February 23, 2015). “Whole Foods to acquire Wild Oats,” Austin Business Journal, February 21, 2007, http://www.bizjournals.com/austin/ stories/2007/02/19/daily28.html?surround=lfn (accessed February 23, 2015); Whole Kids Foundation website, http://www.wholekidsfoundation.org/index.php (accessed September 23, 2015); Whole Planet Foundation website, https://www.wholeplanetfoundation.org (accessed February 23, 2015); Whole Planet Foundation, “Our Impact,” https://www.wholeplanetfoundation.org/about/our-impact/ (accessed February 23, 2015); Yahoo! Finance, “Whole Foods Market, Inc. (WFM),” http://finance.yahoo.com/q/is?s=WFM+Income+Statement&annu al (accessed February 23, 2015).

Ferrell, O. C.; John Fraedrich; Linda Ferrell. Business Ethics: Ethical Decision Making & Cases (Page 550). South-Western College Pub. Kindle Edition.