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the question is in the word doc, the rest are the materials(PDF).

Exam1 scripts Thurs 3:30 class

1. How might Freeman discuss B Corps and Worker Cooperatives in relation to the New Story of business? That is, how compatible are B Corps and Worker Cooperatives with The New Story of Business/Stakeholder Theory? 2 paragraphs

2. Discuss 2 positive features of worker cooperatives that differentiate them from typical/traditional business models today. Then, evaluate those features (what effects do they have on worker cooperatives?). 2-3 paragraphs.

3. In class, group 3 mentioned worker cooperatives as one way to address many of capitalism’s problems driven by shareholder value ideology & the old story of business. What are three problems this business form addresses? How does it address those problems? Please answer in at least 3 paragraphs.

4. Open Hiring – What is it? Why is it good?. Pretend your colleague says to you, “Greyston is out of its mind. Companies HAVE TO conduct background checks. They can’t just have dangerous criminals running around in their business.” Respond to this in 3 paragraphs (at least 3 arguments).

5. Some of you wrote that you’d gladly work at a B Corp over a “typical” corporation. A couple of you wrote in your reflection that you are struggling with whether B Corps are greenwashing or legitimately more responsible business models. How do you evaluate B Corps compared to non-B Corps businesses? Include in your answer the extent to which you think the B Corp certification is about public relations vs. legitimate creation of responsible business. Answer in at least 3 paragraphs

6. Pretend you have been hired as a consultant for B Labs. They have asked you to identify two things you can recommend to improve and expand B Corps and B Labs (as the accreditation entity for B Corp). i. Please answer in roughly 2 paragraphs.

7. Pretend you are at graduation next to another student who has just received an amazing job offer from a B Corp. The student has never heard of B Corps, B Labs, or Benefit corporations. You want this student to be as excited as you are about this offer. First, how would you explain these three terms to that student? Second, why should (or shouldn’t) this student be excited? i. Please answer in roughly 2 paragraphs

8. Pretend you are at a coffee shop and you overhear someone recruiting a young student into some type of multilevel marketing business. After the recruiter leaves, the student turns to you and says, “I’m so confused about this type of business. Are there legit multilevel marketing businesses? And how can I tell if THIS business is legit?” In roughly 3 paragraphs, please help this student by defining multi-level marketing firms and pyramid schemes, identifying characteristics of a clear pyramid scheme, and giving the student advice on whether this could be a legit MLM business.

9. Explain what the following quote means & why it is relevant to this class: “The opposite of poverty is not wealth, the opposite of poverty is justice.” At least 2 paragraphs.

10. Pretend your 12 your old cousin asked you to explain shareholder value ideology. In your own words and off the top of your head, please define “shareholder value ideology” in one to two sentences (no more than two sentences). Then, describe to your cousin what the consequences of such an approach to business are in society. Please answer in at least 3 paragraphs.

DEBORAH LEIPZIGER
REV: DECEMBER 1

LWW-03

GREYSTON BAKERY: COMBATTING POVERTY BY MAKING A PROFIT

Mike Brady entered the doors of the Greyston factory, the rich smell of chocolate filling the air around him. Sunlight

poured in through the building, designed by the world-renown architect Maya Lin. Brady has only recently become
CEO of Greyston, New York’s first Benefit Corporation. His dilemma is how to promote growth to support the
company’s social and environmental mission. This case study examines how CEO Mike Brady is addressing
strategic priorities such as promoting growth, enhancing supply chain sustainability, paying a living wage, and
working with other businesses to achieve Greyston’s founding mission. Greyston’s history provides a lens to examine
how a value chain can create social value. How does a values-based company influence its suppliers, customers,
and even competitors to become values-led companies?

Introduction

“We don’t hire people to bake brownies; we bake brownies to hire people.”

– Greyston’s Benefit Corporation Report (20

)

On this Monday morning, Mike Brady entered the doors of the Greyston factory, the rich
smell of chocolate filling the air around him. Sunlight poured in through the building, designed
by the world-renowned architect Maya Lin. Mike has only recently become CEO of Greyston,
New York’s first Benefit Corporation. His dilemma is how to promote expansion and growth to
support the company’s social and environmental mission.

Bernie Glassman, the founder of Greyston and a Buddhist leader, had stepped down as CEO
in early 2000. One of the core concepts Bernie infused in the company was the concept of
PathMaking. Inherent in this concept is that all people are on a path, moving forward with their
lives. Greyston was founded with an open hiring policy, anyone would be hired no matter what

Deborah Leipziger is an author and advisor on corporate responsibility and sustainability issues. She is the author of
several books in the field, including The Corporate Responsibility Code Book, now in its second edition. She played
a key role in the development of several social standards, including Social Accountability 8000. She is a Senior
Fellow in Social Innovation at the Lewis Institute at Babson College.

Cases are developed solely as the basis for class discussion and are not intended to serve as endorsements, sources
of primary data, or illustrations of effective or ineffective management. Copyright © 2013 The Aspen Institute
Business and Society Program. This publication may be used in its entirety for classroom instruction. This
publication may not be altered, digitized, posted or transmitted without permission. To request permission to
reproduce materials, please contact info@aspenbsp.org.

LWW-03 Greyston Bakery: Combatting Poverty by Making a Profit

their background. Recent immigrants, the disabled, people fighting addiction, or those who had
been incarcerated, all were welcome to put their name on a list and would be called to start work
when a position became available. Greyston trains people to work hard, makes them
“employable” and then facilitates their advancement to other companies.

Mike’s arrival signaled a new era for Greyston (see Appendix 1: Greyston Timeline for a
timeline of the business). He had worked at Price Waterhouse Coopers after graduating from
Wharton. From day one at Greyston, Mike was keenly aware of the importance of maintaining a
profitable business to support its founding mission. He inherited an organization rich in history
and purpose, but the factory was not reaching its full capacity.

The new CEO also faced a number of questions critical to the success of the company.
Should their product line be diversified in order to tap new market opportunities such as gluten-
free and healthier products?1 Further, running the business in ways consistent with the company’s
founding values created unique challenges for Greyston. Sourcing responsibly was one such
challenge. As a B Corp, Greyston is required to engage with its suppliers with a view to making
the supply chain more sustainable. Were the flour, cocoa, sugar, butter, and eggs used to make
Greyston’s signature brownies ethically sourced? Did Greyston know how fairly suppliers
treated their workers? Was there a way to seek out suppliers who were also B Corps, such as
King Arthur Flour? What were the costs associated with sustainable sourcing? How would
Greyston prepare for disruptions in production if suppliers did not conform with ethical
practices? Would Greyston incur additional costs to train suppliers on good social and
environmental practices?

Other business challenges directly impacted Greyston’s ability to carry out their mission. For
example, how best to continue the commitment to PathMaking while addressing the company’s
debt overhang? Greyston had also pledged to make progress towards paying its employees a
living wage. For decades, Greyston workers have been unionized through the Local Bakers

3,
which is part of the Bakers, Confectionery, Tobacco and Grain Millers International Union.
Could Greyston afford to pay a living wage? Could the company become a strong advocate for
paying a living wage in the community?

Greyston’s product line was also at issue. Should Greyston stay true to its core business,
brownies, or branch out? The equipment at the Bakery was designed to make brownies, and
creating other products such as granola bars would require new machinery.

Finally, there was the question of how to tell the Greyston story. Despite publicity on

0
Minutes,2 there was little awareness about the company outside of Yonkers and the corporate
social responsibility (CSR) community. Although data tracking on the success of Greyston’s
social programs (such as child care) would be useful, they had only limited information on the
social metrics of the business. Understanding the impact of high-quality child care and its long-
term effects on later educational success is a marketing issue as well as a question of the
company’s social impact.

1 Dr. Alessio Fasano of the University of Maryland estimates that

million Americans are sensitive to gluten. The
market for gluten-free products continues to grow and is estimated at $6.3 billion, with 33 percent growth between
200

and 20

. For more on this topic, see O’Brien, Keith, “Should We All Go Gluten-Free?” New York Times,
November 25, 2011.
2 http://www.cbsnews.com/stories/200

/01/09/60minutes/main592382.shtml

LWW-03 Greyston Bakery: Combatting Poverty by Making a Profit

The face of Greyston was changing as well. In the first few decades of the company’s history
the employees were mainly male and African-American. As the population of Yonkers grew
more Hispanic, this was reflected in a workforce that was increasingly Hispanic and also more
female. What changes might be necessary to accommodate these shifting demographics?

Background
When Greyston was established in

82 its goal was to end poverty in Southwest Yonkers.

Now, some 30 years later, poverty still exists in the community but what Greyston has done is
nothing short of revolutionary – it has addressed the root causes of poverty and provided its
employees with pathways to a different future.

Employing the Chronically Unemployed
Greyston employs many people who have never worked before, including people who have

been incarcerated or those leaving drug rehabilitation programs. Greyston keeps a list of
individuals looking for a job and when an opening becomes available, the company hires people
without a thorough review of their record. By law Greyston is required to check if the candidates
are US citizens, but otherwise no background checks are made. Greyston managers teach
apprentices how to work – with an emphasis on punctuality and the need to respect authority.
Approximately 60 percent of the apprentices do not remain at Greyston, but those who do stay
go on to earn highly-prized jobs with benefits, a rarity in Southwest Yonkers.

The company is committed to PathMaking, creating opportunities for its employees to find
other opportunities once they learn how to hold a job. Each employee at Greyston makes a life
plan. The company provides assistance in helping employees achieve their plans, whether it
involves working towards a GED diploma or getting health care. Greyston is a stepping stone
and employees are encouraged to go on to higher-paying jobs, such as repairing air-conditioning
units. Rodney, an employee who began at Greyston, now runs the production line for a Dunkin’
Donuts.

Delaney Philogene is another good example of PathMaking at Greyston. After fleeing her
native Haiti she lived on her own from the age of fourteen. She left school after becoming
pregnant. She went to Greyston each day to see if there was an opening. After starting on the
assembly line, she secured a full-time position in accounting at Greyston. She has since moved
into an accounting position at another company and is raising her two children.

The Greyston Mandala
Greyston’s founder, Bernie Glassman, was a former NASA aerospace engineer who became

a Buddhist monk and infused the company with a Buddhist perspective. To Bernie, everything is
highly interconnected, and this understanding of connection is central to the company’s success
and to its strategy. Bernie began by establishing a deep knowledge of the community he was
trying to serve. He and other members of the original Greyston team volunteered at a local soup
kitchen, becoming familiar with the world of the homeless. By volunteering, Bernie made an
important discovery: many of the homeless people in Yonkers were single parents. Without
access to child care these homeless parents could not find work and were unable to break out of a

LWW-03 Greyston Bakery: Combatting Poverty by Making a Profit

life of poverty. Without access to work they could not attain housing. It was a vicious cycle that
lasted for generations, and the challenges surrounding this cycle often lead to drug addiction,
which also required access to help. Bernie understood that it would be difficult to foster job
creation without addressing the broader lack of quality child care, housing, and training. Those
suffering from HIV/AIDS were in need of additional services. The inter-relatedness of these
problems led Bernie to develop the Greyston Mandala, a network of services provided by the
Greyston Foundation to holistically and systematically address poverty in the community.

Bernie also created the Greyston Family Inn, which gave residents of the community access
to permanent housing for the first time. The Inn relied on assistance from wealthy patrons in
Westchester County until Greyston received a grant from the NY State Housing Assistance
Program to buy and refurbish a deserted building a few blocks from the Bakery. Typically, an
outside contractor would have been hired for construction, but with so many unemployed people
willing to work Bernie hired locals to refurbish the complex. By being involved in the
construction of the edifice, local people took pride in their work and were given valuable job
training skills.

Connecting with Ben & Jerry’s
In the first few years of its existence, the bakery grew steadily making hand-made cakes for

restaurants in New York City. One of the defining moments was founder Bernie Glassman’s
introduction to Ben Cohen of Ben & Jerry’s at a conference convened by Social Venture
Network. The ice cream maker decided to purchase brownies from Greyston to make ice cream
sandwiches. The contract from Ben & Jerry’s allowed Greyston to grow and to support its
investment in housing and social infrastructure. It was one thing to hire people, but another to be
able to offer steady employment and opportunities for advancement over time. Historically,
Greyston has sought out business partners with which it shares values. This alignment of values
is a hallmark of Greyston and serves to inform its supply chain work going forward.

When Ben Cohen received the first shipment of brownies from Greyston, the brownies had
all stuck together into giant 50 pound rocks.3 The ice cream company tried to create ice-cream
sandwiches and ended up with tiny brownie pieces. What could be done with tiny brownie
pieces? From this fiasco, came a new flavor: Chocolate Fudge Brownie, with pieces of Greyston
brownies. Chocolate Fudge Brownie is now a best-selling flavor.

The partnership with Ben & Jerry’s allowed Greyston to transition from a small local
business to a supplier for a well-known company. As a result, Greyston matured into a more
structured company. The transition required Greyston to purchase machinery and to seek funding
to finance this growth.

Ben & Jerry’s is a values-led business, taking a stand on a wide range of issues from
supporting dairy farmers to promoting fair trade, climate justice, and peace-building. Ben &
Jerry’s long-term partnership with Greyston has thrived, in part, because both companies are
values-led companies. Having a primary customer also poses both advantages and challenges.
How might Greyston develop other partnerships like the successful one forged with Ben &
Jerry’s?

3 Lecture by Ariel Hauptman, Business Development Manager at Greyston Bakery, on “Social Enterprise and
Benefit Corporations.” Simmons School of Management (Boston, MA), April 4th, 2013.

LWW-03 Greyston Bakery: Combatting Poverty by Making a Profit

Benefit Corporation and B Corporation
On February

, 2012, Greyston registered as New York State’s first Benefit Corporation. A

Benefit Corporation is a new type of business structure, a legal entity that is required by law to
generate social value. Benefit Corporations have a fiduciary duty to address non-financial
interests such as the needs of employees, the community, and the environment. CEO Mike Brady
also saw an advantage in being the first Benefit Corporation in the state of New York. It
positioned Greyston to be a leader and work with prestigious organizations, including the Clinton
Global Initiative and the American Sustainable Business Council.

In addition to being a Benefit Corporation, Greyston Bakery is also certified as a B
Corporation, or B Corp. To become certified as a B Corp, companies need to meet social and
environmental standards, and commit to accountability and transparency. As of late 2013, there
are 865 B Corps in existence in 29 countries and in 60 sectors.4 B Corps are certified by B Lab, a
non-profit organization, working to build a community of certified B Corps and also to promote
legislation allowing B Corps to come into existence in locales where such legislation does not
exist. B Lab has been a key part of Greyston’s process of becoming a B Corp. An audit from B
Lab provides a tangible tool for Greyston, and the company has completed three such audits.
Ariel Hauptman, Greyston’s Business Development Manager, confesses that the first two audits
were hard, reflecting that it was tough to get everyone at Greyston on board: “We did not
anticipate how much work was involved.” However, she continued, leadership “knew we had to
become a B Corp and to hold ourselves accountable.”5

The company set a wide range of environmental targets as part of the process of becoming a
B Corp. Greyston initiated a recycling program, made changes in lighting to increase efficiency,
and installed solar panels. While they had set targets in the past, working with B Lab helped
Greyston think about sustainable manufacturing and share best practices with co-manufacturers.

Greyston chose to become a B Corp for a variety of reasons. Becoming a B Corp provided
Greyston with additional mechanisms for accountability and transparency. In addition, becoming
a B Corp gave Greyston recognition for the work they had done for decades, using business to
address social and environmental concerns. According to Ariel Hauptman, B Corp status has
increased Greyston’s visibility, generating more requests from companies to work with
Greyston.6 In this way, Greyston is able to help shape policy going forward and practice thought
leadership.

4 http://www.bcorporation.net/
5 Lecture by Ariel Hauptman, Business Development Manager at Greyston Bakery, on “Social Enterprise and
Benefit Corporations.” Simmons School of Management (Boston, MA), April 4th, 2013.
6 Lecture by Ariel Hauptman, Business Development Manager at Greyston Bakery, on “Social Enterprise and
Benefit Corporations.” Simmons School of Management (Boston, MA), April 4th, 2013.

http://www.bcorporation.net/

LWW-03 Greyston Bakery: Combatting Poverty by Making a Profit

Balancing Issues as a Benefit Corporation

“A strategy is a coordinated and integrated set of five choices: a winning aspiration,
where to play, how to win, core capabilities, and management systems.”

As Greyston’s Business Development Manager, Ariel Hauptman created a Benefit
Corporation Committee to drive Greyston’s efforts to implement its social and environmental
agenda. Ariel brought together logistics, accounting, sanitation and other key parts of the
company to create the Committee.

“Benefit Corporations are not a trend, but it is one of the directions in which business is
moving,” says Ariel Hauptman.8 Greyston’s Benefit Corporation Committee decided to address
some of the challenges facing the company by considering how Greyston’s strategy might inform
their priorities. Greyston’s Strategic Plan9 includes the following components:

Execution: Increase quality and improve efficiency:

• Improve throughput with more advanced equipment;

• Reduce waste with larger deposit, better cooling and better cutting;

• Build upon our best-in-class supervisor and apprentice training;

• Achieve SQF (Safe Quality Food Institute) certification.

Pipeline: Develop a pipeline of other potential “major” partners.
Value-led Businesses: Limit work with businesses not aligned with the Greyston mission.

They also aim to build the Greyston brand based on the attributes of social enterprise
leadership, local business, and premium quality. As an example, in order to promote social
enterprise leadership, Greyston will do the following:

I. Define and document the Greyston Way

II. Measure value

a. Measure, improve, innovate, and measure again

III. Communicate, educate and collaborate

a. Lead the Benefit Corporation movement

b. Participate in Unilever’s Sustainable Living Plan Programs

7 Lafley. A. G. and Roger Martin, Playing to Win: How Strategy Really Works, Harvard Business Review Press,
2013.
8 Lecture by Ariel Hauptman, Business Development Manager at Greyston Bakery, on “Social Enterprise and
Benefit Corporations.” Simmons School of Management (Boston, MA), April 4th, 2013.
9 Internal company document, shared with the author by Mike Brady, CEO of Greyston.
10 The target is for the company’s approach to business, known as the Greyston Way, to become a model for the
creation of a social enterprise.

LWW-03 Greyston Bakery: Combatting Poverty by Making a Profit

As Greyston moves forward, the key challenges facing Mike Brady are daunting. The issues
he needs to balance include:

• How to become more profitable;

• How to ensure suppliers are ethical and socially responsible;

• How to move towards paying a living wage;

• How to address the changing demographics of the workforce;

• How to capture data on the social impact of the company;

• How to use social media to promote the company and its social objectives.

The Greyston Value Chain
Greyston is part of a value chain that includes its suppliers and its main customer, Unilever,

and their subsidiary Ben & Jerry’s. (Unilever acquired Ben and Jerry’s in 2000, at which time
Ben and Jerry’s became a wholly owned subsidiary with its own board of directors.) Over the
course of many years, Greyston, Ben & Jerry’s and Unilever have developed “layers of
alignment”11 with a shared commitment to social and environmental goals.

Ariel Hauptman is responsible for the ongoing relationship with Unilever and Ben & Jerry’s.
According to Ariel, “at first Greyston did not hear much from Unilever’s US office, located right
nearby in Englewood Cliffs, NJ. Our direct relationship had been with Ben & Jerry’s. It has
taken time to build a relationship with Unilever – and now the companies have a strong working
relationship. It is convenient for Greyston that Unilever’s VP for Sustainability is located in
Englewood Cliffs.”12

Unilever is unique in that it has created a ten-year Sustainable Living Plan.13 Mike Brady,
Greyston’s CEO, calls the plan a “bold and global initiative.”

According to Brady, Unilever’s
CEO Paul Polman sees sustainability as a mechanism to differentiate the company.

Unilever’s
plan provides a useful framework for Greyston, including the following goals around “enhancing
livelihood” and “reducing environmental impact.”

Enhancing Livelihood
This area focuses on sustainable sourcing and improving the lives of farmers and distributors
in Unilever’s supply network. Between 2010 and 2011, sustainably-sourced raw materials
increased from 14 to 24 percent and the company has the goal of engaging with 500,000
small-scale farmers and 75,000 small-scale distributors by 2020. Ultimately, Unilever plans
to sustainably source all of the company’s raw agricultural materials.

11 Term introduced by Miguel Padro, The Aspen Institute, in discussion with the author, April 2, 2013.
12 Lecture by Ariel Hauptman, Business Development Manager at Greyston Bakery, on “Social Enterprise and
Benefit Corporations.” Simmons School of Management (Boston, MA), April 4th, 2013.
13 http://www.unilever.com/images/UnileverSustainableLivingPlan_tcm13-284876
14 Interview with Mike Brady, CEO of Greyston, September 9, 2013, by the author.
15 Ibid.

LWW-03 Greyston Bakery: Combatting Poverty by Making a Profit

Reducing Environmental Impact
Unilever is also focused on the reduction of greenhouse gases, improvements in water quality
and efficiency, and a lower waste footprint. Although to date Unilever’s environmental
impact has largely remained stable, their programming goals are for the most part on target.
They plan to halve the environmental footprint of their products.

In Greyston’s 2012 Annual Report, specific mention is made of Unilever’s Sustainable
Living Plan and Ben & Jerry’s linked prosperity vision as two key influencers in the company’s
vision for creating social value. Unilever has the goal of sourcing only fair trade ingredients in
Ben & Jerry’s ice cream by 2013. In 2005, the ice cream manufacturer became the first of its
kind to use fair trade-certified ingredients.

Becoming a Values-led Supplier
Greyston spends millions of dollars each year sourcing raw materials such as flour, sugar,

eggs, butter, and cocoa.

The company has 20 key suppliers, each providing over $10,000 per
year in product. Sourcing for these products has recently been brought under Unilever contract.
By sourcing with Unilever, Greyston has increased its leverage and the coherence of the process.

One challenge for Greyston’s B Corporation Committee was to design and institute a supplier
code of conduct. At first, Greyston CFO Jennifer Solomon expressed concern that suppliers
would sever their ties with Greyston rather than commit to a code of conduct. In 2013, Ariel
designed a Questionnaire for Suppliers to gain a better understanding of what suppliers were
doing around social and environmental issues. What were the areas in which suppliers needed to
improve? How could Greyston work with these suppliers to drive better social and
environmental performance? The process of developing a code of conduct required Greyston to
assess what key values the company embraces. For example, Greyston is committed to
supporting women-owned businesses, as well as organic and fair trade. In Spring 2013, Greyston
engaged a group of MBA students at the Simmons School of Management to help develop the
Supplier Code of Conduct.

Partnerships for Growth
Greyston has grown over the past years and the rate of growth has also increased. In the past

few years, revenues have grown as follows:
Table 1: Greyston Revenues

2008 $7,022,631 2011 $8,435,004
2009 $7,104,411 2012 $10,116,556
2010 $7,857,671

Source: Correspondence between Ariel Hauptman and the author, June 10, 2013.

Greyston has excess capacity. Mike Brady and the Greyston team need to find another set of
partners to ensure that the Bakery is running at full capacity. Volume ensures that Greyston can
keep hiring workers and to provide consistent employment for its workers over time. The

16 Lecture by Ariel Hauptman, Business Development Manager at Greyston Bakery, on “Social Enterprise and
Benefit Corporations.” Simmons School of Management (Boston, MA), April 4th, 2013.
17 This is an ongoing process. As of publication, the Code is still being finalized.

LWW-03 Greyston Bakery: Combatting Poverty by Making a Profit

company can accommodate several production lines but it needs to ensure that it provides its
workers with consistency. Growth – within the parameters of Greyston’s mission and values – is
a key priority.

Toward these ends, Greyston has partnered with Whole Foods to create the Whole Planet
Brownie. The companies have partnered to combat poverty by selling brownies. Greyston
Bakery provides brownies to Whole Foods stores in over ten states, including New York,
Connecticut, and New Jersey. The sale of brownies and blondies helps to fund entrepreneurial
endeavors of people who are seeking to lift themselves out of poverty. Two percent of these sales
go to the Whole Planet Foundation.

The Whole Planet Foundation supports entrepreneurs in the communities from which it
sources products. The initiative operates in over 50 countries, and eighty-nine percent of the
entrepreneurs it serves are women.18 For example, Whole Foods sources cashews from Kerala in
India. The result is that it helps alleviate poverty in the Kerala community. By partnering with
the local Microcredit Institute of Grameen, the Whole Planet Foundation is able to fund women
like Nagamma, who has now received two loans from the Foundation.19 The first loan of $100
helped her to build a tea shop. The second loan of $160 helped her start raising goats and
chickens.

In the few months after its start the partnership between Greyston and the Whole Planet
Foundation had generated $6,500 for micro loans, and $4,500 in just over a month as additional
funds. As a result, the partnership has been able to supply a loan every three days to
entrepreneurs in developing countries.20 The initiative is scheduled to grow to include Whole
Foods Markets in California, Florida, and the Midwest. In 2012, the Whole Planet Brownie
Project raised $121,154 and projections for 2013 are $355,000.21

Living Wage
Employees at Greyston work 12 hour shifts, from 7:00 a.m. to 7:00 p.m., often working in

90°F temperatures, in conditions typical of large production facilities. When they graduate from
their apprenticeship employees make $10.50 per hour, plus health benefits, life insurance,
disability, and an annual share of the Bakery’s revenue. Apprentices are also eligible for a bonus
of $600 and other incentives.

Paying a living wage in the New York City metropolitan area is not easy, as the cost of living
is very high. Greyston is committed to making progress towards paying a living wage and to
working to promote the issue of living wage with other businesses. Ariel Hauptman recognizes
that paying a living wage is a “creative challenge.”

Greyston’s Guiding Principles (see Appendix 2) state:

The bakery will empower its employees by compensating them fairly for their efforts and
move towards a living wage. The bakery will pay employees fair wages for their skills.
While for some employees this salary may not currently constitute a “living wage,” the

18 http://www.wholeplanetfoundation.org/
19 http://www.wholeplanetfoundation.org/partners/microentrepreneurs/
20 “Greyston Bakery: Baked with a Fresh Start,” Whole Foods Blog, May 26, 2010.
21 Correspondence between Ariel Hauptman and the author, June 10, 2013.

http://www.wholefoodsmarket.com/blog/greyston-bakery-baked-fresh-start

http://www.wholeplanetfoundation.org/partners/microentrepreneurs/

http://www.wholeplanetfoundation.org/

LWW-03 Greyston Bakery: Combatting Poverty by Making a Profit

bakery is committed to working with these individuals to improve their skill set and
value. To this end, the bakery will provide training opportunities so that employees may
increase their earning power. In addition, the bakery will promote from within thereby
providing opportunities for higher earnings. The bakery will also encourage and support
employees who seek outside vocational training, academic advancement, and
professional non-bakery-related enrichment. Finally, the bakery will also support
employees who seek greater self-sufficiency through employment elsewhere.

Calculating a living wage (see Appendix 3: Fair Wage Chart) is a challenge for many
reasons. One of the challenges is that such calculations depend upon family size. A living wage
calculator for Yonkers suggests that Greyston’s hourly wage rate of $10.50 per hour is not a
living wage for one adult (see Table 2). On the other hand, Greyston’s wage rate is higher than
the local average of $9.61 for food preparation and serving.22 It is also highly unusual for
frontline workers in the food sector to receive benefits such as low-cost housing, child care, and
health care, as Greyston offers its full-time employees.
Table 2: Living Wage Calculator, Yonkers, NY

Hourly Wages 1 Adult
1 Adult, 1
Child

1 Adult, 2
Children

1 Adult, 3
Children 2 Adults

2 Adults, 1
Child

2 Adults, 2
Children

2 Adults, 3
Children

Living Wage $13.05 $26.64 $34.25 $44.01 $19.03 $22.89 $24.26 $28.22

Poverty Wage $5.21 $7.00 $8.80 $10.60 $7.00 $8.80 $10.60 $12.40

Minimum Wage $7.25 $7.25 $7.25 $7.25 $7.25 $7.25 $7.25 $7.25

Source: MIT, “Poverty in America: Living Wage Calculator,” data for Yonkers, NY,
http://livingwage.mit.edu/places/3611984000.

Telling the Greyston Story
How does a brownie tell its story? Through outlets such as Instagram, Twitter, Facebook, and

Pinterest, among other methods. With people obsessed with food on social media, there are many
opportunities to engage consumers and other companies. Greyston, like Ben and Jerry’s, has
been very creative in using social media to communicate with stakeholders.23 Greyston is
working to promote other companies and products with whom its values are aligned, such as Ben
& Jerry’s and Toyota’s Prius.

What’s Next at Greyston?
Greyston’s founder Bernie Glassman has been clear about the role he would like the

company to play: “we want other people to copy us and replicate our models.”24 Current CEO
Mike Brady is also passionate about “Social Enterprise Leadership,” a term he uses to describe

22 http://metrojustice.org/2012/08/building-the-movement-labor-in-the-northeast-food-system/
23 Greyston is active on Facebook, Twitter and LinkedIn.
24 Bernie Glassman and Rick Fields, Instructions to the Cook: A Zen Master’s Lessons in Living a Life That Matters.
Bell Tower, NY, 1996, p. 127.

http://us.linkedin.com/company/greyston-bakery

Tweets by GreystonBakery

https://www.facebook.com/GreystonBakery

http://livingwage.mit.edu/places/3611984000

http://metrojustice.org/2012/08/building-the-movement-labor-in-the-northeast-food-system/

LWW-03 Greyston Bakery: Combatting Poverty by Making a Profit

Greyston’s efforts to promote the wider growth of social enterprise. Mike and Business
Development Manager Ariel Hauptman devote a portion of their time to working with other
companies, both large and small, and sharing what Greyston has learned. One way in which
Greyston can partner with companies is to bring executives from other organizations to Greyston
to work in the community gardens and bake brownies, giving them a flavor for the many ways in
which the Greyston adds value.

Greyston has set the following long-term goals:25

• Ten percent of Greyston employees “moving on” from the Bakery to higher-wage
positions, thereby creating openings for new apprentices;

• Greyston Baked Goods growing at 200% annually from online sales and corporate
gifts, generating increasing interest in “community-based” social enterprises; and

• Multiple studies taking place in Southwest Yonkers as it becomes globally known as the
best location for assessing social enterprise impact on a community.

What path should Mike and the rest of Greyston’s leadership take as they contemplate the
future? In the words of Ariel Hauptman: “What can Greyston teach American Express?”26

25 Email correspondence between Mike Brady and the author, September 26th, 2013.
26 Lecture by Ariel Hauptman, Business Development Manager at Greyston Bakery, on “Social Enterprise and
Benefit Corporations.” Simmons School of Management (Boston, MA), April 4th, 2013.

LWW-03 Greyston Bakery: Combatting Poverty by Making a Profit

Questions for Discussion
1. What are Greyston’s strengths and are they being used to full advantage? What are the

company’s weaknesses and how can leadership compensate for them?

2. Which issues should Mike Brady target? Why? How do these issues reinforce or contradict
each other?

3. What tools does Mike Brady have to help prioritize the challenges facing Greyston?

4. How might Mike Brady leverage the excellent relationship with Ben & Jerry’s and Unilever
to address some of these challenges?

5. Who are the stakeholders of the company? How might they be part of the process of
addressing and balancing priorities?

6. What risks does Greyston face? Discuss the opportunities contained in those risks.

7. What incentives can be offered to suppliers to adopt better social and environmental policies?

8. If suppliers are unwilling to make social improvements, should Greyston replace them with
more socially responsible companies? If yes, should Greyston insist that suppliers be social
enterprises or registered Benefit Corporations?

9. Using the language of Playing to Win, what is Greyston’s winning aspiration? What kinds of
internal capacities do they need to “win”?

10. Greyston is considering expansion to Israel to help support the Muslim community there. In
this way, Greyston wants to translate the Greyston Way for companies operating in other
cultural and geographical contexts. In your view, is this a good next step? Why or why not?
Where else might the Bakery expand?

11. What are the competitive advantages for Greyston of taking a socially-responsible approach
to human resource management?

12. In the long term, how might Greyston gain or lose from their emphasis on living-wage jobs?
How could the company help spread their approach more widely?

13. After hearing a talk by Mike Brady you are convinced that elements of the Greyston
approach have the potential to help your community. As a budding social entrepreneur what
steps would you take to turn these ideas into reality?

14. Adopt the role of a manager tasked with establishing a Corporate Social Responsibility
strategy. How could the Greyston approach help make such CSR efforts more effective? Your
CEO asks you to make your case; what do you say?

15. Thinking about the challenges facing Greyston, how would you improve their bottom line
while retaining a commitment to social impact?

LWW-03 Greyston Bakery: Combatting Poverty by Making a Profit

Appendix 1: Greyston Timeline

1982 Greyston bakery is founded in the Bronx by Bernie Glassman

1987 The bakery is relocated to Southwest Yonkers

Bernie Glassman meets Ben and Jerry in Colorado

1988 Greyston begins to produce inclusions for Ben & Jerry’s

1987–1992 Greyston develops social programs

1992 Greyston Foundation is created

1998 Greyston and Ben & Jerry’s celebrate 10th anniversary, selling over 300,000
pints of ice-cream

2000 Unilever acquires Ben & Jerry’s

2004 New bakery is completed and wins award as AIA Top Ten Green Projects

2005 Ben & Jerry’s becomes the first ice cream manufacturer to use fair trade-
certified ingredients (including its brownie inclusions from Greyston)

2009 Greyston launches a new training program which include both hard and soft
skills

2012 Mike Brady becomes CEO

Greyston registers as first Benefit Corporation in New York

LWW-03 Greyston Bakery: Combatting Poverty by Making a Profit

Appendix 2: The Greyston Bakery’s Guiding Principles27

“We don’t hire people to bake brownies; we bake brownies to hire people.”

Greyston Bakery operates with a triple bottom line. We prioritize both profits and our social
contributions. We strive to be a sustainable model for inner-city business development. Our open
hiring policy and apprenticeship program provide both jobs and training for individuals who
have struggled to find employment in the past. When we generate profits, we use them to fund
the community development programs of Greyston Foundation. In order to operate effectively,
the bakery’s leadership commits itself to the following explicit principles. These principles all
flow from Greyston’s overall mission.

• The bakery will strive to be a model for inner-city business development committed to
Southwest Yonkers. The bakery will remain at the forefront of the field of inner-city
business development, continuing its unique success, and actively disseminating
information about the model. It will do this in southwest Yonkers, the inner-city
community where it was created and has grown, and where there is a high concentration
of hard-to-employ individuals. Any expansion elsewhere will only be undertaken if the
Yonkers base of operation remains strong.

• The bakery should consistently achieve an operating profit. Achieving operating profit is
the best route to long-term survival of the organization, and the best inducement for
others to follow the bakery’s model. Furthermore, because they are subject to the
discipline of market competition, bakery employees, unlike participants in many well-
intentioned job-training programs, develop skills that are genuinely valuable.

• The bakery will maintain an open-hiring policy. The bakery will continue its open-hiring
policy, and the associated apprenticeship program, in order to provide opportunity to
Yonkers’ hard-to-employ population. Providing jobs, and training for those jobs, to
individuals who would otherwise likely be unemployed is one of the greatest benefits that
the bakery provides to the community.

• The bakery will actively integrate itself into the Greyston Mandala. Bakery management
will work with the Greyston Foundation to give factory employees opportunities to take
advantage of the Pathmaker, childcare, housing, and other services. In addition, the
bakery will attempt to provide professional opportunities for individuals who enter
Greyston through other parts of the Mandala.

• A central purpose of the Greyston Bakery is to generate profits that can help sustain the
work of the Greyston Mandala. The Bakery’s net profits will support the various non-
profit projects of the Foundation, the bakery’s sole shareholder. The amount will be
balanced against the need to reinvest in the business to remain competitive and the need
to maintain a certain level of available working capital at all times.

27 http://www.greystonbakery.com/wp-content/uploads/pdf/greyston-bakery-guiding-principles

http://www.greystonbakery.com/wp-content/uploads/pdf/greyston-bakery-guiding-principles

LWW-03 Greyston Bakery: Combatting Poverty by Making a Profit

• The bakery will rigorously measure, document, and monitor its progress toward all non-
financial goals. The bakery will monitor the success of its open-hiring policy, skill
building efforts, employee turnover, and other social goals.

• The bakery will empower its employees by compensating them fairly for their efforts and
move towards a living wage. The bakery will pay employees fair wages for their skills.
While for some employees this salary may not currently constitute a “living wage,” the
bakery is committed to working with these individuals to improve their skill set and
value. To this end, the bakery will provide training opportunities so that employees may
increase their earning power. In addition, the bakery will promote from within thereby
providing opportunities for higher earnings. The bakery will also encourage and support
employees who seek outside vocational training, academic advancement, and
professional non-bakery-related enrichment.

• Finally, the bakery will also support employees who seek greater self-sufficiency through
employment elsewhere.

• The bakery will strive for stable employee turnover rates for post-apprenticeship
employees. The bakery will not attempt to achieve artificially high employee turnover in
order to free up staff positions for new employees, as maintaining a profit under this
constraint is not possible. However, because of the bakery’s open-hiring policy, the
turnover rate of the newest employees may exceed the norm.

• The bakery will automate its production whenever such changes are fiscally appropriate.
In order to maintain a profit and to assure that bakery employees are developing skills
valuable in the modern marketplace, the bakery will automate its production when
fiscally appropriate. The bakery management will monitor applicable technological
trends in the baking industry in order to inform automation decisions. The bakery will
strive to maintain and increase employment levels, despite increased automation, through
improved marketing efforts and sales growth.

• The Bakery will support the individual growth of its employees through its PathMaking
Program. PathMaking is built on a holistic concept, provides individuals within the
Greyston community with a personalized support to a more successful life as defined by
the individual. With the support of a counselor and life skills training in areas such as
money management, nutrition, and parenting, each person will develop their own Path to
self-sufficiency.

LWW-03 Greyston Bakery: Combatting Poverty by Making a Profit

Appendix 3: Fair Wage Chart

1. Payment of wages A wage which is regularly and formally paid in full to the workers.

2. Living wage A wage that ensures minimum acceptable living standards.

3. Minimum wage A wage which respects the minimum wage regulations.

4. Prevailing wage A wage which is comparable to wages in similar enterprises in the same sector.

5. Payment of working

hours

A wage that does not generate excessive working hours and properly rewards normal working hours and overtime.

6. Pay systems A wage that leads to a balanced wage structure/composition between the basic wage and additional bonuses and benefits.

A wage that reflects different levels of education, skills and professional experience, as well as rewarding individual and

collective performance.

A wage that complies with regulations on social insurance payments and paid holidays and is not dominated by

disciplinary wage sanctions.

7. Communication and

social dialogue

A wage on which workers receive sufficient information in advance (through an individual work contract), in the course of

the production process (through regular communication channels) and at the time of the wage payment (with a detailed

pay slip).

A wage that is negotiated individually (with individual employers) and collectively – notably through collective bargaining

– between the employer and the workers’ representatives who are freely accepted in the company.

8. Wage discrimination and

wage disparity

A system of equal wages for equal work that does not lead to wage discrimination and does not generate unjustified, too

high and too rapidly growing wage differentials within the company.

9. Real wages A wage that progresses at least in proportion to price increases.

10. Wage share A wage that progresses proportionally along with enterprise sales and profit growth and which does not lead to a fall in the

wage share in enterprise performance growth.

11. Wage costs A wage whose progression does not lead to a dramatic reduction in wage costs within total production costs and as a

percentage of employment.

12. Work intensity,

technology and up-skilling

A wage that progresses along with changes in intensity at work, technological contents and the evolving skills and tasks of

the labour force.

Source: Fair Wage Network, http://www.fair-wage.com/

Boro_2021_09.22.

LWW-03 Greyston Bakery: Combatting Poverty by Making a Profit

Appendix 4: Greyston Images

Images courtesy of and © Greyston.

LWW-03 Greyston Bakery: Combatting Poverty by Making a Profit

Bibliography
Bakers on a Mission: Benefit Corporation Report, Greyston Bakery, 2012.
Glassman, Bernie and Rick Fields, Instructions to the Cook: A Zen Master’s Lessons in

Living a Life that Matters, Bell Tower, NY, 1996.
A. G. Lafley and Roger Martin, Playing to Win: How Strategy Really Works, Harvard

Business Review Press, Boston, MA, 2013.

LWW-03 Greyston Bakery: Combatting Poverty by Making a Profit

Acknowledgements
The author is grateful to the following people for their support:

Mike Brady, CEO, Greyston

Ariel Hauptman, Business Development Manager, Greyston

Jennifer Solomon, CFO, Greyston

Miguel Padro, The Aspen Institute

Jennifer Johnson, The Aspen Institute

REPRINT H02Y9O
PUBLISHED ON HBR.ORG
JUNE 17, 2016

ARTICLE

SOCIAL RESPONSIBILITY

Why Companies Are
Becoming B
Corporations
by Suntae Kim, Matthew J. Karlesky, Christopher G. Myers
and Todd Schifeling

SOCIAL RESPONSIBILITY

Why Companies Are
Becoming B Corporations
by Suntae Kim, Matthew J. Karlesky, Christopher G. Myers and Todd Schifeling
JUNE 17, 2016

From the New York Public Library

The landscape of American corporations is changing. Since the financialization of the economy in the
late 1970s, corporate governance practices have tightly linked the purpose of business with
maximizing shareholder value. However, as the 21st century pushes on, there has been an increased
emphasis on other stakeholder values, particularly social and environmental concerns. This trend in
corporate governance – which has led to the growth in “triple-bottom line” thinking – has fueled the
emergence of a new organizational form: the Certified B Corporation.

Certified B Corporations are social enterprises verified by B Lab, a nonprofit organization. B Lab
certifies companies based on how they create value for non-shareholding stakeholders, such as their
employees, the local community, and the environment. Once a firm crosses a certain performance
threshold on these dimensions, it makes amendments to its corporate charter to incorporate the
interests of all stakeholders into the fiduciary duties of directors and officers. These steps
demonstrate that a firm is following a fundamentally different governance philosophy than a
traditional shareholder-centered corporation.

The first generation of B Corporations was certified in 2007, and the number of firms earning
certification has grown exponentially ever since. Today, there are more than 1,700 B Corporations in
50 countries. Although any company, regardless of its size, legal structure, or industry, can become a
B Corporation, currently most B Corporations are privately-held small and medium-sized businesses.

Identifying as a B corporation is a way to publicly claim an identity as an organization interested in
both shareholder and stakeholder success. Having a clear identity can help firms communicate their
values to customers, which is particularly beneficial when they are claiming an identity different
from the industry norm. For instance, a study by Kellogg Professor Ned Smith reveals how a clear
“nonconforming” identity among hedge funds beneficially influences investors’ capital allocation
decisions—investors rewarded nonconforming funds (defined as hedge funds with atypical trading
strategies, relative to the norm, for their overall fund style classification) with greater investment
after short-term success and penalized them less after poor performance.

Indeed, as highlighted in ongoing research by one of us (Matt Karlesky), the individuals who make up
a firm’s audience (including potential investors, customers, or partners) cognitively categorize
businesses according to their similarities and differences. An unconventional identity – such as a B
Corporation – helps individuals clearly distinguish between traditional firms and those that are
committed to a broader set of stakeholder values.

So why do certain firms (and not others) choose to identify as B Corporations? Individual leaders are
partly why some organizations broaden their purpose beyond maximizing shareholder value. We
might look to Sir Richard Branson, who in 2013 co-launched the “B Team,” publicly decrying
corporations’ sole focus on short-term profits and calling for a reprioritization of people- and planet-
focused performance. We might also consider leaders of firms like Ben & Jerry’s or Patagonia (both B
Corporations) that have prioritized societal and environmental agendas.

Clearly, such leaders can be important catalysts of social change. However, the explosive growth of B
Corporations seems also to be driven by broader trends and changes in the corporate landscape that
cannot be explained by individuals’ actions alone.

Two of us (Suntae Kim and Todd Schifeling) conducted research to build a more robust
understanding of the rise of B corporations. By qualitatively examining the internal motives of firms
in the process of becoming a B corporation, and quantitatively testing key factors in these firms’

https://www.bcorporation.net/

http://asq.sagepub.com/content/56/1/61.abstract

http://ssrn.com/abstract=2794335

external industry environment – including the shareholder- and stakeholder-focused behaviors of
their corporate competitors – we found that there are at least two major underlying reasons why
firms choose to seek B Corporation certification.

First, as large established firms have ramped up their corporate social responsibility efforts, small
businesses that have long been committed to social and environmental causes want to prove that
they are more genuine, authentic advocates of stakeholder benefits. For instance, certifying firms
often highlighted how B corporation certification would help them stand out “in the midst of a
‘greenwash’ revolution” among large companies, and “help consumers sort through the marketing
hype to find businesses and products that are truly socially and environmentally responsible.”

This suggests that one key driver of the emergence of B Corporations was the increasing efforts of
more conventional profit-driven companies to be seen as ‘green’ and ‘good’. To test this theory, Kim
and Schifeling measured the mainstreaming of corporate sustainability and social responsibility
efforts in a given industry (e.g., sustainability-related terms in the trademarks of large public firms
and acquisitions of sustainability-focused small businesses), and found that the prevalence of these
broader, generic CSR efforts in an industry positively predicted the number of new B Corporations
emerging in that industry.

At the same time, the data highlighted a second reason driving B Corporations’ rise. The qualitative
evidence, gathered from firms’ B corporation application materials, revealed that certifying firms
believed “the major crises of our time are a result of the way we conduct business,” and they became
a B Corporation to “join the movement of creating a new economy with a new set of rules” and
“redefine the way people perceive success in the business world.”

This social movement-like motive suggested another important predictor of a firm’s likelihood to
certify as a B Corporation: large competitors’ persistent use of practices that maximize profits.
Correspondingly, the quantitative analysis revealed a positive relationship between the number of
“hostile” shareholder-centric activities in an industry – such as mass layoffs and high levels of
income inequality between top executives and average workers – and the emergence of B
Corporations in that industry.

These findings suggest that B Corporations are not just a function of a leader’s will – they are also
responses to the common “way” business is conducted in an industry. In other words, we can better
understand the recent proliferation of B Corporations, as well as other social entrepreneurship and
mission-driven businesses, by carefully examining the environment in which these organizations are
embedded. The evidence suggests that key elements of the industry environment—ranging from CSR
initiatives and sustainability trademark applications to layoffs and growing income inequality—
provide fertile soil for the growth of alternative organizational forms.

Increasingly, corporations are donning the persona of a responsible citizen, while continuously
performing practices to maximize profit. These contradictory tendencies motivate traditionally

“green” and ethical businesses to unite and stake a claim to their authentic difference, fueling the
growth of B corporations and other new types of organizations. For mission-driven businesses, these
alternative forms of organizing provide an opportunity to better communicate their commitment to
society and to the natural environment in a world where everybody claims to be “green” and “good.”

For corporate society, this steady but solid growth of alternatives represents an emerging challenge
to the historic dominance of the shareholder-centered incorporated entity. If the public corporation
is no longer the default organizational form for businesses, but rather one of many alternatives, how
can managers be prepared to ensure long-term competitiveness? How might leaders think about their
fundamental organizational structure when they seek to communicate their values in a noisy
marketplace of more conventional companies? As the rise of B Corporations among pioneering firms
demonstrates, efforts to reform and evolve industry standards increasingly require changes to the
fundamental purpose and legal form of an organization.

The traditional corporate form has in many ways monopolized our understanding of how we think
and talk about “business.” The rise of new forms of organization will require re-imagining what (and
who) are the fundamental building blocks of business. Indeed, the advance of new forms such as B
Corps may herald the advent of what sociologist Jerry Davis has called the “tectonic shift” to an era
where “local and democratic forms of organization could address the needs formerly met by the
corporation.”

Suntae Kim is an assistant professor at Boston College’s Carroll School of Management. His research focuses on
alternative ways of organizing business in our times when shareholder-centered corporations increasingly fail to align
organizational growth and societal well-being.

Matthew J. Karlesky is an assistant professor of management and entrepreneurship at Suffolk University’s Sawyer
Business School. His research explores social cognition, creativity and innovation.

Christopher G. Myers is an assistant professor at the Johns Hopkins University Carey Business School and Armstrong
Institute for Patient Safety & Quality. His research explores organizing processes that support individual learning,
development, and innovation in dynamic work environments.

Todd Schifeling is a post-doctoral fellow with the Erb Institute at the University of Michigan. He conducts research on
the organizational and political contexts that shape the incorporation of environmental values into markets.

http://vanishingcorporation.com

Conclusion

COOPERATIVES TOdAY ANd THEIR
POTENTIAL AS A STRATEGY OF SOCIAL CHANGE
The tapestry of US history is woven with the day-to-day strug-

gles of hundreds of millions of ordinary people for better lives. Mu-
tual-aid organizations such as cooperatives and unions have always
been near the heart of those struggles. Those struggles embody the
“the pursuit of happiness” that the Declaration of Independence
boldly asserts is our inalienable right. America proudly proclaims
that our society aspires to offer a fair and equal opportunity to all in
that promised pursuit. Yet, after all these years and all these genera-
tions, have we really succeeded in structuring our society to offer a
fair and equal opportunity to all?

LOOKING BACKWARd ANd FORWARd
Throughout US history, urban wageworkers and small rural

farmers have waged parallel struggles. The two groups have shared
common roots, and often worked closely in coalition towards com-
mon goals. Both workers and farmers have organized cooperatives
to try to solve their economic problems; when the economic sys-
tem has stymied them, both have formed political organizations to
try to change the rules of the system. Farmers and urban workers,
the two parallel tracks of the American working people, have been
bridged by their cooperatives. Recurrent uprisings of both workers
and farmers have risen in response to economic inequities, and their
trajectories have followed the country’s economic cycles.

The differences between the rural and urban populations
have always been more apparent than deep. Most of the families
in the farm communities of the Midwest and West were formerly
urban people from the East, drawn there by the offer of almost-free

Curl, John. For All the People : Uncovering the Hidden History of Cooperation, Cooperative Movements, and Communalism in
America, PM Press, 2009. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/sfsu/detail.action?docID=473728.
Created from sfsu on 2020-02-01 14:48:02.

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Conclusion | 347

land. Cooperatives and mutual aid organizations bridged the gulf
between farmers and urban workers. The Grange and the Farm-
ers’ Alliance worked in close coalition with the Knights of Labor in
the Greenback-Labor Party and then the Populist Party. Grangers
helped the railroad strikers in 1877; co-op stores joined arms with
the unions in the Seattle General Strike of 1919; the self-help UXA
aided the San Francisco General Strike of 1934; striking farmers of
the American Agriculture Movement brought truckloads of food to
striking coal miners in 1978.

Both farmers and urban workers have a long history of coop-
eratives. While farmers could be very individualistic, farm commu-
nities were usually very cooperative. It was not unusual for individu-
alistic farmers to each belong to a half dozen different cooperatives.
This was the case because cooperatives do not ask that members
submerge individualism into a collectivity but, on the contrary, come
together to enhance their lives. The Grange, Farmers’ Alliance, and
other farmer organizations had visions of a radically restructured
system based on cooperation. The labor movement had similar vi-
sions. The cooperative unionism of early workers was abandoned
by the American labor movement primarily because it was defeated.
After the demise of the Knights of Labor at the end of the 19th
century, most union workers believed that they could no longer win
practical improvements through worker cooperatives in the face of
brutal government and corporate opposition. So most of those still
stuck in oppressive jobs moved on to simple trade unionism. Some
still looked to new radical forms, such as the syndicalist model of
a new society based on industrial unions, the anarchist vision of a
stateless society, or the institution of a “workers’ state.” All of these
radical movements painted pictures of a future society based on
principles of equality and cooperation, which would arise after the
oppressive structures were swept away.

Cooperative movements in America have always risen and
fallen with the turns of the economic cycle. When money is scarce in
hardening economic times, cooperatives have experienced a surge in
membership, but the hardest of times have also killed them. Worker
cooperatives have also often been formed during economic upturns,
when workers can gather enough resources to try to make a go of it.
Yet, during periods of general prosperity, people have also tended to
explore more individualistic options, and have abandoned coopera-
tion and social movements. The self-seeking tendencies in human

348 | For All the People

nature have been magnified by the American glorification of the
individual and neglect of community.

Nonetheless, in times of crisis the American people have re-
peatedly returned to mutual aid, and have called on government
for support. The New Deal’s promotion and support of coopera-
tives was the fruit of generations of struggle. From the earliest times,
cooperators realized that they needed the backing of the powers of
government to achieve their larger goals. Although the New Deal’s
programs were limited and bureaucratic, although some of their
policies actually hurt some cooperatives, and although they backed
off under assault from the financial-corporate oligarchy, the New
Deal remains a beacon, and demonstrates what a partnership be-
tween progressives and government might accomplish.

dOES IT HAVE TO BE THIS WAY?
The beginning of this study asked why there are so few work-

er cooperatives. Hopefully, this history has shed some light on the
answer.

Worker cooperatives have been marginalized and planned
out of our economy. The “free market” is a fiction: all markets and
economies are regulated and shaped. The tax laws and the money
system offer businesses and corporations—particularly large corpo-
rations—numerous economic advantages that they do not offer to
worker cooperatives. Worker cooperatives almost always begin small
and undercapitalized, and involve people with underdeveloped busi-
ness skills. Laws posing numerous obstacles to unionization have
shaped the American labor market. A majority of nonunion work-
places has resulted in a weakened and struggling working population
with few resources available to start businesses, even after pooling
their resources to launch a cooperative. The economic life of society
today is primarily organized on the capitalist wage system. Unem-
ployment is structured into the system. In addition, a large num-
ber of jobless people are not counted in unemployment statistics,
which include by definition only those actively seeking employment.
There is also an underground economy whose members are also not
included in statistics. The unemployed, the marginally employed,
the not-working, as well as dissatisfied employees, all might find jobs
in worker cooperatives, if that were an available option. Struggling
communities and populations could be rejuvenated and elevated if
the economic system facilitated and encouraged the organization of

Conclusion | 349

cooperatives, and if it made economic resources available to people
wanting to organize them.

Many Americans have never known any work outside the wage
system, and some even have difficulty conceiving of another way of
structuring work, yet the wage system is neither a necessary fact of
life nor a fundamental tenet of this country’s history. Wage labor
was introduced onto this continent as a form of bonded labor along
with indentured servitude for whites and slavery for blacks. Coop-
erative and communal work were typical of Native America and of
the early settlers. Although most Americans have little experience
in cooperative work today, about 40 percent of the population has
experience as a member of a cooperative such as a credit union, an
electric cooperative, or a parent play group. That may seem like a
small thing, but for many people it is their first adult experience with
a democratic organization or an alternative system.

IS AMERICA dIFFERENT?
Many Americans still like to think that this country is different

from the rest of the world, and since the 1830s have talked about
“American exceptionalism.” The United States—with its vast natu-
ral resources and experience of genocide, slavery, human exploita-
tion, and environmental degradation—has certainly had a unique
history. But with globalization, the American people are also learn-
ing that we are in the same leaking boat as the rest of the world’s
peoples. We are being forced to learn humility, and to work respect-
fully with other peoples to make a successful and sustainable world
to leave to our descendants.

America is billed as a great experiment in democracy “of the
people, by the people, and for the people,” the land of equal op-
portunity. Business pundits loudly tout our economic system as the
source of America’s wealth and prosperity, making the US the rich-
est, most powerful country in the world. They promote the capitalist
wage system as if it were a beacon of freedom, proudly displaying it
for the world to admire and copy. But the hard truth is that Ameri-
ca’s economy is not structured to give everyone a fair and equal op-
portunity, but to assure that a small elite always wins. Under its rule,
advanced technology enriches primarily those in control. Whatever
prosperity working people have is due not to the American capital-
ist system, but to America’s position at the top of the world’s food
chain, reaping the wealth of the planet, just as ancient Rome’s

350 | For All the People

prosperity once came from plundering the then-known world. This
wealth is increasingly consolidated by a small corporate elite, and
less and less of it is shared with the middle and working classes. The
individualistic consumerist lifestyle sponsored by corporate America
is today’s version of Rome’s “bread and circuses.” While promot-
ing a xenophobic nationalism for the people, the giant corporations
themselves have become increasingly multinational, with decreasing
responsibility to the people of any country.

In the US and elsewhere, this triumph of corporations has
been achieved through their control of the political and economic
systems. US laws and international trade agreements favor and sub-
sidize corporations over people, and corporate interests wrote the
laws making that possible. But this is new only in its global extent.
Capitalism has never been democratic, and when unchecked, it has
always become monopoly. The very existence of cooperatives chal-
lenges corporations and capitalism; corporations have therefore al-
ways worked hard to weaken, discredit, and destroy them through
waging price wars, enacting legislation that undercuts their viability,
labeling them in the media as subversive and a failure, and using
numerous other stratagems.

On the other side, the American working people have always
taken inspiration from the proclamation of equality and the faith
in social revolution expressed in the Declaration of Independence.
To American workers in the early period, that meant the possibility
of liberation from the wage system through self-employment, coop-
eration, public education, and democratic legislation. When bitter
experience convinced some generations that the system was not re-
formable, some explored the option of revolution.

THE COOPERATIVE SECTOR
Economies are usually considered to have three sectors: (1)

the business or private sector, which is privately owned and profit
motivated; (2) the public sector which is owned by the government;
and (3) the social enterprise sector—often called the social economy—
which consists of voluntary, community, and not-for-profit activi-
ties organized around shared interests and purposes, distinct from
government, family, and for-profit business. This sector is consid-
ered part of “civil society.” The social economy is the home of
most cooperatives, as their intrinsic characteristics set them apart
from private businesses and corporations. A fourth economic sec-

Conclusion | 351

tor is sometimes is included: “the informal sector,” or “the informal
economy.” This includes all economic activity “under the radar,”
“underground,” not monitored, taxed, or regulated by any gov-
ernment, including marginal survival activities and informal ex-
changes among friends and family members.1 Cooperatives can
also be found in this informal economy. They flourish in activi-
ties performed without any financial exchange and outside of the
dominant economic system. Groups of this type include numerous
voluntary organizations and associations formed for any purpose,
such as musicians’ gatherings, childcare exchanges, neighborhood
watches, and small community associations.

Social enterprises besides cooperatives include community-
owned enterprises and businesses operated by nonprofit organiza-
tions with primarily social objectives, whose surpluses are primarily
reinvested for that purpose. Social enterprises today are a vital and
growing sector worldwide. Nonprofits have been increasingly ad-
vancing their missions through entrepreneurial strategies, trading in
goods or services, and helping to organize and support worker and
community cooperatives.

The informal sector is part of every economic system, and
in many “developing” countries, the informal economy involves a
large part of the labor force—up to 60 percent according to some
estimates. The International Cooperative Alliance, affiliated with
the UN, today urges governments to promote cooperatives to trans-
form their informal economies “into legally protected work, fully
integrated into mainstream economic life.”2

The growth of worker cooperatives worldwide has followed
economic globalization, with their number and extent increasing sig-
nificantly in both industrialized and developing countries. This is a
reaction of mutual aid of the world’s peoples in face of a deteriorat-
ing situation. While not long ago worker cooperatives were viewed
internationally as a marginal phenomenon, today they are taken in-
creasingly seriously as an important economic force in the world.3

WHY HAVE MANY WORKER COOPERATIVES FAILEd?
Numerous worker cooperatives have been organized over the

last 200 years, and most have ultimately failed. Are there flaws in-
herent in the concept or structure that make them unworkable? This
historical study has tried to answer that question. Individual coop-
eratives, like any human organization, ultimately fail. In this, they

352 | For All the People

are no different from any individual business. The majority of all
new businesses fail in their first year. Standard advice to startups is to
not expect a profit for the first two years. Since the beginning of the
industrial revolution, most work has been increasingly dominated by
costly technology, and most cooperatives have almost always begun
under-capitalized.

Cooperatives, like any human organization, have a life span
during which they usually have to change and develop, as the situ-
ation around them changes. Cooperatives are a response to a situa-
tion, and the situation is always in flux. Individual cooperatives don’t
last forever, since they are formed by people, who also don’t last
forever. The cooperatives of each new generation take on new and
creative forms, as they are formed to meet new situations and new
variations of situations, while consistently facing a heavy opposition
from corporate interests and the politicians that serve them. So the
lack of eternal longevity of any particular cooperative or any social
structure is not an adequate way to judge its value. Cooperatives
have sprung up anew in every generation, so the question should not
be why individual cooperatives fail, but why American society has
failed to structure cooperatives into the system.

People who are looking for a structural panacea for all the
world’s problems are barking up an empty tree. Social structures by
themselves do not solve social issues. Societies don’t freeze at some
ideal moment. All societies have hard times. But there are also always
moments when a people can come together and achieve something
great. Each new generation creates structures to solve its needs, not
mimicking some ideal form, but always in an intensely practical re-
lation to the actual situation on the ground. The US has always been
a land of enormous potential, and the American people have many
times tried to rise up and achieve our potential. Right now our so-
cio-economic system appears to me to be driving at breakneck speed
toward a dead end. To prevent that crash, many people realize that
we have to make a tidal shift in our priorities. That requires an alter-
native, an understanding that a better society is in fact possible.

Worker cooperation has always been close to the heart of
America. It has been our common past, our heritage, and can be-
come our common future.

Conclusion | 353

CAN WORKER COOPERATIVES SUCCEEd?
If the preservation of America’s communities were really a

national value, then the development of community worker coop-
eratives would be a national policy. Cooperatives are all about a bal-
ance between individual and community interest. But in America,
we get a hollow freedom in exchange for a loss of community. The
backroom government of America, consisting of all the biggest fi-
nanciers, plans the economy with the aim of maximizing corporate
profits, and they plan worker cooperatives out of it. There are few
fields where many independent worker-run businesses can easily
survive, so there are a very limited number of worker cooperatives,
leaving the vast majority of people with little choice but to seek em-
ployment from a boss or corporation, which is often still wage slav-
ery. Meanwhile, unionization has shrunk from over 35 percent 60
years ago to under 14 percent in 2005.

Today, the powers of government promote the system of cor-
porate rule, prosperity for an elite, and increasing marginalization for
working people and the middle classes. But instead of giving away
the world’s natural resources to corporate profiteers, society could
use that wealth to promote full employment, prosperous communi-
ties, and the empowerment of people at work. The economic system
could be changed to one that values the well-being of all people.

A proper role of government is to work to create a level playing
field providing fair opportunities in an economic context in which
society can prosper. But what is a level playing field in a world of
vast economic inequality?

Beneath all the window dressing, the system has failed dis-
mally to provide a decent life for vast numbers of Americans or to
provide basic services or jobs for people. A social crisis of enormous
proportions is deepening. For many, the system is still wage slavery.
The corporations still fear worker cooperatives, for the same reasons
they have used their power to put them down throughout American
history. Yet if America is ever to fulfill its promise, the government
must ensure that no one is forced into wage slavery, that everyone
has a choice. This would signal that wage slavery would be finally
abolished. The goal of promoting worker cooperatives on a national
scale should be a core government policy.

Economic regulations do not have to favor corporations. The
economic system could make loans available to groups of unem-
ployed and underemployed to start worker-owned cooperative busi-

354 | For All the People

nesses in every field. Neighborhood and community co-ops could
be empowered to do public work and services that benefit their
local areas. The nation could promote a bottom-up participatory
democracy in the workplace and in communities. Society, through
the powers of government, could use our common resources to pro-
mote communities and neighborhoods working together and pro-
ducing for our common social good, through a system of worker
cooperatives and other social enterprises whose purpose would be to
promote prosperity in the entire population, to improve the quality
of life of all people, to empower people to exercise their inalienable
right of the pursuit of happiness, and to realize their creative poten-
tials. Some small steps have been taken in the direction of a mass
movement for social and economic justice with worker cooperation
at its heart, but a long uphill road awaits us.

Although capitalism, competition, and wage slavery run ram-
pant on the surface of our country today, history may someday
show that the working population was quietly gathering strength
beneath the surface for its next challenge. And it may be that old-
fashioned traditional American worker cooperation, with its prom-
ise of real freedom, may still prove stronger and deeper here than
capitalism, and will be the force to ultimately abolish its unique
system of wage bondage.

• • •

In what does real power consist? The answer is plain and
short—in property… A general and tolerably equal distribu-
tion of landed property is the whole basis of national free-
dom… An equality of property, with a necessity of alienation
constantly operating to destroy combinations of powerful
families, is the very soul of a republic. While this continues,
the people will inevitably possess both power and freedom;
when this is lost, power departs, liberty expires, and a com-
monwealth will inevitably assume some other form.4
— Noah Webster, 1787

I hope we shall crush in its birth the aristocracy of our mon-
eyed corporations, which dare already to challenge our gov-
ernment to a trial of strength and bid defiance to the laws of
our country.5
— Thomas Jefferson, 1816

Conclusion | 355

The strongest bond of human sympathy, outside of the fam-
ily relation, should be one uniting all working people of all
nations, tongues and kindreds.6
— Abraham Lincoln, 1864

If you and I must fight each other to exist, we will not love
each other very hard.7
— Eugene Debs, 1908

The New Story of Business:
Towards a More Responsible

Capitalism

R. EDWARD FREEMAN

ABSTRACT

Business is undergoing a conceptual revolution. Since the
Global Financial Crisis there are many new ideas and pro-
posals to make capitalism more responsible. The purpose
of this paper is to identify key flaws in the “old story” of
capitalism. Six principles are explained that taken
together form the basis for a new story of business, one of
responsible capitalism.

INTRODUCTION

T
he last 40 years have seen great changes in our understand-
ing of business. In our lifetime, we have seen a remarkable
pace of globalization. We have seen revolutionary informa-

tion technology. We have seen nothing less than a fundamental
shift in the story of business. In this talk I will try to explicate what
I believe is a conceptual revolution in business, and in particular, I

R. Edward Freeman is University Professor and Olsson Professor of Business Administration,
the Darden School, University of Virginia, Charlottesville, VA. E-mail: freemane@darden.vir-
ginia.edu; redwardfreeman.com.

Editor’s Note: A public lecture by R. Edward Freeman, Verizon Visiting Professor of Business
Ethics, Bentley University.

VC 2017 W. Michael Hoffman Center for Business Ethics at Bentley University. Published by
Wiley Periodicals, Inc., 350 Main Street, Malden, MA 02148, USA, and 9600 Garsington
Road, Oxford OX4 2DQ, UK.

Business and Society Review 122:3 449–465

bs_bs_banner

will try to explain this “new story of business” in terms of a few fun-
damental principles or ideas.

While the roots of this revolution are easily traceable back to the
1980s or even earlier, they are most clearly seen in the responses
to the Global Financial Crisis (GFC) of 2008. Since that time, we
have seen an explosion of ideas of how to make businesses more
responsible for the consequences of their actions.

For instance, many companies have taken a renewed interest in
corporate social responsibility and sustainability. In addition, we
have seen a renewed emphasis on the idea of Conscious Capitalism
as John Mackey and Raj Sisodia have argued that companies that
follow the tenets of conscious capitalism will outperform those that
do not. Michael Porter and a colleague have suggested that compa-
nies focus on “shared value” where economic value and social value
are seen as going hand in hand. Nestle has been the show pony for
this idea. Just Capital is an NGO that is committed to rating com-
panies on widely accepted standards of justice. Bill Gates has sug-
gested Creative Capitalism, whereby companies forego profits for
the sake of public welfare. Senator Mark Warner of Virginia has
suggested that it is time for new metrics, especially around the wel-
fare of workers and has hailed a move to Capitalism 2.0.

Meanwhile, the idea of social entrepreneurship has taken off
with many millennials beginning to start businesses that address
social problems. NGOs such as the Acumen Fund, Kiva, Kickstar-
ter, and countless others have been started to provide capital for
small and very small businesses and entrepreneurs who are socie-
tal change agents. Even on Wall Street, we see an increase in the
movement toward what is variously called, “patient capital,”
“impact investing,” “responsible investing,” and other terms.

Business pundits have gotten into the act, decrying a lack of
ethics that they claim brought about the GFC. Robert Reich has
argued that ethics and profits have to go together. Agency Theorist
pioneer Michael Jensen has suggested that integrity is an important
element in a successful business. The Aspen Program in Business
and Society has led various conversations about new business mod-
els, new governance models, and a variety of other related ideas.

At two recent meetings at the White House in 2016 sponsored by
the Obama Administration’s Department of Labor, 75 people from
these organizations and movements gathered to discuss common-
alities and whether or not there needed to be one brand that

450 BUSINESS AND SOCIETY REVIEW

identifies this new story of business that is emerging. While such a
brand may someday emerge, or perhaps it already has, for my pur-
poses I want to focus on the underlying ideas and principles that
are inspiring all of this activity. Whichever brand or brands that
ultimately become the rallying cry on which this conceptual revolu-
tion will be based. The brand will have to be based on a sense of
purpose and ethics that is as central to the new narrative as profit
is to the old one. It will have to address how companies can simul-
taneously create value for all of its key stakeholders. The brand will
have to take sustainability and the physical limits of business very
seriously. And, it will have to recognize that people are complex
and that they can and do collaborate with others to create value. I
will set these ideas out more carefully in a later section. For now,
let’s turn to the dominant narrative or the “old story of business,”
and see why it is no longer applicable for the twenty-first century.

THE DOMINANT NARRATIVE

While all of these conversations and new business models are going
on, we still see many executives and academics who are strongly
committed to the idea that the main goal of any business is to make
as much money as possible for its shareholders. This view was artic-
ulated best by Milton Friedman in a 1970 New York Times article in
which he stated that the only responsibility of the executives is to
make as much money as possible for shareholders. While Friedman’s
view is more nuanced and is often misinterpreted, the shareholder
primacy idea has a real grip on both executives and academics. This
dominant narrative of what we might call the old story of business is
deeply rooted in business cultures around the world. Oftentimes, it is
appealed to as a way of justifying almost any action that seems to
harm groups other than shareholders. Consequently, especially since
the GFC, there’s a real struggle going on around the issue of the
ethics of capitalism. Let’s be a little more precise here. We can talk
about this old story of business in terms of five claims.

The first is that business is primarily about making money and
profits for shareholders. Business on this view is the physics of
money, and the language of money and profits is seen by many to be
the main metaphor in talking about business. Often these theorists
talk as if money is the only thing that matters, and the vocabulary of

451R. EDWARD FREEMAN

finance and accounting are the only vocabularies that tell us how to
build a great business. More precisely, business is seen as a collec-
tion of economic transactions that can be fully understood using
economic models and concepts. Modern economics has built some
really powerful models, from general equilibrium to modern econo-
metrics, and indeed they are useful for understanding how markets
work. The problem is that they are not the only way to understand
business, and they can be misleading as the GFC taught us.

The second claim is that the only constituency that matters is
shareholders. Friedman’s claim is that the only social responsibility
of an executive is to make as much money as possible for sharehold-
ers. Even though Friedman was careful to also say that such a claim
was subject to ethical rules and law—this part of the claim often
gets left out. So, executives and pundits sometimes argue that what-
ever is not illegal is permissible in the name of shareholder value.

The third claim is often implicit. It is that we live in a world of
fairly limitless physical resources, or that market forces will always
determine which resources are economically feasible to use. We
need markets for natural resources such as air, water, and carbon
emissions, not regulation.

The fourth claim, that we see played out in the popular press all
the time, is about what motivates business people. In keeping with
the idea that business is about the physics of money there is a wide-
spread idea that given the opportunity business people will cut cor-
ners, lie, and cheat. People, on this view, are completely self-
interested. They will work for others, only if they are incentivized to
do so with either a threat of punishment or a promise of rewards.

The fifth claim summarizes the first four and says that business
and capitalism work because people and companies are self-
interested, competitive, and greedy. The greatest good emerges as if
by an invisible hand. Usually homage is paid to a brief passage in
Adam Smith about the butcher and baker.

WHAT’S WRONG WITH THE OLD STORY?

Profits Are not the Purpose of Business

While there has been much criticism of this so-called neo-classical
view of the firm, for our purposes I want to focus on three main

452 BUSINESS AND SOCIETY REVIEW

flaws that make it easier to see why the old story is no longer
appropriate. The first flaw is the idea that business is the physics
of money and that profits are and should be the purpose of any
business.

While there are many businesses that have come to see making
money for their “owners” as the main purpose of their business,
most of these businesses didn’t start out this way. Most entrepre-
neurs start their companies because, in John Mackey’s words,
“they are on fire about their business idea.” No matter whether it
was Steve Jobs and Bill Gates on fire about the desktop computing
revolution and starting Apple and Microsoft, Mackey himself, on
fire about bringing healthy food to people through what became
Whole Foods Market, or my son, Ben, on fire about bringing the
great rhythm and blues sound of Motown and Stax into the
twenty-first century with Red Goat Records, none of these entre-
preneurs started the business with the purpose of making as
much money as they could.

Now, of course, money and profits are important. They must
exist for a business to live. Demonizing profits, as many pundits
have done, is just a shortsighted, ideological mistake. Likewise, to
claim that the purpose of a business is to make profits for owners
is a similar and often ideological mistake.

I need to make red blood cells to live. However, it does not follow,
without a lot of argument that I simple cannot imagine, that the
purpose of my life is to make red blood cells. Even if I have fallen
on unhealthy times, and I have to actually concentrate on making
red blood cells, for instance by paying a lot of attention to the iron
in my diet, it still does not follow that the purpose of life is to make
red blood cells (or to breathe, or to drink water, etc.).

Likewise, sometimes businesses fall on hard times. A competi-
tor disrupts the industry, or mistakes have been made, or the
world simply changed. In all of these cases, a business might
have to focus fairly clearly on generating profits to stay alive, but
it would be a mistake to claim that profits were the purpose of the
business.

Former CEO of GE, Jack Welch, business guru, Simon Sinek,
and many others have claimed that it is best to see profits as an
outcome. And, I will add it is an outcome of purpose and how value
gets created for stakeholders. More on that idea later.

453R. EDWARD FREEMAN

Business Ethics Is Not a Contradiction

When I tell people that I teach business ethics you know what hap-
pens. Either they have to manage not to laugh, or they say
“business ethics” I thought that was a contradiction. The idea that
business and ethics do not go together has long been a part of the
dominant story of business. After all, if business is just about
money, shareholders, and profits, there’s not much room for ethics
to be a central part of it. The way I like to put it is that of the
phrase “business ethics,” we only really misunderstand two of the
words.

First, let’s talk about business. The old story of business says to
us that business is about competing, making money, and doing
whatever you can get away with. The idea that business people are
not trustworthy is in many cultures around the world. A recent
study found that only 19% of people around the world actually
trust business executives of large companies. Now, every business
person that’s here today knows that business is not just about
making money. But even if that’s all you want to do, how are you
going to do it? You would better have some products and services
that customers want to buy. You need suppliers who are commit-
ted to making you better by improving your business with their
products and services. You need employees who are not there just
for the paycheck but are there to make your business better—
employees who are engaged in their jobs. You need them not to be
unengaged or actively engaged, as many studies have found is the
case in a lot of businesses. And, you need to be a good citizen in
the community. If you are not a good citizen in the community,
communities will pass restrictive laws or ordinances to prevent
your business from operating well there. If you do these things, if
you have great products and services for customers, if your suppli-
ers want to make you better, if you have employees who are
engaged, and if you are a community builder, then if you put those
things together the right way, profits will emerge. Again, this is the
idea that profits are an outcome. So business, far from being just
about the money, is about creating value for stakeholders.

Now, let’s talk about ethics. Many people think that ethics is
about things you talk about only on Sunday. It’s about angels and
organ music or very serious things talked about in hushed tones.
While religion is important in ethics, I want to urge you to think

454 BUSINESS AND SOCIETY REVIEW

about it more broadly. Ethics is really the most practical thing
around. Ethics is about how I live my life and how living my life
affects how you live your life. Ethics is always personal; it’s about
what I want and how I’m going to live. And, it’s always interpersonal.
It’s about how we are going to live together. Many people have the
idea that ethics is about rules chipped into stone, rules that never
change and rules that are fairly inflexible. But sometimes these
“rules” can conflict and sometimes they need to change or be inter-
preted in different ways as we invent new technologies or discover
other previously hidden features of a situation. Ethics is, in my view,
a conversation about how we are going to live together. It is a conver-
sation that substitutes reason, dialogue, and talking together for vio-
lence. It’s easy to see in many places in the world where the
conversation has broken down. Violence is not a good answer. Now,
many people would argue that ethics is personal. I get to decide what
my ethics are. I have to look myself in the mirror. I have to live with
myself. And that’s true, you do have to live with yourself. But all of
us have to live with you too. And that gives us some right to join in
the dialogue and conversation about how we are all going to live and
thrive together. From the time when we lived in caves, we have
always had conversation about what behavior is appropriate and
what behavior is inappropriate in a community. We have had con-
versations about what are some good ideas—some good rules of
thumb—to keep the order in society and to allow all of us to flourish.
This is ethics at its best. Over time, we have grown quite good at ethi-
cal reasoning. But at the same time, we have many challenges to our
ethics in society today primarily because of technological change
and the emergence of new societies to do things differently and new
cases of a kind that we just have not thought of before.

For instance, I learned ethics at my grandmother’s knee in the
1950s in Georgia, but we did not have any conversations about
intellectual-property that could be digitally reproduced for no cost.
We did not have any conversation about end-of-life technology that
could prolong life at a great cost. We did not have any conversa-
tions about abortion or things like file-sharing and Napster or
what’s appropriate on Facebook and Twitter. Those things simply
did not exist. Now, one thing you can say is know your ethics and
your values and you will not have to have much of a conversation.
The problem with this is that it is very hard to do in today’s world.
Human beings are very good at fooling themselves and saying one

455R. EDWARD FREEMAN

thing and doing something else. We need each other in this conver-
sation about how we are going to live together.

What does all this have to do with business? If you ask people
around the world to write down their three most important values
that they would like to teach their children, or their three most
important ethical principles, they all pretty much actually write the
same thing. There is some version of respect, honesty and integrity,
caring and love, and responsibility. Of course, what it means to
show respect in Jakarta is very different than what it means in
Charlottesville, so there is always a cultural context. But, it is diffi-
cult to imagine doing business without these values. Try to think
what it would be like to do business always with people you did not
respect, or on whose honesty you could not rely on, or who did not
care about others. It would be impossible.

Adam Smith knew how important ethics was to business.
Indeed, in The Theory of Moral Sentiments and in The Wealth of
Nations, Smith makes it clear that without a sense of justice, mar-
kets just will not work very well at all. Thinking that business
ethics is a contradiction is a deep flaw in the dominant narrative of
business.

People Are Complicated

There is ample scientific evidence that human beings are not the
rational economic beings that much of our economic and business
theory assumes. We are not always driven by extrinsic if-then
rewards. We want to be engaged in doing something that has
meaning and purpose. Some like Daniel Pink, have argued that we
understand human motivation in terms of three ideas: Mastery,
the sheer joy we take out of getting better at something; Autonomy,
the freedom to live our own lives to try new things; and Purpose,
the idea that we stand for something greater than just ourselves
and our self-interest. By thinking about mastery, autonomy, and
purpose we get a much more realistic view of what motivates peo-
ple in business. The old story’s insistence on human beings being
motivated primarily by money is really not appropriate in the
twenty-first century if it ever was appropriate. Certainly, the new
generation that we call Millennials want to do something that has
meaning, that has purpose, that is not just making money.

456 BUSINESS AND SOCIETY REVIEW

Psychologist, Harry Levinson, used to hang out at the Harvard
Business School. He was kind of a crusty old guy and would often ask
executives what was the main way people are motivated inside corpora-
tions. Most executives would say to him rewards and punishments or
carrots and sticks. Levinson would draw on the board a carrot at one
end and a stick at the other. In the middle, he would put a question
mark. He would ask what animal do you imagine between the carrot
and the stick? Most people would say a jackass. So, Levinson coined the
idea that he called the great jackass fallacy. It goes like this: maybe. . .
just maybe, human beings are slightly more complex than jackasses.
Maybe they have social, spiritual, sexual, political, ethical lives as well
as economic lives. But it’s even a little more difficult than that. If you
treat people like jackasses, they begin to act like jackasses. They nose
around for the carrots and they try to avoid getting the stick. Think of all
of the productivity that gets left on the table, and, indeed, think of all of
the human misery that results from treating people like jackasses.
Human beings are more complex than the dominant story would have
us believe. We will say more about this as we move to thinking about the
principles that underlie this new story of business.

There are at least three flaws in the current story of business.
First, the purpose of a business is not only to make money. Sec-
ond, business and ethics need to go hand in hand. And, third,
human beings are complicated. The time has passed for these
flaws. The new story of business that is being built by thousands of
entrepreneurs and executives around the world eschews these
flaws and takes a different approach. Let’s turn to understanding
the ideas that are behind the new narrative.

THE IDEAS BEHIND THE NEW STORY

I have identified at least six new ideas that undergird the new story
of business that is emerging. They are: (1) The unit of analysis is
stakeholder relationships; (2) stakeholders are interdependent; (3)
tradeoffs are managerial failures of creative imagination; (4) pur-
pose, values, and ethics must be embedded in organizations; (5)
business exists in the physical world; and (6) people are compli-
cated. Let’s look at each in turn and see how they are connected
with each other and this new story.

457R. EDWARD FREEMAN

The Unit of Analysis Is Stakeholder Relationships

One of the cornerstone ideas behind the new story of business
that is emerging is the importance of looking beyond shareholders
to a broader group of stakeholders. As we saw earlier, creating
value for stakeholders is something that every successful busi-
ness has actually done. As we become more aware of this fact, we
can build into our business models more nuanced ways to create
value.

The key difference is that in a relationship there is a presump-
tion that the relationship will continue over time, other things
being equal. Businesses need relationships with their stakeholders
so that each has some attachment to the other. You want custom-
ers to have some degree of loyalty. You want employees to give you
the benefit of the doubt, and you want shareholders who will stick
by you when things are tough. Seeing these relationships through
the lens of “discrete transactions unrelated to each other” does not
build loyalty. In fact, it encourages exit when things get tough.
Building loyalty with stakeholders mitigates the risks of difficult
times.

Company X had built a relationship with a stakeholder group
that often criticized the company. The stakeholder was targeting
X with a campaign and called to tell them. The executive at Com-
pany X asked for help in solving the problem that the campaign
was about, and the company and stakeholder were able to intro-
duce an innovative program that went a long way toward solving
the problem. All of this happened because there was a relational
mind set.

Of course, relationships are two-way streets. Companies have to
stand by their suppliers and their employees when times are tough
for them. And, they have to share in the rewards of success, in a
broad manner, not just in terms of rewarding senior management.
Whole Foods Market uses gain-sharing to reward the employees
who work to bring things in under budget. They also give most of
the stock options to non-top management employees.

Stakeholders Are Interdependent

It has often been said that the key insight of stakeholder theory is
that there are groups that are important other than shareholders.

458 BUSINESS AND SOCIETY REVIEW

And, while this is one insight that the theory has brought to man-
agement thinkers, another is more important. It is that stake-
holder interests have a certain interdependence. And, when
management can capture this interdependence and push it for-
ward, great results are likely to occur. Wal-Mart was for many
years a poster child for this interdependence. By negotiating
tough deals with suppliers, Wal-Mart could offer customers every-
day low prices, and even though the margins were thin for suppli-
ers, there was a great deal of volume that could lead to
profitability. Employees were better off since there were more cus-
tomers coming to take advantage of the everyday low prices, and
the stock price saw a steady increase. Unfortunately, Wal-Mart
paid little attention to communities as stakeholders, focusing on
citizens as customers. Many outside groups began to be formed
and Wal-Mart was blamed for many social ills. Today, Wal-Mart is
working hard to repair its relationships with communities and to
integrate ideas that make communities better off into the rest of
its business model. The progress that has been made with sus-
tainability is but one of several examples where Wal-Mart has
taken a leadership role.

Even the companies who do CSR and who have adopted Michael
Porter’s view of shared value have begun to see stakeholders as
interdependent. For a long time, CSR was seen as something of a
public relations move, unconnected to the main business model.
More recently, we have begun to see how CSR can be connected to
the basics of what a company knows how to do. Nestle has pio-
neered this idea with shared value, as it has sought to introduce
the creation of social value all the way down its economic value
chain.

Trade-offs Are Managerial Failures of Creative Imagination

Economists love trade-offs. In fact, one of the hallmarks of modern
economics is that one can always calculate trade-offs. I have
become increasingly skeptical of trade-off thinking. In fact, I believe
that the drive to collaborate and avoid trade-off thinking is far
more powerful. When we see the task of the executive as getting
stakeholder interests all going in the same direction over time,
trade-offs will disappear. Of course, sometimes they have to be

459R. EDWARD FREEMAN

made, because we cannot imagine an alternative, but when we
make a trade-off we need to immediately begin the process of mak-
ing the trade-off better for both sides.

I have often told the story of a large chemical company who
decided to commit to being more sustainable and cleaner. The
CEO announced a large and lofty sustainability goal and proceeds
around to the divisions and plant sites to let them know that he
was very serious about this. There were interim goals and plans in
a very businesslike approach. In one facility, as he told the story to
a symposium at Dartmouth in the 1990s, the engineers came up
to him and said, “Sorry but we can’t meet these interim goals. This
process is too dirty, this equipment is too old, and we can’t meet
the first target.” The CEO said that they were serious about this
program and so they would have to close the plant. What I under-
stood from that was that he was willing to make a trade-off, envi-
ronment or community on the one hand versus employees on the
other. The CEO’s trade-off was that the environment was a serious
issue and it was going to be the winner. So, he told the engineers
to prepare to close the plant. A few weeks later the engineers came
back and said that a miracle had occurred. They figured out how
to do it. When the CEO asked what it would cost, the engineers
actually were embarrassed to say that the new method would save
money.

When trade-off thinking becomes unacceptable we kick into gear
the only infinite resource we really have, which is our creative
imagination. The use of the creative imagination is radically
underutilized in most companies today. Trade-offs are easy. In the
new story of business with the stakeholder mindset, trade-offs
become managerial failures. As more and more companies are
thinking about the new story of business, they are discovering
ways to satisfy multiple stakeholders. Simultaneously, this is one
of the key ideas in the new story.

What this means is that conflict, often avoided in many compa-
nies, is precisely the place where value creation can take place.
When there’s conflict among stakeholders, where there’s conflict
among core values, where there is conflict among competitors or
products this is exactly the place where we can reimagine that con-
flict and create more value. We have to come to see conflict as a
good thing. Recall the story above about company X who had con-
flict with the stakeholder group but kept up the relationship

460 BUSINESS AND SOCIETY REVIEW

because that stakeholder group could help them figure out how to
solve a problem. A lot of value was created.

Purpose, Values, and Ethics Must Be Embedded in the
Organization

One of the great things about business as an institution is that
many different purposes are possible. Novo Nordisk wants to rid
the world of diabetes. Whole Foods Market wants to help people be
healthier with better choices for food. Tastings, a small restaurant
in my hometown, wants to bring the joy of good French country
cooking to its customers. The founders of Relish MBA want to
make it easier for companies and MBA students to find a good
match. The only limit to the purpose of a business is our imagina-
tion. Of course, purposes do not have to be all good. We have
plenty of examples from human history about organizations that
were of high purpose, but whose purpose was morally evil. A sense
of values and ethics has to go alongside purpose. There are many
organizations in the pantheon of new story organizations who are
addressing precisely this issue. Just Capital is rating organizations
based on a notion of “Justice.” However, it shakes out, we can no
longer make the mistake that the pursuit of profits is the sole pur-
pose of business. Real purpose inspires both employees and other
stakeholders who come to share that purpose. And, this new story
of business is an inspirational story.

Businesses Exist in the Physical World

While many who write about sustainability and the environment
sound a caution about the physical limits of the world, I want to
suggest that this is only part of the story. We do need to come to
see business as embodied in the world, and hence, there are con-
straints imposed by the physical world. However, we also need to
see business as capable of transforming those constraints into new
opportunities. We have seen this time and again as companies
such as 3M figure out how to turn waste streams into products
and services. Obviously, we need to tackle climate change, but see-
ing it as giving us limits to growth is forgetting the creative imagi-
nation that has solved so many of our problems in the past.
Adopting some kind of green values, and integrating respect for the

461R. EDWARD FREEMAN

environment into our purpose and values, can be a powerful elixir
for creativity.

People Are Complicated

I do not want to repeat the arguments I gave earlier about the flaws
in the old story. Rather, I want to suggest that there is a much
more inspirational view of human beings that is emerging. People
are using business models and ideas to attack age old problems of
poverty, education, disease, and more participation in society.
Often these problems are attacked by these “new story companies”
in conjunction with NGOs, governments, and other private organi-
zations. We have seen a wave of “social entrepreneurs” and “impact
investing” where the explicit idea is to use business to make society
better and to solve social problems. I believe that we are fast craft-
ing a new idea about what it is to be human. Let me illustrate.

What is this smartphone, really? The way I see it, it’s some bits
of sand and metal, some vocabularies that we have invented to
solve problems, and the fact that we can work together collabora-
tively to achieve things that no one of us can achieve alone. In
short, I see the world not as a world of scarcity, but as one of abun-
dance. We have an almost infinite capacity to invent ways to solve
our problems, whether we take on poverty, space travel, climate
change, or understanding the rules of cricket. But, we are not in it
alone. We invent mutually beneficial vocabularies with others to
solve our problems. And, this is true whether we are scientists or
politicians. We are surely more than narrow economic creatures,
and in fact, capitalism works just because of this complex human
dimension.

TOWARDS A MORE RESPONSIBLE CAPITALISM

If we are to move our system to a more responsible capitalism, we
need a few more ideas that will transcend these particular ones
aimed at creating and sustaining a successful business. First of
all, we need some broadly defined principles of responsibility
throughout our society. Responsibility is an idea that comes with
the more libertarian idea of freedom that underpins market sys-
tems. We need to see people and companies as responsible for the

462 BUSINESS AND SOCIETY REVIEW

effects of their actions on others. That is the moral cornerstone of
the stakeholder idea. Unless we are willing to take responsibility
and to be willing to justify our actions to our fellow humans, our
society will not continue to flourish.

The second idea is that we need to continue to see business as a
voluntary enterprise. No one is forced to do business with anyone
else. This idea of choice as applied to multiple stakeholders is cen-
tral in creating a system of business that works for everyone. Com-
petition should celebrate the choice that customers have.
Restricting that choice artificially through institutions like crony
capitalism should have strong sanctions.

Finally, we need a new idea of the role of government. While we
have clear theories about how government plays its role as both
regulator and redistributor, there is another role that is often over-
looked. Government can be a facilitator of value creation. It does
this via infrastructure and other programs such as enforcing civil
rights, and ensuring that crony capitalism does not take hold. We
have only begun to explore this idea of government as facilitator of
value creation, so stay tuned.

WHAT CAN YOU AND YOUR COMPANY DO?

Let me wrap up by taking these ideas down to an extremely practi-
cal level. There are at least five ways to begin to practice this more
responsible capitalism in your businesses.

First, you can rediscover your purpose and the values that go
with it. No less a company than Unilever has begun this process,
and while it takes time, the payoffs are large. Employees become
inspired, and the innovative ideas begin to flow. How do you redis-
cover your purpose? Well, the first thing to do is to have a look at
history. What are the founders’ stories that are told in the com-
pany? Why do people actually show up for work? What really helps
them when they are at their best? It takes a concerted effort if a
company has lost its way, but it is an exciting process to rediscover
the purpose of an organization. Values go along with purpose and
are often seen as the “How” we are going to realize the purpose.

Second, you can perform a systems/process check on the pur-
pose and values. Purpose and values live in the systems and pro-
cesses of an organization. Talk is cheap. The first places to look are

463R. EDWARD FREEMAN

the HR and expense reimbursement systems. Think about an orga-
nization that trumpeted its respect for employees but required
them to get a receipt for a $2 toll on the Mass Pike, a task that is
mostly dangerous if not impossible. Or consider an organization
who is very proud of its stand on values, yet waits 60 days to reim-
burse employees, and pays suppliers in even later terms.

Third, you can begin live conversations about the purpose and
values. Small groups of employees can help to clarify what values
are actually in force at the company, and there are known techni-
ques for creating a conversation about these values, such as which
ones are we really serious about, and which ones are we just giving
lip service to. Some companies have begun to encourage meetings
where employees bring “values vignettes,” or sticky problems, to
groups of peers to try and get insights. Based on Johnson and
Johnson’s original “challenge meetings” discussions of these
vignettes helps to clarify what the true meaning and intention of
often quite general values statements are.

Fourth, you can be a community builder. There are many ways
to help build the communities in which you operate. Giving
employees time off to volunteer, hiring some of the least well-off
members of a community and giving them training, and donating
to charities, are all viable strategies. However, figuring out what
you know how to do, can be used to build community, brings the
power of the business model to bear on tough problems. We are
beginning to see more and more companies working with stake-
holder groups in the nonbusiness sector to jointly tackle societal
issues. Such multi-sector collaborations are one of the best ways
to build community.

Finally, you can communicate how your organization makes the
world a better place. We need business organizations to inspire us.
We need business to become an institution of hope. We need busi-
ness executive to try and remake their organizations to be places
we want our children to live in. Asking anything else is to set the
bar too low.

ACKNOWLEDGMENTS

The ideas in this paper have been partially developed in a number of
places, especially Freeman, Martin, and Parmar (2007); Freeman,

464 BUSINESS AND SOCIETY REVIEW

Parmar, and Martin (2016); Freeman and Ginena (2015); and, Free-
man (2017, forthcoming).

I am grateful to editors and co-authors for their permission to more
carefully develop these ideas here for a public audience. This paper
will be a part of a forthcoming book, tentatively titled The New Story
of Business: Responsible Capitalism, co-authored with Bidhan Par-
mar and Kirsten Martin, in 2018.

REFERENCES

Freeman, R. E. 2017. “Five challenges to stakeholder theory: A report on
research in progress,” in D. Wasieleski and J. Weber, eds., Stakeholder
Management, Business and Society 360 Series. Emerald Publishing
(forthcoming).

Freeman, R. E., and Ginena, K. 2015. “Rethinking the purpose of the cor-
poration: Challenges from stakeholder theory,” Notizie di Politeia
31(117): 9–18.

Freeman, R. E., Harrison, J., Wicks, A., Parmar, B., and de Colle, S.
2010. Stakeholder Theory: The State of the Art. Cambridge: Cambridge
University Press.

Freeman, R. E., Martin, K., and Parmar, B. 2006. “Ethics and capitalism,”
in M. Epstein and K. Hanson, eds., The Accountable Corporation, Vol 2:
Business Ethics. Westport, CT: Praeger, pp. 193–208.

Freeman, R. E., Martin, K., and Parmar, B. 2007. “Stakeholder capital-
ism,” Journal of Business Ethics 74: 303–314.

Freeman, R. E., Parmar, B., and Martin, K. 2016. “Responsible capital-
ism: Business for the 21st century,” in D. Barton, D. Horvath, and M.
Kipping, eds., Re-Imagining Capitalism. Oxford: Oxford University Press,
pp. 135–144.

Friedman, M. 1970. “The social responsibility of business is to increase
its profits,” New York Times Magazine 13: 32–33.

465R. EDWARD FREEMAN

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The Problem of Corporate Purpose

Lynn A. Stout

hat is the purpose of the modern public corporation? Most people today
would say corporations have but one proper purpose: maximizing their
shareholders’ wealth as measured by stock price. Other goals–serving

customers, building great products, providing good jobs—are viewed as
legitimate business ends only to the extent they increase “shareholder value.”
This view prevails in large part because it’s what is taught in our nation’s
classrooms. According to a recent Brookings study of the curricula of top law
and business schools, professional school courses emphasize maximizing
corporate profits and shareholder value as the proper purpose of business
corporations. As a result, “students believe the primary purpose of the
corporation is to maximize shareholder value, and they believe this is how
current corporate leaders behave when they are making business decisions.” 1
In my book The Shareholder Value Myth, I demonstrate how this “shareholder
primacy” theory can be hazardous to the health of investors, companies, and the
public alike.2 Shareholder value ideology in fact is a relatively new development
in the business culture. It is not supported by the traditional rules of American
corporate law; is not consistent with the real economic structure of business
corporations; and is not supported by the bulk of the empirical evidence on what
makes corporations and economies work.
Indeed, there is good reason to suspect that focusing on “shareholder value” may
in fact be a mistake for most business firms. This is because there is no single
shareholder value—different shareholders have different needs and interests
depending on their investing time frame, degrees of diversification and interests
in other assets, and perspectives on corporate ethics and social responsibility.
Shareholder value ideology focuses on the interests of only a narrow subgroup of
shareholders, those who are most short-sighted, opportunistic, willing to impose
external costs, and indifferent to ethics and others’ welfare. As a result
shareholder value thinking can lead managers to focus myopically on short-term
earnings reports at the expense of long-term performance; discourage investment

Number 48 June 2012

Lynn A. Stout is the
Distinguished Professor of
Corporate and Business Law,
the first endowed
professorship in the Clarke
Business Law Institute at
Cornell School of Law.

The Problem of Corporate Purpose
2

and innovation; harm employees, customers, and communities; and lure
companies into reckless and socially irresponsible behaviors. This ultimately
harms most shareholders themselves—along with employees, customers, and
communities.

Where Did Shareholder Value Thinking Come From?

The public company as we know it today came to prominence at the turn of the
20th century. Before then, most corporations were “closely held” companies
whose stock was held by a single controlling shareholder or group of
shareholders who were intimately involved in the company’s affairs. The
question of corporate purpose wasn’t really on the table, because the company’s
purpose was whatever its controlling shareholder or shareholders wanted it to
be. Some controlling shareholders might care only about profits, but others
worried about the welfare of their employees, consumers, and communities, and
about the growth and health of the business itself.

By the early 1900s, however, a new type of corporation began to cast a
growing shadow over the economic landscape. The new “public” companies
sold stock to hundreds or even hundreds of thousands of small investors who
had no interest in being involved in the company’s daily affairs. Control and
authority in firms like American Telephone and Telegraph (AT&T), General
Electric (GE), and the Radio Company of America (RCA) rested not in
controlling shareholders’ hands, but in boards of directors who hired full-time
executives to run their companies.3

Who or what should these professional corporate managers serve?
Almost from its inception, the public corporation inspired impassioned debate
over what its purpose ought to be. Some observers thought that (as we teach
today) the corporation’s only goal should be maximizing its shareholders’
wealth. This “shareholder primacy” view was countered, however, by a
“managerialist” philosophy that taught that corporations should be
professionally managed to serve not just shareholders, but also employees,
customers, and the broader society. By mid-century, the managerialist view
clearly dominated.4 Fifty years ago, if had you asked a director or executive
what the purpose of the corporation was, he was likely to answer that the firm
had many purposes: to produce satisfactory returns for investors, but also to
provide good jobs to employees, make reliable products for consumers, and to be
a good corporate citizen.

All this changed in the 1970s with rise of the Chicago School of free-
market economists. According to prominent members of the Chicago School,
economic analysis revealed the proper purpose of the public corporation clearly,
and that purpose was to make money for its dispersed shareholder “owners.” If
corporate managers pursued any goal other than maximizing shareholder value,
they were misbehaving corporate “agents” imposing inefficient “agency costs”
on both shareholders and society.5 An increase in share price was viewed as
proof of greater economic efficiency.

Almost from its
inception, the
public corporation
inspired
impassioned
debate over what
its purpose ought
to be.

The Problem of Corporate Purpose
3

The Chicago School’s approach proved irresistibly attractive to a number
of groups for a number of reasons. To tenure-seeking law professors, the
Chicago School’s application of economic theory to corporate law lent an
attractive patina of scientific purity to the messy business of corporate law. The
idea that business performance could be measured through the single metric of
share price enticed a generation of economists and business school professors to
produce innumerable empirical studies testing the relationship between share
price and variables like board structure, capitalization, mergers, state of
incorporation, and so forth, in the quest to uncover the secret to “good corporate
governance.” To the popular press and the business media, shareholder primacy
provided an easy sound-bite explanation of the firm and, better yet, an obvious
villain for every disaster and scandal: wayward corporate “agents” taking
advantage of their “shareholder principals.’”

Finally, lawmakers, consultants, and would-be reformers now had a
simple prescription for every corporate ill. The prescription had three
ingredients: (1) give shareholders more power, (1) give boards of directors less
power, and (3) “incentivize” executives and directors by tying their pay to share
price. According to the dogma of shareholder value, this medicine could be
given to any suffering company and better performance was sure to follow.

The Chicago School’s theories began to influence actual corporate
practice. During the 1990s, the Securities Exchange Commission (SEC) adopted a
number of individually-modest but collectively-significant rule changes
designed to encourage boards to pay closer attention to shareholder demands.
Meanwhile, activist shareholders and would-be reformers pushed for changes in
corporations’ internal governance structures, especially the elimination of
“staggered” boards that made hostile takeovers more difficult, in order to
“unlock shareholder value.” Finally, shareholder value thinking came to appeal
to executives through the direct route of self-interest. In 1993, Congress amended
the tax code to encourage corporations to tie the bulk of their executive’s
compensation to stock price as a means of “tying pay to performance.” Equity-
based compensation rose from an average of zero percent of the median
executive’s pay at Fortune 500 firms in the 1980s, to account for 60% of the
median pay in 2001.6

Time to Question Shareholder Primacy
By the close of the millennium, most scholars, regulators and businesspeople had
come to accept without question that shareholders “owned” public corporations
and that the proper purpose of the corporation was to maximize its shareholders’
wealth. Shareholder primacy had become dogma, a belief system that was
seldom questioned, rarely justified, and so commonplace most of its followers
could not even recall where they had first learned of it.

The Problem of Corporate Purpose
4

Today questions seemed called for. The dogma of shareholder primacy
predicts that Corporate America’s mass embrace of shareholder value thinking
over the past two decades should have greatly improved the business sector’s
performance. This prediction plainly has not been borne out. For most of the
twentieth century, American public corporations were the engine of a thriving
economic system that worked to benefit investors, employees, and the broader
society. But in recent years our business sector has stumbled. We have suffered
a daisy chain of costly corporate scandals and disasters, from massive frauds at
Enron, HealthSouth, and Worldcom in the early 2000s, to the near-collapse of the
financial sector in 2008, to the BP Gulf oil spill disaster in 2010, to the Walmart
bribery scandal unfolding today. The number of U.S. public companies is
decreasing, from 8,823 in 1997 to only 5,401 in 2009.7 Shareholder returns have
been disappointing at best— the past ten years are now known as “the lost
decade” for investors.

We have been dosing our public corporations with the medicine of
shareholder value thinking for at least two decades now. The patient seems, if
anything, to be getting worse. And with good reason. Closer inspection reveals
that the idea that public corporations are run well when they are run to
maximize share price is a myth, and a dangerous myth at that.

How Shareholder Value Thinking Gets the Law Wrong
One of the most striking symptoms of how shareholder primacy thinking
dominates contemporary discussions of corporations is the way it has become
routine for journalists, economists, and business experts to claim as undisputed
fact that U.S. corporate law requires directors of public companies to try to
maximize shareholder wealth. As one editor of Business Ethics put it, “courts
continue to insist that maximizing returns to shareholders is the sole aim of the
corporation. And directors who fail to do so can be sued.”8

This common and widespread perception lacks any solid basis in actual
corporate law. The corporate code of Delaware, where the majority of Fortune
500 businesses are incorporated, states that corporations can be formed for any
lawful purpose.9 Similarly, the typical public company charter broadly defines
the company’s purpose as “anything lawful.” (Although it is perfectly possible
for a corporate charter to state that the company’s purpose is to maximize
shareholder value, virtually no public company charter does so.) This leaves
advocates of shareholder primacy in something of a bind. Where, exactly, can
the supposed legal requirement that directors maximize shareholder value be
found?

When pressed, shareholder primacy advocates typically cite the nearly
century-old case Dodge v. Ford, in which the Michigan Supreme Court famously
observed that “a business corporation is organized and carried on primarily for
the profit of the shareholders. The powers of the directors are to be employed for
that end.”10 This remark, however, was what lawyers call “mere dicta,” an

Shareholder
returns have been
disappointing at
best— the past ten
years are now
known as “the lost
decade” for
investors.

The Problem of Corporate Purpose
5

offhand remark that was not needed for the court to reach its desired result in the
case, and that does not create binding precedent. More importantly, modern
courts—especially Delaware courts—simply do not follow this element of Dodge
v. Ford. To the contrary, thanks to a vital legal doctrine known as the business
judgment rule, directors of public companies enjoy virtually unfettered legal
discretion to determine the corporation’s goals.

In brief, the business judgment rule holds that so long as a board of
directors is not tainted by personal conflicts of interest and makes a reasonable
effort to become informed, courts will not second-guess the board’s decisions
about what is best for the company—even when those decisions predictably
reduce profits or share price. Consider the recent Delaware case of Air Products,
Inc. v. Airgas, Inc.11 Air Products wanted to acquire Airgas, whose stock had been
trading in the $40s and $50s, at a price of $70 per share. Airgas’ board refused
Air Products’ amorous advances, even though many Airgas shareholders
supported the sale as a way to make a quick profit. The Delaware Court
supported the Airgas boards’ decision to reject the offer, stating that the board
“was not under any per se duty to maximize shareholder value in the short
term.”12 As Airgas and many other cases show, disinterested and informed
directors are free to reduce profits and share price today when they claim to
believe this will help the corporation in “the long run.” They are also free to
decide what is in the corporation’s “long run” interests.

How Shareholder Value Thinking Gets the Economics Wrong

Even if the law does not require directors to maximize shareholder value, it is of
course still possible to argue it ought to. In other words, shareholder primacy can
be defended not as a legal requirement, but as a superior philosophy for
managing corporations to ensure they contribute the most to the economy and to
our society. Many advocates of shareholder value maximization do indeed seem
to believe this rule ensures corporations provide the maximum possible benefits
to society: an increase in share price is viewed as tantamount to an increase in
overall economic efficiency. This belief, in turn, seems based not on experience
or hard evidence but on the seductive appeal of a theory, the principal-agent
model of the corporation.

The principal-agent model is associated with a 1976 article published in
the Journal of Financial Economics by business school dean William Meckling
and finance theorist Michael Jensen. 13 This article, titled “The Theory of the
Firm,” explored in economic terms the problem that arises when the owner of a
business (the so-called principal) hires an employee (the agent) to run the firm on
the owner’s behalf. Because the agent does all the work while the principal gets
all the profit, we can expect the agent to shirk or even steal at the principal’s
expense. Thus undesirable “agency costs” are created when ownership is
separated from control.

Jensen and Meckling’s article–the most frequently-cited article in

The Problem of Corporate Purpose
6

business academia today14—assumed without discussion the “principals” in
public corporations were the shareholders, and directors were the shareholders’
“agents.” Yet Jensen and Meckling were economists, not lawyers, and this
assumption (as we shall see below) fundamentally mistakes the real economic
and legal relationships among shareholders, executives, creditors, and directors
in public corporations. Nevertheless, the principal-agent model was eagerly
embraced by a generation of academics in law, business, and economics as a
simple way of understanding the complex reality of public corporations. Among
other advantages, it gave a clear answer to the murky question of corporate
purpose, because it taught that the best way to maximize the total value of the
company was to focus on maximizing share price, which represented the
shareholders’ interest as the firm’s supposed “residual claimant.”

There is one serious problem with this analysis, however. Put bluntly,
the principal-agent model is wrong. Not wrong in a normative sense; there’s
nothing objectionable about a principal hiring an agent. But it’s clearly
incorrect, as a descriptive matter, to say the principal-agent model captures the
reality of modern public corporations with thousands of shareholders, scores of
executives, and a dozen or more directors.

This becomes readily apparent if we consider the three factual claims that
lie at the heart of the principal-agent model. The first incorrect factual claim is
that shareholders “own” corporations. As a legal matter, shareholders do not
own corporations. Corporations are independent legal entities that own
themselves, holding property in their own names, entering their own contracts,
and committing their own torts. What do shareholders own? The label
“shareholder” gives the answer. Shareholders own shares of stock, and shares in
turn are contracts between the shareholder and the corporation that give
shareholders limited rights under limited circumstances. (Owning shares in
Ford doesn’t entitle you to help yourself to the car in the Ford showroom). In a
legal sense, stockholders are no different from bondholders, suppliers, and
employees. All have contractual relationships with the corporate entity. None
“owns” the company itself.

The second mistaken factual claim underlying the principal-agent model
is that shareholders are the sole residual claimants in corporations. Corporate
“stakeholders” like employees, customers, and creditors are assumed to receive
only the benefits their formal contracts and the law entitle them to (fixed salaries,
interest, and so forth), while shareholders supposedly get all profits left over
after the firm has met those fixed obligations. Again, this assumption is patently
incorrect. The only time shareholders are treated anything like residual
claimants is when a company falls into bankruptcy. In operating firms,
shareholders only get money when the directors decide the shareholders should
get money, which the board can arrange either by declaring a dividend (a
decision entirely in the board’s discretion) or by choosing to limit expenses so the
company builds up accounting profits and “retained earnings.” (If a company is
minting cash, its directors have the option of allowing accounting profits to

But it’s clearly
incorrect, as a
descriptive matter,
to say the principal-
agent model
captures the reality
of modern public
corporations with
thousands of
shareholders,
scores of
executives, and a
dozen or more
directors.

The Problem of Corporate Purpose
7

increase, but they could also raise executives’ salaries, improve customer service,
increase employee benefits, or make corporate charitable contributions.) The
corporation is its own residual claimant, and its board of directors decides which
groups get what share of the corporation’s residual.

Finally, the third fundamental but mistaken belief associated with the
principal-agent model is that shareholders and directors are just that—principals
and agents. Again, this premise is wrong. The hallmark of an agency
relationship is that the principal retains the right to control the agent’s behavior.
Yet one of the most fundamental rules of corporate law is that corporations are
controlled by boards of directors, not by shareholders. Although in theory
shareholders have the right to elect and remove directors, in practice the costs of
mounting a proxy battle combined with dispersed shareholders’ “rational
apathy” raises near-insurmountable obstacles to organized shareholder action in
most public firms.15 Thanks to the business judgment rule, shareholders also
can’t successfully sue directors who place stakeholders’ or society’s interests
above the shareholders’ own. Finally, while the ability to sell her shareholdings
sometimes can protect a disgruntled individual investor who wants to express
her unhappiness with a board by “voting with her feet,” when disappointed
shareholders in public companies sell en masse, they drive down share price,
making selling a Pyrrhic solution.

The economic structure of public corporations insulates boards of
directors from dispersed shareholders’ command and control in ways that make
it impossible to fit the square peg of the public corporation into the round hole of
the principal-agent model. Of course, one could always argue that shareholder
powerlessness is exactly the problem that needs to be remedied, and that
corporations would work better if shareholders acted more like principals and if
directors acted more like shareholders’ agents, Yet this argument leaves
shareholder primacy dogma at its most vulnerable. If changing corporate
governance rules to make boards more shareholder-oriented really improves
corporate performance, we should see evidence of this in the business world.
That evidence is notably missing.

How Shareholder Value Thinking Gets the Evidence Wrong
Over the past two decades, legal and economic scholars have generated dozens
of empirical studies testing the statistical relationship between various measures
of corporate performance and supposedly shareholder-friendly elements of
corporate governance like director independence, a single share class, or the
absence of staggered boards and poison pills. These tests have produced mostly
confusion. For example, one recent paper surveyed the results of nearly a dozen
empirical studies of what happens when companies use dual share classes to
reduce or eliminate public shareholders’ voting rights, a governance structure
the principal-agent model predicts should harm corporate performance by
increasing agency costs. The survey concluded that some studies found no effect

If changing
corporate
governance rules
to make boards
more shareholder-
oriented really
improves corporate
performance, we
should see
evidence of this in
the business world.

The Problem of Corporate Purpose
8

on performance, some found a mild negative effect, and some a mild positive
effect. At least one study found that dual share classes greatly improved
performance—exactly the opposite of what shareholder primacy advocates
would predict.16

This lack of empirical support for the supposed superiority of the
shareholder-oriented model has captured at least some scholarly attention.
(Roberta Romano of Yale Law School has famously called some shareholder-
oriented governance reforms “quack corporate governance.”)17 But the evidence
in support of shareholder primacy is even weaker than it appears. This is
because most empirical studies focus only on how giving shareholders greater
power effects economic performance at the level of the individual company,
typically measured over a few days or at most a year or two. These studies may
be looking in the wrong place, for the wrong time period. It is not only possible,
but probable, that raising the share price of individual firms relative to the rest of
the market in the short run reduces aggregate shareholder wealth over time.

To understand this counterintuitive idea, imagine trying to empirically
test the best method for catching fish. On first inspection, one reasonable
method would be to study the individual fishermen who fish in a particular lake,
comparing their techniques with the amount of fish they catch. You might find
that fishermen who use worms as bait get more fish than those who use
minnows, and conclude fishing with worms is more efficient.

But what if some fishermen start using dynamite in the lake, and simply
gather up all the dead fish that float to the surface after the blast? Your statistical
test would show that individuals who fish with dynamite catch far more fish
than those who use either worms or minnows, and also show that fishermen
who switch from baited hooks to dynamite see an initial dramatic improvement
in their fishing “performance.” But as many real-world cases illustrate,
communities that fish with dynamite see long-run declines in the size of the
average haul, and eventually total collapse of the fish population.

Fishing with dynamite is a good strategy for an individual fisherman, for
a while. But in the long run, it is very bad for fishermen collectively. There is
reason to suspect the same can be said for shareholders, when corporations are
driven to “maximize shareholder value.”

There is No Single “Shareholder Value”

To understand how encouraging corporate directors to maximize shareholder
value can hurt shareholders themselves, we must begin by recognizing that
“shareholder” is a fictional noun. The principal-agent model presumes shares in
public companies are held by homogeneous entities that care only about the
firm’s share price. Yet no such homogenous entities exist.

When we think of shareholders, we are really thinking of human beings,

This means the
idea of a single
“shareholder
value” is
intellectually
incoherent,
because different
shareholders value
different things.

The Problem of Corporate Purpose
9

who typically own shares either directly or through pension and mutual funds.
Human beings inevitably have many different values and interests.18 For
example, some want to hold their shares for only a short time, and care only
about tomorrow’s stock price. Others may be investing for retirement or to pay a
child’s college tuition, and care about long-term returns. (The old “efficient
markets” idea that stocks prices perfectly measure future returns has been
discredited.)19 Some want their firms to make informal commitments that build
employee and customer loyalty that will pay off in the future; others who plan to
sell soon want firms to opportunistically renege on such commitments. Some
hold widely diversified portfolios and worry about how the corporation’s
behavior affects the value of their other assets and interests; others are relatively
undiversified and unconcerned. Finally, some shareholders may care only about
their own material wealth. But many and possibly most are “prosocial,” and
prefer their companies not earn profits by harming third parties or breaking the
law.20

This means the idea of a single “shareholder value” is intellectually
incoherent, because different shareholders value different things. It also means
that business strategies designed to raise share price help some shareholders
primarily by hurting others.

Suppose, for example, Anne and Betty each own shares in Apple
corporation. Anne is an asocial hedge fund manager who seeks only to “buy low
and sell high,” who takes positions in only two or three companies at a time, and
who churns her investment portfolio two or three times annually. Betty is a
prosocial, diversified, buy-and-hold investor saving toward her retirement, who
works as an elementary school teacher in California .

Anne wants her Apple investment to generate immediate profits in the
form of dividends or quick stock appreciation. She has incentive to pressure
Apple’s board to pay out all its cash in the form of dividends instead of retaining
earnings to reinvest in innovative future products that the stock market can’t
easily value today—even though retaining earnings might increase Betty’s future
returns. Anne also wants Apple to reduce its expenditures on customer support
and product quality. In the long run, this will likely hurt employee and customer
loyalty and Apple sales, but Anne expects to have sold her Apple shares and
moved on to her next investment long before these long-run harms are reflected
in Betty’s stock price. Anne also wants Apple to outsource as many jobs as
possible to areas of the world where labor is cheap and taxes are low, even
though cutting Apple’s employment rolls and tax payments in California may
harm California’s public education system (and Betty’s job). Finally, Anne is
happy when Apple violates labor laws to make a few more pennies of profit on
each iPad it sells. Prosocial Betty is not.

Clearly, Anne’s and Betty’s interests and values are different.
Unfortunately, the idea that Apple’s directors should only focus on raising
Apple’s stock price resolves these differences and conflicts of interest by simply
assuming–without evidence or justification–that Anne’s interests must always

The Problem of Corporate Purpose
10

trump Betty’s. And Anne is perfectly happy to fish with dynamite, because she
gets all the benefits of short-term strategies that (perhaps temporarily) bump up
Apple’s share price, while Betty bears the costs. Privileging Anne’s interests over
Betty’s creates a kind of investing “Tragedy of the Commons.” Individual
investors do best by pursuing short-term, opportunistic, external-cost-generating
corporate strategies, but investors as a group suffer over time when all pursue
this strategy.

Revisiting the Idea of Corporate Purpose
To avoid the trap of shareholder value thinking, it is essential to recognize that
even if shareholders are the only participants in corporations whom we care
about, it is still unwise to reduce shareholders’ interests to the single metric of
today’s share price. The idea that one can “maximize” shareholder value rests
on an impossible abstraction of the shareholder as a Platonic entity that cares
only about the market price of a single corporation’s equity. This reduces
shareholders to their lowest possible common human denominator: short-
sighted, opportunistic and untrustworthy, happy to impose external costs that
reduce the value of other assets, and psychopathically indifferent to the welfare
of other people, future generations, and the planet. Such a single-dimensioned
conception of the shareholder is not only unrealistic, but dysfunctional.

Advocates for shareholder value thinking sometimes argue that without a
single, objective metric to judge how well directors and executives are running
firms, these corporate “agents” will run amok. 21 This argument ignores the
obvious human capacity to balance, albeit imperfectly, competing interests and
responsibilities. Parents with more than one child routinely balance the interests
of competing siblings (not to mention balancing their children’s welfare against
their own), just as judges routinely balance justice against judicial efficiency and
professors balance teaching against research and scholarship. The fact that
balancing interests is sometimes difficult does not mean it cannot be done.
Indeed, decently satisfying several sometimes-competing objectives, rather than
trying to “maximize” one, is the rule and not the exception in human affairs.
Although we should not expect directors to do a perfect job of balancing the
competing interests of different shareholders, there is no reason to think they
can’t do it well enough that shareholder interest-balancing is preferable to
serving only the interests of the most short-sighted, opportunistic, undiversified,
and unethical shareholders.

Accepting directors’ obligation and authority to mediate between
different shareholder interests, and abandoning the quixotic and ultimately self-
defeating idea that corporate success can and should be measured by a single
objective metric, allows us to understand a host of otherwise-puzzling realities of
corporate law and practice. Perhaps the most obvious is how the U.S. public
corporation managed to thrive for most of the twentieth century. Thanks to
dispersed shareholders’ rational apathy and the business judgment rule,

Indeed, decently
satisfying several
sometimes-
competing
objectives, rather
than trying to
“maximize” one, is
the rule and not
the exception in
human affairs.

The Problem of Corporate Purpose
11

directors of public companies who avoided personal conflicts of interest enjoyed
virtually unfettered discretion to set corporate policy, even over some
shareholders’ vocal objections. This undoubtably increased “agency costs,” but it
did not stop public corporations from producing excellent results for investors,
employees, and communities. More recently, as shareholder value thinking has
gained traction, boards have lost some of their ability to resist shareholder
demands. Perhaps in consequence, aggregate shareholder returns have eroded
and the numbers of public companies have been declining.

That possibility carries at least two important implications. The first is
that policymakers and would-be reformers should stop reflexively responding to
every business crisis or scandal by trying make managers pay more attention to
“shareholder value.” For over two decades, the Congress, the SEC, and various
policy entrepreneurs have successfully pushed through a number of individually
modest but collectively significant regulations designed to make managers focus
more on increasing shareholder wealth as typically measured by stock price .
These supposed reforms have done nothing to improve investor returns or
shareholder satisfaction. Similarly, there is no reason to think that promoting
“shareholder democracy” through rules like the SEC’s controversial proxy access
proposal22 will serve shareholders’ collective welfare. Such regulatory changes
may provide an immediate windfall to certain types of shareholders (for
example, undiversified hedge funds that want to pressure boards to do share
repurchases or asset sales). But they may ultimately work against the interest of
shareholders as a whole.

The second and more important lesson is that investors and business
leaders need to liberate themselves from the tyranny of shareholder value
thinking. While regulatory shifts have helped to move Corporate America
closer to the shareholder value ideal, a far more important factor has been the
business world’s own intellectual embrace of shareholder primacy. In the
interest of maximizing shareholder value, corporate directors have voluntarily
de-staggered boards, adopted stock-based compensation schemes, outsourced
jobs, and cut back on research and development to meet quarterly earnings
estimates. In the interest of shareholder value, pension and mutual funds have
joined with hedge funds to pressure boards to “unlock value” through
repurchases and asset sales, while turning a blind eye to questions of corporate
responsibility and ethics. This has happened not because of regulatory
requirements, but because investors and managers alike have come to accept
shareholder value thinking as a necessary evil in the world.

John Maynard Keynes famously said that “the ideas of economists and
political philosophers, both when they are right and when they are wrong, are
more powerful than is commonly understood. Indeed the world is ruled by little
else. Practical men, who believe themselves to be quite exempt from any
intellectual influence, are usually the slaves of some defunct economist.”

Shareholder value ideology shows all the signs of a defunct economists’
idea. It is inconsistent with corporate law; misstates the economic structure of

The Problem of Corporate Purpose
12

public companies; and lacks persuasive empirical support. Not only does
shareholder value ideology fail on inductive grounds, it is riddled with
deductive flaws as well, especially its premise that the only shareholder whose
values should count is the shareholder who is myopic, untrustworthy, self-
destructive, and without a social conscience.

Nevertheless, as described in the Brookings study, shareholder primacy
continues to be taught in our nation’s law schools, business schools, and
economics departments. Meanwhile, firms run according to the mantra of
shareholder value cut safety corners (BP), outsource jobs and exploit workers
(Apple), and indulge in criminal misbehavior (Walmart). If we want our
corporations to perform better for investors and the rest of us as well, we need to
re-visit the wisdom of shareholder value thinking.

The Problem of Corporate Purpose
13

Email your comments to gscomments@brookings.edu

The views expressed in this piece are those of the authors and should not be attributed to
the staff, officers or trustees of the Brookings Institution.

Governance Studies
The Brookings Institution
1775 Massachusetts Ave., NW
Washington, DC 20036
Tel: 202.797.6090
Fax: 202.797.6144
www.brookings.edu/governance.aspx

Editor
Christine Jacobs

Production & Layout
Stephanie C. Dahle
Susan Schipper

The Problem of Corporate Purpose
14

Endnotes

1 Darrell West, The Purpose of the Corporation in Business and Law School Curricula
(Brookings, July 18, 2011) www.brookings.edu/-
/media/Files/re/papers/2011/0719_corporation_west/0719_corporations_west ., 17-18.
2 Lynn Stout, The Shareholder Value Myth: How Putting Shareholders First Harms Investors,
Corporations, and the Public (San Francisco: Berrett-Koehler Publishers, 2012).
3 Adolf Berle and Gardiner Means, The Modern Corporation and Private Property (New
Brunswick, U.S.A. and London: Transaction Publishers, 1991, originally published 1932).
4 Adolf A. Berle, The 20th Century Capitalist Revolution (New York: Harcourt, Brace, 1954) 169.
5 Michael C. Jensen and William H. Meckling, “Theory of the Firm: Managerial Behavior,
Agency Costs and Ownership Structure,” Vol. 3, No. 4 Journal of Financial Economics (October,
1976) 305.
6 Brian J. Hall, “Six Challenges in Designing Equity-Based Pay,” 15 Accenture Journal of
Applied Corporate Finance (2003) 23, cited in Jill E. Fisch, “Measuring Efficiency in Corporate
Law: The Role of Shareholder Primacy,” 21 Journal of Corporation Law 639 n.5 (Spring 2006).
7 David Weild and Edward Kim, “A Wake-Up Call for America,” Grant Thornton Capital Market
Series (November 2009) 1.
8 Marjorie Kelly, The Divine Right of Capital: Dethroning the Corporate Aristocracy (San
Francisco: Berrett-Koehler Publishers, 2001, 2003) 54.
9 Delaware General Corporation Law, Section 102 (2011).
10 Dodge v. Ford Motor Co., 170 N.W. 668 (Mich. 1919).
11 Air Products and Chemicals, Inc. v. Airgas Inc., Civ. 5249-CC, 5256-CC (Del. Ch., Feb. 15,
2011).
12 Id. 92, citing Paramount Communications Inc. v. Time, Inc., 571 A.2d 1140, 1150 (Del. 1990).
13 Jensen and Meckling, supra.
14 Roger Martin, Fixing the Game: Bubbles, Crashes, and What Capitalism Can Learn from the
NFL (Boston, Massachusetts: Harvard Business Review Press, 2011) 11.
15 Lucian A. Bebchuk, “The Myth of the Shareholder Franchise,” 73 Virginia Law Review 675
(2007).
16 Renee Adams and Daniel Ferreira, “One Share-One Vote: The Empirical Evidence,” 12 Review
of Finance 51 (2008).
17 Roberta Romano, “The Sarbanes Oxley Act and the Makings of Quack Corporate Governance,”
Vol. 114 Yale Law Journal 114 (2005).
18 Iman Anabtawi, “Some Skepticism About Increasing Shareholder Power,” 53 University of
California Los Angeles Law Review 561 (2006).
19 Lynn A Stout, “The Mechanisms of Market Inefficiency: An Introduction to the New Finance,”
23 Journal of Corporation Law 635 (2003); John Quiggen, Zombie Economics: How Dead Ideas
Still Walk Among Us (Princeton, New Jersey and London: Princeton University, 2010).
20 Lynn Stout, Cultivating Conscience: How Good Laws Make Good People (Princeton and
Oxford: Princeton University Press, 2011) 98.
21 Michael C. Jensen, “Value Maximization, Stakeholder Theory, and the Corporate Objective
Function,” Vol. 12 Business Ethics Quarterly (April, 2002) 238.
22 Business Roundtable et al. v. Securities Exchange Commission, No. 10-1305 (D.C. Cir., July
22, 2011).

http://www.brookings.edu/-/media/Files/re/papers/2011/0719_corporation_west/0719_corporations_west .,

WHO GETS WHAT AND WHY?

As beneficiaries of a system that paid them way
out of proportion to any effort or virtue of their own,
the superrich are entitled to some of their wealth, but
not all.

They should give a lot of it back.

233

QUESTIONS

1. Why do the rich get rich in America?
2. Should the rich “give a lot of it back”?

CASES

CASE 5.1

Revolution Without Ideology

Naomi Klein

Naomi Klein is the author of No Logo and
Fences and Windows.

An extraordinary chapter in capitalist history is
being written today in Argentina. Call it revolu-
tion without ideology, or serendipitous employee
ownership. Call it a reminder that property rights
originate at the point of a gun. Whatever words
we use cannot do justice to the remarkable events
themselves. In Buenos Aires, every week brings
news of a new worker occupation-a four-star hotel
now run by its cleaning staff, a supermarket taken
over by its clerks, a regional airline about to be turned
into a cooperative by the pilots and attendants. In
Trotskyist journals around the world, Argentina’s
occupied fact9ries are giddily hailed as the dawn
of a socialist utopia, because workers have “seized
the means of production.” In The Economist, the
worker-run factories are described as a threat to the
sacred principle of private property. The truth lies
in between.

Take the Brukman textile factory in Buenos
Aires. Brukman has been producing men’s suits
for 50 years, and since December it’s been doing it
without managers. The means of production weren’t
seized-they were simply picked up after being
abandoned by their owners. The factory had been
in decline for years, with debts to utility companies
piling up. Seamstresses had seen salaries slashed
from 100 pesos a week to two pesos-not enough
for bus fare.

In December 2002, the workers demanded a travel
allowance. The owners, pleading poverty, told them to
wait at the factory while they looked for the money.
“We waited until night,” said Brukman worker Celia
Martinez. “No one came.”

Getting the keys from the doorman, workers slept
at the factory that night. They’ve been running it ever
since. They’ve paid the outstanding bills, attracted
new clients and-without profits and management
salaries to worry about-paid themselves steady
salaries. All these decisions have been made by vote

From Business Ethics, Summer 2003, p. 6. Reprinted by permission of Bell Globemedia Interactive Inc.

234

in open assemblies of the 58 workers. “I don’t know
why the owners had such a hard time,” Martinez
says. “I don’t know much about accounting, but for
me it’s easy: addition and subtraction.”

Like other garment factories, Brukman is filled
with women hunched over sewing machines, eyes
straining and fingers flying. What makes Brukman
different are the sounds. Along with the roar of
machines is the Bolivian folk music, coming from
a tape deck at the back of the room. And there are
soft voices, as older workers show younger ones
new stitches. “Before,” says Martinez says, “they
wouldn’t let us get up from our workspaces or listen
to music. But why not listen to music, to lift the
spirits a bit?”

In dozens of cases like Brukman’s, workers have
been awarded legal expropriation by the courts-
much like squatters allowed to claim ownership of
occupied buildings. Lawyers of the Brukman workers
argue that factory owners have violated principles of
business by failing to pay employees and creditors,
while collecting huge subsidies from the state. Why
can’t the state now insist that the indebted companies’
assets continue to serve the public with steady jobs?

In Brukman’s case, the argument hasn’t worked.
A federal judge has ordered the workers evicted,
writing-in a remarkable statement-that “Life and
physical integrity have no supremacy over economic
interests.” Property rights trump all other rights.

Those preeminent rights were enforced in April,
when police carried out the judge’s eviction order
in the middle of the night. They turned the entire
block into a military zone guarded by machine guns
and attack dogs. Unable to get into the factory and
complete an order for 3,000 pairs of dress trousers,
the workers gathered a huge crowd of supporters

HONEST WORK

and announced it was time to go back to work. At
5 p.m., 50 middle-aged seamstresses in no-nonsense
haircuts, sensible shoes, and blue smocks walked up
to the police fence. Someone pushed, the fence fell.
The Brukman women-unarmed and arm in arm-
slowly walked through.

They had taken only a few steps when the police
began shooting: tear gas, water cannons, rubber bul-
lets, then lead. Dozens were injured-for the crime
of trying to sew trousers. ·

“They are afraid of us because we have shown
that, if we can manage a factory, we can also manage
a country,” Martinez said. “That’s why this govern-
ment decided to repress us.” There may also be fear
of the sheer magnitude of what is underway. In the
past 18 months, almost 200 factories employing
more than 10,000 nationwide have been taken over
and run by workers.

It’s a new kind of labor movement, based not on
the power to stop working (the traditional union tac-
tic) but on the dogged determination to keep working
no matter what. It’s a demand driven not by dogma
but by realism: In a country where 58 percent of the
population is in poverty, workers are a paycheck
away from having to scavenge to surviv~. A revolu-
tion may be underway, but it’s not driven by ideology.
The specter haunting Argentina’s occupied factories
is not communism, but indigence.

QUESTIONS

1. Did these women have a moral justification for
taking over their factory?

2. Aside from the legal arguments, did the factory
owners have a good moral argument for stopping the
women from running the factory?

Publix

Supermarkets, Inc.

January 2018

Written by Jeffrey S. Harrison, Morgan Owdom, Duncan Pitchford, Alex Stratton and Brian
Warren at the Robins School of Business, University of Richmond. Copyright © Jeffrey S.
Harrison. This case was written for the purpose of classroom discussion. It is not to be
duplicated or cited in any form without the copyright holder’s express permission. For
permission to reproduce or cite this case, contact Jeff Harrison at RCNcases@richmond.edu. In
your message, state your name, affiliation and the intended use of the case. Permission for
classroom use will be granted free of charge. Other cases are available at:
http://robins.richmond.edu/centers/case-network.html

Shortly after being named as CEO in 2016, the Publix Board of Directors authorized Todd Jones
to move forward with opening ten new stores in the highly competitive Richmond, Virginia
market.1 The company’s expansions out of its home market of Florida have paid off handsomely
so far, with Publix now a close number 3 in market share in Georgia and gaining on its
competition in Tennessee.2 Stressing service and a unique store experience, Jones believed
Publix would remind Richmond shoppers of the now-shuttered, service-oriented Ukrop’s Super
Markets and allow the company to quickly gain market share at the expense of its grocery
nemeses, Walmart and Kroger. However, Richmond also marked the first time Publix would
face Wegmans, a grocer with a similar background and focus on service, as well as a new
European arrival, Lidl.3 Would the expansion work?

COMPANY BACKGROUND

George Jenkins opened the first Publix supermarket in Winter Haven, Florida on September 6,
1930, in the midst of the Great Depression.4 The story of Publix’s inception has become
corporate lore, an anecdote to explain the company’s devotion to its employees. As the story
goes, Jenkins was a successful manager at a Piggly Wiggly in Winter Haven. However, when
Piggly Wiggly’s new corporate owner refused an audience with Jenkins, who had driven eight
hours to see him, Jenkins left in disgust, and resolved to start a rival store upon his return to
Florida.5

Jenkins’ single small grocery store has grown dramatically in the decades since. By the end of
2016, revenue surpassed $34 billion and Publix operated 1,136 supermarkets located primarily in
the southeastern United States, with this number reaching 1,161 by November of 2017 (a store
breakdown appears at Exhibit 1). 6 In addition to its stores, the company maintains nine
distribution centers (seven of which are in Florida) and eleven manufacturing plants (nine in
Florida, two in Georgia) producing dairy goods, fresh foods and bakery items.7 Eighty-five
percent of revenue is derived from traditional grocery sales, which includes dairy, produce, meat,
and seafood, with the remaining 15% coming from health and beauty care, general merchandise,
pharmacy, floral, and other products and services. Publix offers customers nationally-recognized
brands as well as private labels and relies on its own distribution centers for the majority of its
product offerings.8

One of Publix’s greatest strength is its customer service – it has ranked number one among
supermarkets on the American Consumer Satisfaction Index for 14 straight years.9 The
company’s longstanding motto captures this focus: “Where Shopping is a Pleasure.” Publix, as
an employee owned company, also boasts strong employee satisfaction, as it has been one of
Fortune’s 100 Best Companies to Work for in America for 19 straight years.10 Publix is also
identified as one of the most socially responsible companies in America, ranking second overall
(right behind Wegman’s) and second among Millennials (just behind Tesla Motors) in a recent
Harris poll.

BUSINESS AND STRATEGIES

Publix operates in the highly competitive retail food industry. Its 1,136 supermarkets are located
in the southeast and mid-Atlantic regions of the country – Florida, Georgia, Alabama, South
Carolina, North Carolina, Tennessee, and, as of 2017, Virginia.

Operational strategy

The company’s core strategies focus on customer service, product quality, shopping
environment, competitive pricing, and convenient locations. Publix believes its focus on these
areas has been critical to the company’s success. Further, management believes continued focus
in these areas is the key to differentiation, sustained market share, and financial growth in an
increasingly competitive industry.12

Customer Service

Publix is renowned for its “relentless focus on pleasing customers.”13 Jenkins, the company’s
founder, called on each Publix employee to “make each customer’s day a little bit better because
they met you.”14 That mantra continues to shape the behavior of Publix employees even today.
Employees practice Publix’s 10-foot and 10-second rules, speaking to and smiling at everyone
with 10 feet and greeting customers within the first 10 seconds of their arrival in a department.15
And, instead of giving customers aisle numbers to find an item, Publix employees are trained to
get the item for the customer. To ensure shoppers move quickly through checkout, Publix
implemented a “two-customer-per-line goal” enforced by the company’s proprietary, predictive
staffing software.16 While a visit to almost any other grocer means carrying out your own
groceries, at Publix “[w]e pride ourselves on our outstanding customer service. That service
includes taking your groceries to your vehicle.”17 However, the additional customer service
offered by Publix leads to high operating costs relative to industry peers.18 Contrary to industry
norms, Publix doesn’t have a loyalty program. The company has stated repeatedly that it
eschews loyalty programs because “every customer deserves the best we have to offer.”19

Product Quality

As part of its efforts to please its customers, Publix places considerable emphasis on product
quality. Like many of its competitors, Publix offers a number of private-label products, with the
company utilizing three different house brands. Its “Publix” brand is its basic offering, with
“Publix Greenwise” focused on organic and natural offerings and its “Publix Premium” for
higher price point products.

Shopping Environment

Publix also focuses on the cleanliness and appearance of its stores, constantly refreshing stores
with 156 supermarkets remodeled in 2016 alone.21 This is a continuation of the company’s recent
strategy of renovating over 10% of its stores annually, with 154 remodels completed in 2015 and
138 in 2014.22 As Publix completes these projects, it is also prioritizing convenience and
sustainability. Beyond the Publix bakery and deli, renovated stores feature a pharmacy, a floral

department and, appearing in at least 20 locations in 2017, a Starbucks cafe.23 Outside of the
store, Publix is reminding customers of its commitment to the environment by offering curbside
recycling and charging stations for electric vehicles.24

Competitive Pricing

Publix freely acknowledges that it focuses on service over price.25 However, it does not ignore
price, and when compared against some of its rivals, its prices are actually lower. Publix also
offers a number of savings opportunities, such as digital coupons, and is well known for its Buy
One-Get One (BOGO) promotions.26 The company is seen as substituting a combination of
digital coupons and BOGO promotions for the loyalty programs used by many large rivals such
as Kroger.2

Convenient Locations

Publix supermarkets are often located in strip shopping centers where Publix is the anchor
tenant. On occasion, Publix will enter into joint ventures with real estate developers in the
development of these shopping centers. Publix owns the land and real estate at 274 of its 1,13

locations. The company owns the building while leasing the land at 57 locations. The remaining
supermarkets are leased, with renewals scheduled within 20 years. Publix supermarkets range in
size from 28,000 to 61,000 square feet, allowing the company to operate in more locations than
some of its competitors.2

Growth Strategy

Organic growth is rare in the grocery industry. Oftentimes organic growth does not result in
success due to already saturated markets with established local brands as well as a void in
accessible, quality real estate.29 Nonetheless, Publix enjoyed considerable success through a
deliberate strategy of organic growth, first in its home Florida market and then northward
through the Southeast. The company is now expanding into its seventh state, Virginia, in 2017.

Innovation Strategy

Although some observers critique Publix for focusing too much on continued expansion of its
brick and mortar footprint, Publix is not ignoring the trends in online grocery purchasing and
grocery delivery.30 Even though an earlier attempt at grocery delivery (Publix Direct) failed in
2003, in 2016 Publix began testing a grocery delivery service through Instacart. Today, Publix
offers grocery delivery through Instacart in as little as two hours to customers who live in areas
surrounding more than half its stores. By 2020, the company plans to offer Instacart services
from all of its stores.31 Beyond helping time-starved customers with grocery delivery, Publix is
expanding its Online Easy Ordering (OEO) service. Now, over 200 bakery and deli items such
as custom cakes can be ordered through the Publix website and picked up at a local store.32

Publix has also made significant investments in the meal-kit and meal takeaway space. Its
“Aprons” product line includes recipes with shopping information tailored to the store, cooking
classes offered in the store in several locations, and now pre-made meal kits available in several

Publix locations in Florida.33 Unlike some competitive offerings, Publix tailors its meal kit
offerings to different levels of cooking experience, with simple reheat options for more
complicated preparations.34

INSIDE PUBLIX

Key Executives

CEO, Randall Todd Jones, Sr.

Todd Jones was named CEO when Ed Crenshaw stepped down after 8 years leading Publix.
Jones has worked at Publix for 36 years, starting his career as a store clerk. He worked in a
number of positions within the company on his way to the CEO role, most recently serving as
President of Publix since 2008.35 Although Jones is the first non-family member to lead Publix,
he is seen as extremely knowledgeable and is well-respected within the company.36

Chairman, William E. Crenshaw

Ed Crenshaw is the grandson of Publix’s founder, George Jenkins. Crenshaw has worked for
Publix for 42 years and served as the CEO from 2008 to 2016. Upon stepping down as CEO,
Crenshaw transitioned to the Chairman for the Publix board of directors.37 Like Jones,
Crenshaw’s career with the company began as a clerk, and he worked his way through the
company en route to the corner office. Crenshaw spent a portion of his executive career with the
company outside of Florida, leading Publix’s entrance into the Georgia market during the
1990s.38

Executive Vice President and Chief Financial Officer, David R. Phillips

Similarly to Jones and Crenshaw, David Phillips is a career Publix employee, starting as an
internal auditor with the company in 1984. Phillips has held a number of financial roles within
Publix, including controller and treasurer, before being promoted to CFO in 1999. With the
elevation of Todd Jones to CEO, the Publix board gave additional responsibilities to Phillips and
promoted him to executive vice president.3

Senior Vice President, Alison M. Smith

Alison Smith joined Publix in 1995 in a part-time role, before rising through the senior human
resources ranks with stints as director of employment and staffing beginning in 1999 and director
of organizational development in 2004. She has a PhD in industrial/organizational psychology,
and was recently promoted by Jones to provide strategic oversight of human resources, customer
care & social media, and media & community relations.40

Vice President, Omnichannel and Application Development, Erik Katenkamp

Erik Katenkamp joined Publix in 1995 from the aerospace industry. With a background in
industrial engineering, Katenkamp has served in a number of IT-related roles at Publix, including

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IT business manager, director of application delivery, and vice president of information
systems.41 Katenkamp’s position was newly created by the company in August of 2017, as
Publix took steps toward strengthening its digital offerings and more thoroughly integrating them
within its shopping experience.42 Omnichannel is a multichannel approach to retailing that helps
a consumer experience a seamless shopping experience, whether shopping online or from a
traditional store.

Vice President of Real Estate Assets, William Rayburn

Woody Rayburn started with Publix in 1993 as a business analyst. He transitioned to an asset
manager role in 2000, becoming director of real estate assets in 2003. In 2017, Jones elevated
Rayburn to a vice president position,43 reflecting both confidence in Rayburn and the fact the
company’s real estate activities have grown tremendously, with the total amount of real property
owned by the company having tripled over the last decade.44

Employee Owned

With over 180,000 employees, Publix is the nation’s largest employee-owned company.45
Company stock is made available only to current employees and the company’s Board of
Directors. The employee stock ownership plan (ESOP) contains provisions prohibiting any
transfer for value without the owner first offering the common stock to the company. Market
price of the company’s common stock is determined by its Board of Directors, who derive the
value based on competitor’s financials and how they relate to Publix, as well as comparing
competitors’ common stock price.

As of February 2017, there were 179,000 unique holders of record of Publix common stock.46
Over time, the ESOP has proven astoundingly successful, with over a fifteen percent average
annual return since its inception in 1974.47 In addition to a great benefit for employees, research
states that employee ownership can boost corporate profits by as much as 4%.48 Some observers
have noted that Publix’s ESOP ownership structure, and its people-first management style, may
be its greatest strength.49

Beyond its positive effects on employee engagement and retention, the ESOP structure has also
served as an effective deterrent to employees unionizing and potentially threatening the Publix
mission. The company’s feelings on unions are overtly addressed in its employee handbook –
“owners don’t need unions”.50

Human Resources

One of Publix’s top corporate strategic priorities is investing in its employees, or associates, as
they are referred to within the organization. In addition to being an ESOP where employees
have the exclusive option to invest in the company they work for, each Publix associate is
surveyed annually for feedback on leadership, business tools, compensation packages and
policies.51 Associates are encouraged to take advantage of educational programs to help achieve
the company’s business objectives as well as enhance one’s skills and knowledge. Dedication,
commonly referred to in the company as “bleeding green,” is also rewarded with compensation

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increases as well as options for growth within the organization. All staffers who have put in
1,000 work hours per year receive an additional 8.5% of their total pay in the form of Publix
stock.

Publix promotes from within and each store displays an advancement chart that highlights how
each associate can become a manager. Associates are encouraged to rotate to various business
segments within the organization, including but not limited to real estate, grocery, and
distribution. 52 With the focus Publix places on its associates, it has received national attention
regularly as a top performer in many metrics, the most recent of which are shown in Exhibit 2.
Perhaps the most telling of all, Publix’s annual employee turnover rate is 5%. Its industry peers
can experience turnover as high as 65%.53

Organizational Culture

Publix has embraced a stakeholder theory approach to management. Its corporate structure
elevates its “associates” (employees) to the position of owner and shareholder. Its mission
statement and business strategies put the customer front and center. The company’s charitable
arm, Publix Charities, gives back to local communities. And, its sustainability efforts like annual
greenhouse gas inventories, smart irrigation systems, curbside recycling, and charging stations
for electric vehicles are becoming commonplace at Publix locations.54

With all things – operations, working conditions, productivity, products, service, etc. – Publix
applies a Continuous Quality Improvement (CQI) philosophy. The methodologies used to
accomplish CQI goals are: Work Improvement Now (WIN), which creates an expectation for
employees to immediately improve their own processes; and Quality Improvement Process
(QIP), which sets the same expectation but at the department and company level.55

The Publix culture doesn’t just encourage feedback and continuous improvement. Each
employee is said to have a responsibility, as an owner of the company, to improve the way stores
are run each day. An open-door policy and an annual staff survey (Associate Voice Survey) are
just two of the strategies employed by Publix to facilitate feedback and continuous
improvement.56

Mission, Purpose, and Values

The Publix mission, “to be the premier quality food retailer in the world,” is supported by the
company’s commitment to be:

• Passionately focused on customer value;
• Intolerant of waste;
• Dedicated to the dignity, value and employment security of associates;
• Devoted to the highest standards of stewardship for stockholders; and,
• Involved as responsible citizens in (its) communities.57

Operations & Supply Chain

At the end of 2016, Publix operated 53.4 million square feet of supermarket space in its 1,136
supermarkets.58 Approximately 74% of the total cost of products purchased at Publix are
supplied and delivered by its nine owned and operated distribution centers and 11 manufacturing
plants.59 Due to this infrastructure, Publix is not dependent on a single supplier. However, with
seven of its nine distribution centers located in Florida, it is currently stretching the range of its
supply chain operations. Any further geographic expansion would require additional distribution
centers or a revisit of the company’s operations and supply chain strategy.60

Marketing

Publix employs its own marketing team of around 100 associates representing 50 different
positions.61 When Publix enters a new state, its message does not represent anything
groundbreaking, but simply attempts to relay its culture to its new market. In 2015, when Publix
expanded into North Carolina, a spokesperson stated, “[o]ur message remains consistent in
connecting on an emotional level with our customer and our potential customers, but sharing our
culture becomes more important. In newer markets, we highlight our Publix Guarantee more and
promote that we don’t have a loyalty program – that every customer deserves the best we have to
offer.”62 The Publix Guarantee states “We will never knowingly disappoint you.” The
marketing team at Publix focuses on geographical areas of operation where Publix is expanding
its television, radio, and social media advertising. As of November 2017, Publix’s Facebook site
had nearly 2.8 million followers.63

Financial condition

Over the past five years, Publix’s revenue has grown from $27.7 billion in 2012 to $34.3 billion
in 2016, representing a compound annual growth rate of 4.35%. Over the same time period, net
income has increase from $1.55 billion to $2.03 billion, representing a compound annual growth
rate of 5.48%. Thus, not only are sales increasing, due to in-store year-over-year growth as well
as store count increases, but net income is increasing at a faster rate. COGS, gross margin, and
SG&A as a percent of sales have remained fairly constant in the last three years. Publix issued 4
quarterly dividend payments in 2016 totaling $0.8675 per share. Publix has always carried
extremely low amounts of debt with its debt-to-equity ratio as low as 30% in 2016.64 Liquidity is
not a concern to Publix with an improving year-over-year current ratio landing at 1.56 in 2016.
Publix’s income statement and balance sheet for the past five years can be found in Exhibit 3 and
Exhibit 4.

Publix financial performance compares favorably with its peers. Publix prices its products
slightly higher than Kroger, but lower than Whole Foods, indicated by the COGS and Gross
Margin percent of sales metrics. Impressively, Publix’s net income is approximately equal to
that of Kroger even though its revenue is only 31% of its larger rival. The company’s operating
margin is the envy of its peer group, with it exceeding that of Kroger by almost 2.5 times, and
nearly doubling that of Walmart. Key comparison data appears in Exhibit 5.

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THE INDUSTRY

Publix operates as a traditional grocery store, garnering the third-largest market share of any
grocer (excluding Walmart) in the United States.65 Historically, the industry contained a number
of smaller companies, but recent years have seen consolidation and bankruptcies in the face of
increasing competitive pressure.66 Since the economy rebounded consumers with higher
disposable income moved back to purchasing premium, organic and all natural food brands,
which helped to drive up overall industry revenue.67 As one observer noted, the “grocery
business isn’t what it used to be” as a convergence of market forces bear down on traditional
grocers like Publix.68 An increasing number of competitors now chase the grocery dollar, and
changes in how consumers shop and consume food loom large over the company.

Major Competitors in the Richmond Market

Kroger

Founded in 1883, Kroger is the largest grocery store chain in the United States69 and the third-
largest retailer in the world.70 Kroger operates behind its namesake brand as well as over twenty
regional brands in 35 states. Kroger generated over $115 billion in revenue in 2016, as it came
off of its first full year of owning Harris Teeter, a regional brand operating in the Carolinas.71
Historically a strong financial performer, Kroger has disappointed recently, with its stock down
over 40% for 2017.72 While it has curtailed its expenditures on new stores,73 Kroger is investing
aggressively in technological improvements, with the company operating its own data analytics
unit and spending heavily on tools such as an infrared system allowing it to monitor checkout
wait times and deploy additional clerks automatically in response.74 Kroger also recently
launched its “ClickList” service in a number of markets, where a customer can order groceries
online and pick them up, curbside, at the store.75

Kroger is also the market leader in leveraging loyalty card data – over 97% of purchases are
made by shoppers holding a loyalty card.76 Kroger uses this data to construct target offers, often
by mailing coupons to specific customers. The company reports achieving redemption rates of
up to 65% with some of these offers, compared to an industry average of roughly 5%.77 In
addition to customer loyalty, Kroger also packs its newer stores with additional services, such as
banking, a florist or a Starbucks counter, which research data indicates helps the company fend
off new market entrants and may decrease overall sales losses by up to 8%.78

Food Lion

Based in Salisbury, North Carolina, Food Lion operates over 1,000 grocery stores in

Southeastern and Mid-Atlantic states. They have over 63,000 employees and serve about 10
million customers per week. The company has been operating since 1957, and its name was
originally Food Town. In 1974 Food Lion was acquired by the Belgium-based Delhaize Group,
which subsequently merged with Koninklijke Ahold, based in the Netherlands. Food Lion now
operates as a part of Ahold Delhaize, which operates in 11 countries through 6,556 stores.

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Food Lion’s slogan is “Count on me” and they offer a double money back guarantee if their food
is not fresh. Like Kroger, they have a loyalty card program. They have about 28,000 products in
each store, including approximately 7,000 store brands.79 Food Lion bases its marketing
messages on low price and high quality, but in reality their prices are not particularly low nor is
their quality higher than other stores. Their service quality is not higher than average either, and
many of their stores are outdated. Basically, there is very little that differentiates Food Lion from
other supermarkets in the areas where it operates, although there is a certain segment of
customers that are loyal to the company based on family tradition – that is, they grew up with
their families shopping at Food Lion.

Walmart

No retailer can ignore Walmart. In 2016, Walmart generated over $486 billion in revenue,80
making it the largest retailer in the world.81 Walmart operates over 4,600 stores across the
United States,82 and its low-price model is in stark contrast to Publix.83 Although historically
Publix has made a 40% higher profit on groceries than Walmart,84 in all but its home market of
Florida, Walmart continues to command a higher market share of grocery shoppers.85 Walmart
leverages its enormous scale to exert pricing power over its suppliers, passing the resulting
savings onto consumers.86

While Walmart may have been the original disrupter to the grocery marketplace, Walmart
executives acknowledge that “[t]here’s never been a more disruptive time in the history of
retail.”87 Like Kroger, Walmart is not standing still; it has pursued a number of acquisitions in
the online space (including acquiring the online marketplace jet.com) to bolster its digital
presence.88 Walmart also recently entered into a partnership with Google, where visitors to
Google’s online shopping portal can make purchases from Walmart.89 As with Kroger’s
ClickList, Walmart shoppers can now make grocery purchases online and pick them up at
hundreds of its locations.90 Leveraging its large store footprint, and infamous logistics prowess,
Walmart now offers “pickup discounts” to online shoppers who are willing to pick up items at a
nearby Walmart store.91 To further its growth in urban areas, Walmart also continues to invest in
its Neighborhood Market stores, which are much smaller than its traditional Supercenter format,
with the company having now opened over 735 locations around the country.92 To date,
however, Publix has successfully survived “the Goliath-like Walmart assault” on its home
market in Florida.93

Aldi/Lidl

Aldi began shortly after World War II in Germany, near the city of Essen. Offering just 250
basic grocery items, the company swiftly established itself as a leader in the German grocery
market.94 Today, where Walmart may carry 120,000 different items in one of its Supercenters,
Aldi stocks between 1,300 and 1,600.95 This dramatically reduces complexity, and costs,
allowing Aldi to undercut Walmart by 17% on a basket of 30 typical household items.96 Aldi has
operated in the United States since the 1970s, quietly building up a network of 1,600 stores in 35
states, but recently announced it would build another 900 stores over the next five years.97 This
follows its decision to invest over $1.6 billion in renovating its existing stores.98

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Lidl, founded several decades later in 1973, also pursues a similarly ruthlessly efficient approach
to the grocery business as its German compatriot.99 When it entered the U.K. market in 1994,
Lidl upended its grocery sector.100 Today, Lidl commands 5.2% of the British market (and
growing).101 Lidl opened its first U.S. stores in Virginia, North Carolina, and South Carolina, and
promises its prices in the United States will be up to 50% lower than its competitors (excluding
Aldi).102

Although cutthroat competitors in their home market of Germany and in the U.K., Aldi and Lidl
have at least one thing in common – they ignore the Internet “almost entirely.”103 Both see
online sales as self-cannibalizing, moving from a proven, high-profit channel (physical stores) to
an unproven, less-profitable channel (online). U.K. observers estimate that its traditional grocers
(such as Tesco and Sainsbury’s) make less than a fifth of their already-slim typical margin on
online sales.104 Indeed, Morgan Stanley estimates that for a traditional retailer, every percentage-
point increase in its e-commerce sales equates to a half a point contraction in the retailer’s
margins.105

The companies also share a fervor for private-label goods, shunning well-known brands in favor
of their own products. The typical Aldi or Lidl store contains up to 90% private-label goods.106
By limiting stocks of name brand items, the German rivals can extract even greater supplier
concessions than the notoriously aggressive Walmart.107 Nevertheless, they put significant
efforts into quality. Aldi in particular has been successful in positioning itself as offering high-
quality, value-priced private-label products.108

Whole Foods

If Aldi and Lidl form one bracket of the brick and mortar grocery market, Whole Foods forms
the other. Derisively referred to as “Whole Paycheck” for its pricing structure,109 Whole Foods
nonetheless grew rapidly from its founding in Texas in 1980.110 It built a strong following as a
purveyor of natural and organic foods, developing a cachet among affluent urbanites willing to
pay for these offerings and a unique shopping experience.111 Whole Foods stores contain well-
trained staff and offer a number of services, including prepared meals, wine bars, and other
similar amenities. However, like the low-price German chains, Whole Foods developed a robust
private label brand (365 Everyday Value) which consumers identified as offering high quality.1

Nonetheless, recently Whole Foods found itself under pressure from Walmart, Kroger and others
such as Publix. Kroger in particular began aggressively expanding its organic offerings, with the
large chain selling more organic and natural products ($16 billion)113 than Whole Foods total
sales in 2016.114 With Whole Foods weakened, in a move seen as upending the U.S. grocery
market, Amazon stepped in and acquired the chain in 2017.115 Amazon immediately moved to
lower prices on a number of Whole Foods items, and made available through its powerful
website Whole Foods’ 365 Everyday Value products.116 Whole Foods locations provide
Amazon an existing supply chain and over 450 brick and mortar locations where it can sell
Amazon products as well as provide for pickup of online grocery orders.117 Amazon gives
Whole Foods the strength of a $140 billion/year retailer with a CEO in pursuit of fully
integrating Amazon into the lives of its customers.118

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Wegman’s

Any discussion of Publix almost inevitably involves a comparison to Wegman’s, the
Northeastern powerhouse based near Rochester, New York. Like Publix, Wegman’s is a
member of Fortune’s Great Places to Work Legends, having been named to the list for 20 years
in a row.119 It is privately held, focused on service and pays its employees far above the industry
standard for grocers.120 And the two are alike in another key aspect – they are both on the
march, expanding their geographic reach and colliding in the Virginia market.121 Unlike Publix,
however, Wegman’s relies upon a much smaller number of stores, with its typical store size of
120,000 square feet nearly doubling that of the largest Publix.122 Only opening 3-4 new stores
per year,123 Wegman’s average per-store sales of almost $90 million is three times the average
per-store sales of Publix.124

EXTERNAL ENVIRONMENT/TRENDS

Too Many Stores?

In addition to a number of strong competitors in the marketplace, broader market trends are
buffeting the grocery market. Less than half of grocery shoppers now do their food shopping at
one primary supermarket.125 In 2016, convenience stores sold $73 billion of prepared foods,
beverages and other food services, up 72% from 2010.126 Two-thirds of sales at dollar stores
(Dollar General, Family Dollar, and others) are food, beverages and other consumables.127
Grocery shoppers are also visiting alternatives like farmer’s markets, and buying fewer items per
trip.128 Given this selection of alternative brick and mortar locations for grocery purchases, little
surprise that Barclays now says that 38 of the top 50 grocery markets in the United States are too
saturated by food retail on a per capita basis.129 With numerous large competitors, Richmond
may be one of these over-saturated markets.

To Cook or Not to Cook?

Unfortunately for traditional grocers, many consumers today do not cook at home. Millennials,
the largest consumer demographic group, spend 42% of their monthly food budget on food
prepared outside the home.130 Grocery spending by Millennials is $1,000 less per year (adjusted
for inflation) than their parents spent in 1990.131 Older consumers, who no longer have a need to
prepare a large family meal, are following Millennials in seeking out prepared foods.132 Online
prepared meal kits, available from companies such as Blue Apron and Plated, have been
enjoying robust growth, with some 24% of Millennials having subscribed to a meal kit service at
some point and growth estimated at over 25% per year over the next five years.133 Albertsons,
the large privately-held grocery chain based in Idaho, recently announced a deal to purchase
Plated, and Amazon has launched its own kit service and plans to make available Whole Foods-
branded kits as part of its acquisition of the organic grocer.134

Omnichannel/Online

Online grocery sales have grown 10.1% over the last five years and are expected to grow at a
rate of 6.7% over the next five, with total sales predicted to reach $13.5 billion in 2017.135

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Amazon’s move to acquire Whole Foods is not the only digital impact on traditional grocers.
While the potential for Amazon to disrupt the market is seen as high (almost anyone that sells
groceries saw its stock fall on the date Amazon announced the deal, with Kroger leading the path
downward at a 9.2% clip),136 potentially just as disruptive is the integration of online ordering
and mobile apps into grocery shopping. Kroger’s in-house analytics team is building a mobile
application that will populate a shopping list, together with locations in the store, from a user’s
recipe.137 Both Walmart (through its Sam’s Club division) and Kroger are piloting mobile
applications that allow shoppers to scan items as they move through the store, paying through the
app as they exit.138 And, as noted above, both are growing the number of locations that provide
curbside pickup of online orders, a potentially savvy move as market research suggests that 76%
of online shoppers have an interest in picking up grocery items bought online.139

In addition to online sales picked up at traditional stores, a number of online platforms and
delivery services exist. Peapod, owned by the Dutch grocery giant Ahold Delhaize, counts
350,000 customers in 23 major metropolitan markets.140 Instacart, an online grocery delivery
service, has recently agreed to partnerships with Kroger, Costco, and several smaller regional
chains141. Shipt, another last-mile online provider, announced plans to be in over 100 markets by
the end of the year, concentrating in the south and Midwest, delivering for companies such as
Costco and Meijer.142

U.S. Economy

By December 2017, the economy had rebounded from the Great Recession and the stock markets
were hitting all-time highs weekly. Real per capita disposable personal income (measured in
constant 2009 dollars) had increased from $36,235 in January 2013 to $39,368 in May of
2017.143 The United States was experiencing sustained economic growth it had not seen in years
and the country’s gross domestic product had increased by an average of 2.1% over the past
eight years, marking the third-longest economic expansion in U.S. history.144 While many
economists and financial analysts were optimistic about the direction of the economy, an
increasing number were becoming concerned that such continued growth was unsustainable.
More and more analysts were beginning to question economic fundamentals, and with stocks
trading at a multiple of earnings only previously seen in 1929 and 2000, some feel a market
correction is looming.145

Healthiness/Better-For-You

The success of Whole Foods, and the growing importance of organics and natural goods to other
grocery chains highlight shifting consumer preference toward grocery items seen as more
healthful (Kroger reports that 14% of its total sales in 2016 were for its “Simple Truth” line of
organic and natural products).146 Healthy-oriented markets like Whole Foods, Trader Joe’s,
Earth Fare and Sprouts Farmers Market have made inroads into the Florida grocery market,
largely at the expense of Publix.147 Survey data suggests customers continue to demand a greater
variety of all-natural and organic products, with 82% of households purchasing organic products
in 2016.148 Organic products expanded 8.4% in 2016 alone.149 Perhaps more importantly, with
consumers willing to pay a premium for such products, they have (at least prior to Amazon’s
recent price cuts at Whole Foods) delivered consistently higher margins for retailers.150

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LOOKING FORWARD

Publix continues to enjoy growth in sales, a healthy gross margin and strong financial returns.
The company is confident that its steady northward geographic expansion will continue
supporting long-term growth for Publix. However, the highly competitive situation the company
now faces in Richmond Virginia may be indicative of things to come. Wegmans, Lidl and Aldi
very recently entered this market, and Kroger, Walmart, Food Lion and Whole Foods already
have a significant presence. The continued expansion of Aldi and Lidl will put considerable price
pressure on everyone in the Southeastern grocery market. So the over-saturation Publix is facing
in Richmond is, in a sense, a good test case for what the company is likely to experience from
now on in many or most of its markets.

Faced with these sorts of challenges, can the company’s labor-intensive, service-first, real estate
heavy model continue to support growth in the future? Will customers migrate towards costs
savings wherever they may be found, whether at a brick-and-mortar competitor or online? Will
Publix’s partnership strategy with Instacart allow it to meet the online challenge? Does the
company need to increase investment in its Aprons meal kit and prepared foods or should it
focus more on expanding higher margin private label products and organic offerings? Should
Publix abandon its long-standing aversion to a loyalty program? Basically, how can Publix
position itself for continued growth when faced with this challenging business environment?

EXHIBIT 1 – STORE LOCATIONS

Location Map

[orange pins denote planned locations]
* Source: Publix Super Markets, Inc. Locations. http://store.publix.com/publix, Accessed November 22, 2017.

776

186

65
58

41 27 8

Store Locations

Florida
Georgia
Alabama
South Carolina
Tennessee
North Carolina
Virginia

As of November 1, 2017

Exhibit 2 – 2016 Awards and Recognitions

• Fortune’s 100 Best Workplaces for Millennials
• Fortune and the Great Place to Work Institute’s 15 Best Workplaces in Retail
• Fortune’s Most Important Private Companies
• Fortune’s 100 Best Companies to Work For in America for 19 consecutive years
• Fortune’s Most Admired Companies for 23 consecutive years
• J.D. Power & Associates — highest-ranking pharmacy in overall satisfaction in the

supermarket segment eight of the last 10 years
• Glassdoor’s Candidates’ Choice Awards: 50 Best Places to Interview

* Source: Publix Super Markets, Inc. Company Overview: Awards and Achievements.
http://corporate.publix.com/about-publix/company-overview/awards-achievements, Accessed November 22, 2017.

EXHIBIT 3: PUBLIX SUPER MARKETS, INC. INCOME STATEMENT

Income Statement (USD) ($) in Millions

2012 2013 2014 2015 2016

Revenue $27,707 $29,148 $30,802 $32,619 $34,274
Cost of revenue 19,911 20,937 22,233 23,460 24,734
Gross profit 7,796 8,210 8,570 9,159 9,540
Operating expenses

Sales, General and administrative 5,631 5,890 6,169 6,481 6,788
Other operating expenses

Total operating expenses 5,631 5,890 6,169 6,481 6,788
Operating income 2,165 2,320 2,401 2,678 2,752
Other income (expense) 137 146 169 191 189
Income before income taxes 2,303 2,466 2,570 2,869 2,940
Provision for income taxes 750 812 835 904 915
Net income $1,552 $1,654 $1,735 $1,965 $2,026
Earnings per share

Basic 1.98 2.12 2.23 2.54 2.63
Diluted 1.98 2.12 2.23 2.54 2.63
Weighted average shares outstanding

Basic 783 780 779 774 769
Diluted 783 780 779 774 769
EBITDA $2,796 $2,821 $2,914 $3,260 $3,376

Source: Company Annual Reports; Morningstar.

EXHIBIT 4 – PUBLIX SUPER MARKETS, INC. BALANCE SHEET

Consolidated balance sheet USD ($) in Millions
2012 2013 2014 2015 2016
Assets
Current Assets
Cash and cash equivalents $337 $302 $407 $352 $438
Short-term investments 797 830 999 1,377 1,592
Total cash 1,135 1,131 1,407 1,729 2,030
Receivables 519 540 549 724 715
Inventories 1,409 1,507 1,598 1,741 1,722
Deferred income taxes 58 56 71 51 77
Prepaid expenses 26 109 70 50
Other current assets 28
Total current assets 3,149 3,260 3,734 4,314 4,596
Non-current Assets
Land 689 716 936 1,158 1,416
Fixtures and equipment 4,588 3,759 4,102 4,303 4,582
Other properties 3,703 3,944 4,629 5,252 5,984
Property and equipment, at cost 8,979 8,419 9,667 10,712 11,982
Accumulated Depreciation 4,289 3,614 3,944 4,325 4,695
Property, plant and equipment, net 4,691 4,805 5,723 6,387 7,287
Equity and other investments 4,236 5,162 5,232 5,226 5,147
Other long-term assets 203 320 395 431 434
Total non-current assets 9,129 10,286 11,350 12,045 12,868
Total Assets $12,278 $13,547 $15,083 $16,359 $17,464

EXHIBIT 4 – PUBLIX SUPER MARKETS, INC. BALANCE SHEET CONT.

Consolidated balance sheet USD ($) in Millions
2012 2013 2014 2015 2016
Liabilities
Current liabilities
Short-term debt 5 38 25 57 114
Accounts payable 1,307 1,383 1,538 1,676 1,610
Deferred income taxes
Taxes payable 20 13 10 13
Accrued liabilities 909 938 1,122 1,161 1,207
Other current liabilities
Total current liabilities 2,221 2,379 2,698 2,903 2,944
Non-current liabilities
Long-term debt 153 125 193 180 137
Deferred taxes liabilities 327 357 389 425 474
Accrued liabilities
Pensions and other benefits 117 103 107 102 103
Minority interest 47 51 42 37 24
Other long-term liabilities 331 316 353 319 310
Total non-current liabilities 975 951 1,083 1,062 1,047
Total liabilities 3,196 3,329 3,781 3,965 3,991

Stockholders’ equity
Common stock 776 777 774 770 763
Other Equity (2,273)
Additional paid-in capital 1,627 1,899 2,201 2,556 2,850
Retained earnings 6,641 7,454 8,218 9,041 9,837
Accumulated other comprehensive income 2,311 87 109 26 23
Total stockholders’ equity 9,082 10,217 11,303 12,394 13,473
Total liabilities and stockholders’ equity $12,278 $13,547 $15,083 $16,359 $17,464

Source: Company Annual Reports; Morningstar.

EXHIBIT 5 – KEY RATIO COMPARISONS

Publix

Walmart

Kroger

Whole Foods

2014 2015 2016

2015 2016 2017

Financials (USD) ($ in millions)
Revenue $30,802 $32,619 $34,274

$485,651 $482,130 $485,873

$108,465 $109,830 $115,337

$15,389 $15,724 $16,030

Gross Margin % 27.8 28.1 27.8

24.8 25.1 25.6

21.2 22.2 22.4

35.2 34.4 33.7
Operating Income 2,401 2,678 2,752

27,147 24,105 22,764

3,137 3,576 3,436

861 857 459

Operating Margin % 7.8 8.2 8

5.6 5 4.7

2.9 3.3 3

5.6 5.5 2.9
Net Income 1,735 1,965 2,026

16,363 14,694 13,643

1,728 2,039 1,975

536 507 245

Margins % of Sales
COGS 72.18 71.92 72.17

75.17 74.87 74.35

78.84 77.84 77.60

64.81 65.59 66.33

Gross Margin 27.82 28.08 27.83

24.83 25.13 25.65

21.16 22.16 22.40

35.19 34.41 33.67
SG&A 20.03 19.87 19.81

19.24 20.13 20.96

16.47 17.00 17.39

29.60 28.96 29.83

Operating Margin 7.79 8.21 8.03

5.59 5.00 4.69

2.89 3.26 2.98

5.59 5.45 2.86
Net Int Inc & Other 0.55 0.59 0.55

(0.48) (0.51) (0.47)

(0.45) (0.44) (0.45)

0.11 (0.19) (0.26)

EBT Margin 8.34 8.80 8.58

5.11 4.49 4.22

2.44 2.82 2.53

5.71 5.26 2.60

Profitability Ratios
Return on Assets % 12.12 12.5 11.98

8.01 7.29 6.85

5.78 6.33 5.57

9.33 8.39 3.76

Financial Leverage (Average) 1.33 1.32 1.3

2.5 2.48 2.56

5.64 4.97 5.45

1.52 1.97 1.95
Return on Equity % 16.13 16.58 15.66

20.76 18.15 17.23

32.01 33.34 28.98

14.14 14.5 7.36

Return on Invested Capital % 15.85 16.27 15.37

14.14 13.08 12.51

12.14 13.11 11.64

13.91 13.52 6.69
Interest Coverage

11.08 9.49 9.66

6.43 7.42 6.58

21.17 9.51

Revenue %
Year over Year 5.68 5.90 5.07

1.96 (0.73) 0.78

10.26 1.26 5.01

8.42 2.18 1.95

3-Year Average 4.26 5.59 5.55

2.81 0.91 0.67

6.27 4.32 5.45

9.57 6.77 4.14
5-Year Average 4.67 5.19 4.75

3.54 2.71 1.68

7.17 5.97 5.00

11.31 9.24 6.50

Net Income %
Year over Year 4.92 13.24 3.09

2.13 (10.20) (7.15)

13.76 18.00 (3.14)

(7.43) (5.41) (51.68)

3-Year Average 5.17 8.18 6.99

1.39 (4.74) (5.22)

42.12 10.85 9.14

4.81 (2.74) (24.92)
5-Year Average 8.36 7.99 6.31

2.68 (2.16) (2.77)

89.88 12.81 26.82

16.87 8.15 (12.05)

Efficiency Ratios
Payables Period 23.98 25 24.24

37.9 38.88 40.37

21.2 23.01 23.54

10.44 10.65 11.64

Receivables Turnover 56.54 51.24 47.64

72.19 77.75 84.8

91.07 73.22 68.19

73.99 68.37 66.24
Inventory Turnover 14.32 14.06 14.29

8.11 8.06 8.26

15.08 14.42 14.06

21.2 20.28 21.52

ENDNOTES

1 Griffin, J. 2016. Publix to Grow with Purchase of 10 Virginia Stores. Tampa Bay Times, July 15: Local 4.
2 Griffin, J. 2016. Publix Takes on New Turf. Tampa Bay Times, February 14: Business 1.
3 Trigaux, R. 2016. Publix Faces Tough Foe in Wegman’s. Tampa Bay Times, July 19: Local 4.
4 Publix Super Markets, Inc. 2017. Publix Corporate History. http://corporate.publix.com/about-
publix/culture/history, Accessed November 19, 2017.
5 Watters, Pat. 1980. Fifty Years of Pleasure: The Illustrated History of Publix Super Markets, Inc. Lakeland,
Florida: Publix Super Markets, Inc.
6 Publix Super Markets, Inc. 2017. Publix Facts & Figures. http://corporate.publix.com/about-publix/company-
overview/facts-figures, Accessed November 19, 2017.
7 Ibid.
8 Publix Super Markets, Inc., 2017. Form 10-K. Lakeland, Florida: Publix Super Markets, Inc.:1.
9 The Economist. 2007. Business: The opposite of Walmart; Publix. 383(8527):71.
10 Publix Super Markets, Inc. 2017. Publix Awards & Achievements. http://corporate.publix.com/about-
publix/company-overview/awards-achievements, Accessed November 19, 2017.
11 Harris Poll, 2017. Wegmans, Publix Super Markets, Amazon, Tesla And USAA Draw Top Social Responsibility
Scores In Harris Poll. http://www.theharrispoll.com/business/Top-Social-Responsibility-Scores.html, Accessed
November 22, 2017.
12 Publix Super Markets, Inc., 2017. Form 10-K. Lakeland, Florida: Publix Super Markets, Inc.:2-3.
13 Tkaczyk, C. 2016. My Five Days of ‘Bleeding Green.” Fortune, March 15, Vol 173:4, 167.
14 Ibid.
15 Publix Super Markets, Inc. 2017. Your Associate Handbook. Lakeland, Florida: Publix Super Markets, Inc.: 1-
3.
16 Solomon, B. 2013. The Walmart Slayer: How Publix’s People-First Culture Is Winning The Grocer War.
Fortune, August 12:1.
17 Publix Super Markets, Inc., 2017. Customer Service FAQ:What is your policy on carryout service.
http://www.publix.com/faq/customer-service, Accessed November 23, 2017.
18 Publix Super Markets, Inc., 2017. Form 10-K. Lakeland, Florida: Publix Super Markets, Inc.:2-3.
19 Springer, J. 2015. The Power of Pleasure at Publix. Supermarket News. January 5.
20 Publix Super Markets, Inc., 2017. Publix Brands. http://www.publix.com/savings/publix-brands, Accessed
November 23, 2017.
21 Publix Super Markets, Inc., 2017. 2016 Annual Report. Lakeland, Florida: Publix Super Markets, Inc.:2.
22 Publix Super Markets, Inc., 2016. Form 10-K. Lakeland, Florida: Publix Super Markets, Inc.:11.
23 Publix Super Markets, Inc., 2017. 2016 Annual Report. Lakeland, Florida: Publix Super Markets, Inc.:3.
24 Publix Super Markets, Inc., 2017. Sustainability. http://sustainability.publix.com/, Accessed November 26, 2017.
25 Ostrowski, J. 2017. Publix service lauded; price gripes persist. Palm Beach Post, September 3:Accent & Arts
1D.
26 Ibid.
27 Springer, J. 2015. The Power of Pleasure at Publix. Supermarket News. January 5.
28 Publix Super Markets, Inc., 2017. Form 10-K. Lakeland, Florida: Publix Super Markets, Inc.:4.
29 Springer, J. 2015. The Power of Pleasure at Publix. Supermarket News. January 5.
30 Griffin, J. 2017. Challenge for Publix: Stay Ahead. Tampa Bay Times, January 22:Business 1.

31 Bouffard, K. 2017. Pubix to offer delivery from all stores in 4 years. Sarasota Herald-Tribune, June 8.
http://www.heraldtribune.com/news/20170608/publix-to-offer-deliveries-from-all-stores-in-4-years, Accessed
November 23, 2017.
32 Publix Super Markets, Inc., 2017. 2016 Annual Report. Lakeland, Florida: Publix Super Markets, Inc.:3.
33 Publix Super Markets, Inc. 2017. Publix Aprons. http://www.publix.com/recipes-planning, Accessed November
24, 2017.
34 Griffin, J. 2017. Publix’s Prep Work. Tampa Bay Times, May 14:Business B1.
35 Arnold, K. 2016. Publix CEO brings energy to new role. Orlando Sentinel, January 23:A1.
36 Ibid.
37 Valverde, M. 2016. Publix CEO retiring after 42 years of service. Sun-Sentinel, April 28:Business D1.
38 Ibid.
39 Publix Super Markets, Inc., 2017. Publix Names Executive Vice President, Senior Vice President of Retail
Operations and Two New Vice Presidents. http://corporate.publix.com/about-publix/newsroom/news-
releases/publix-announces-promotion-of-four-company-leaders, Accessed November 19, 2017.
40 Publix Super Markets, Inc., 2017. Publix Announces Officer Promotions. http://corporate.publix.com/about-
publix/newsroom/news-releases/publix-announces-officer-promotions, Accessed November 19, 2017.
41 Publix Super Markets, Inc., 2017. Publix Announces Vice President of Omnichannel and Application
Development. http://corporate.publix.com/about-publix/newsroom/news-releases/publix-announces-vice-president-
of-omnichannel-and-application-development, Accessed November 19, 2017.
42 Troy, M. 2017. Publix accelerates omnichannel efforts. Retail Leader, August 15.
https://retailleader.com/publix-accelerates-omnichannel-efforts, Accessed November 19, 2017.
43 Publix Super Markets, Inc., 2017. Publix Announces Officer Promotions. http://corporate.publix.com/about-
publix/newsroom/news-releases/publix-announces-officer-promotions, Accessed November 19, 2017.
44 Acosta, G. 2017. Publix prepares to win with real estate. Retail Leader, August 22.
https://retailleader.com/publix-prepares-win-real-estate, Accessed November 19, 2017.
45 Simons, J. 2016. Employee Ownership Can Boost Corporate Profits; Companies that reward workers with stakes
in the business have an edge over those that don’t, shows a global study. Wall Street Journal (Online), September
6. https://www.wsj.com/articles/employee-ownership-can-boost-corporate-profits-1473177179, Accessed
November 19, 2017.
46 Ibid.
47 Tkaczyk, C. 2016. My Five Days of ‘Bleeding Green.” Fortune, March 15, Vol 173:4, 168.
48 Ibid.
49 Solomon, B. 2013. The Walmart Slayer: How Publix’s People-First Culture Is Winning The Grocer War.
Fortune, August 12:1.
50 Publix Super Markets, Inc. 2017. Your Associate Handbook. Lakeland, Florida: Publix Super Markets, Inc.: 1-
2.
51 Publix Super Markets, Inc. 2017. Why Publix: Benefits. http://corporate.publix.com/careers/why-
publix/benefits, Accessed November 22, 2017.
52 Solomon, B. 2013. The Walmart Slayer: How Publix’s People-First Culture Is Winning The Grocer War.
Fortune, August 12:1.
53 Tkaczyk, C. 2016. My Five Days of ‘Bleeding Green.” Fortune, March 15, Vol 173:4, 168.
54 Publix Super Markets, Inc., 2017. Sustainability. http://sustainability.publix.com/, Accessed November 26, 2017.
55 Publix Super Markets, Inc. 2017. Your Associate Handbook. Lakeland, Florida: Publix Super Markets, Inc.: 1-
2.
56 Publix Super Markets, Inc. 2017. Your Associate Handbook. Lakeland, Florida: Publix Super Markets, Inc.: 1-
7-8.

57 Publix Super Markets, Inc. 2017. Company Overview: Mission Statement & Guarantee.
http://corporate.publix.com/about-publix/company-overview/mission-statement-guarantee, Accessed November 22,
2017.
58 Publix Super Markets, Inc., 2017. Form 10-K. Lakeland, Florida: Publix Super Markets, Inc.:5.
59 Publix Super Markets, Inc., 2017. Form 10-K. Lakeland, Florida: Publix Super Markets, Inc.:1.
60 Kritzer, A. 2016. Publix Sets Its Sights on Northern Virginia, metro DC area. Tampa Bay Business Journal.
May 24. https://www.bizjournals.com/tampabay/blog/morning-edition/2016/03/publix-set-its-sights-on-northern-
virginiametro-d.html, Accessed November 22, 2017.
61 Publix Super Markets, Inc. 2017. Departments – Marketing. http://corporate.publix.com/careers/support-
areas/corporate/departments/marketing, Accessed November 27, 2017.
62 Springer, J. 2015. The Power of Pleasure at Publix. Supermarket News. January 5.
63 Publix Super Markets, Inc. 2017. Facebook landing page. https://www.facebook.com/publix/ Accessed
November 22, 2017.
64 Publix Super Markets, Inc., 2017. Form 10-K. Lakeland, Florida: Publix Super Markets, Inc.:4.
65 Guattery, M. 2017. IBISWorld Industry Report 44511: Supermarkets & Grocery Stores in the U.S., 25. Retrieved
October 24, 2017 from IBISWorld database.
66 Haddon, H. & Risso, L. 2017. Business News: Regional Grocery Stores Feel Squeeze Amid Upheaval. Wall
Street Journal, August 14: B3.
67 Guarttery, M. 2017. IBISWorld Industry Report 44511: Supermarkets & Grocery Stores in the U.S., 5. Retrieved
October 24, 2017 from IBISWorld database.
68 Levishon, B. 2017. Kroger’s Competition Problem. Barron’s, June 12: M5.
69 Guarttery, M. 2017. IBISWorld Industry Report 44511: Supermarkets & Grocery Stores in the U.S., 25.
Retrieved October 24, 2017 from IBISWorld database.
70 Haddon, H. 2017. Business News: Kroger Braces for Amazon – grocer needs to show it can defend its turf
against online power; results due on Friday. Wall Street Journal, September 5: B3.
71 Guarttery, M. 2017. IBISWorld Industry Report 44511: Supermarkets & Grocery Stores in the U.S., 25.
Retrieved October 24, 2017 from IBISWorld database.
72 Grant, C. 2017. Investors are Right to Worry About the Future of Kroger. Wall Street Journal, September 9:
B12.
73 Haddon, H. 2017. Grocers Hit by Glut of Retail Space – industry is vulnerable to store closures after rapid
growth amid shift in shopping habits. Wall Street Journal, August 1:B1.
74 Haddon, H. 2017. The Future of Food (A Special Report) – Grocers Imagine the Store of the Future: Straight
from Kroger labs: customized ads, smart shelves, sensors that deploy cashiers. Wall Street Journal, October 16,
2017:R8.
75 Low, E. 2017. Amazon Takes Root; E-commerce leader’s growth could get another big boost from its push into
groceries. Investor’s Business Daily, July 25, 2016:A1.
76 The Economist. 2017. Forsake all others; Loyalty schemes – If you want loyalty, get big data. 424(9057):62.
77 Haddon, H. 2017. The Future of Food (A Special Report) – Grocers Imagine the Store of the Future: Straight
from Kroger labs: customized ads, smart shelves, sensors that deploy cashiers. Wall Street Journal, October 16,
2017:R8.
78 Obeng, E., Luchs, R, Inman, J & Hulland, J. 2016. Survival of the Fittest: How Competitive Service Overlap and
Retail format Impact Incumbents’ Vulnerability to New Entrants. Journal of Retailing, 92(4) 383-396.
79 About Us – Food Lion, https://www.foodlion.com/about-us/, Accessed March 14, 2018.
80 Bhattarai, A. 2017. Walmart rallies employees, gears up to take on Amazon. Washington Post, June 1:A11.
81 Haddon, H. 2017. Business News: Kroger Braces for Amazon – grocer needs to show it can defend its turf
against online power; results due on Friday. Wall Street Journal, September 5: B3.

82 Bhattarai, A. 2017. Walmart rallies employees, gears up to take on Amazon. Washington Post, June 1:A11.
83 The Economist. 2007. Business: The opposite of Walmart; Publix. 383(8527):71.
84 Ibid.
85 Griffin, J. 2016. Publix Takes on New Turf. Tampa Bay Times, February 14: Business 1.
86 Guarttery, M. 2017. IBISWorld Industry Report 44511: Supermarkets & Grocery Stores in the U.S., 30.
Retrieved October 24, 2017 from IBISWorld database.
87 Bhattarai, A. 2017. Walmart rallies employees, gears up to take on Amazon. Washington Post, June 1:A11.
88 Ibid.
89 Wakabayasi, D. & Corkery, M. 2017. Walmart And Google Partner, Eyes On Amazon. The New York Times,
August 23:B1.
90 Ibid.
91 Halzack, S. 2017. Walmart’s new lure: ‘Pickup discounts.’ Washington Post, April 12:A11.
92 Guarttery, M. 2017. IBISWorld Industry Report 44511: Supermarkets & Grocery Stores in the U.S., 31.
Retrieved October 24, 2017 from IBISWorld database.
93 Griffin, J. 2016. Grocery Growth in Florida No Threat to Publix. Tampa Bay Times, May 1:Business 1.
94 Turner, Z. 2017. Aldi Bets Limited Choice Will Lure U.S. Shoppers – Private German grocer tries to upend
market with manic eye on costs. Wall Street Journal, September 22:A1.
95 Ibid.
96 Ibid.
97 The Economist. 2017. A Lidl late? America’s grocery market. 423(9045):67.
98 Turner, Z. 2017. Aldi Bets Limited Choice Will Lure U.S. Shoppers – Private German grocer tries to upend
market with manic eye on costs. Wall Street Journal, September 22:A1.
99 The Economist. 2017. The broccoli heresy; Discount grocers. 425(9064):62.
100 Nassauer, S. & Haddon, H. 2017. German Grocer Enters Walmart’s Turff – Discounter Lidl brings market-
winning ways to U.S. at fraught time for food retailers. Wall Street Journal, May 17:B1.
101 The Economist. 2017. The broccoli heresy; Discount grocers. 425(9064):62.
102 The Economist. 2017. A Lidl late? America’s grocery market. 423(9045):67.
103 The Economist. 2017. The broccoli heresy; Discount grocers. 425(9064):62.
104 Ibid.
105 The Economist. 2017. Sorry, we’re closed; American retailing. 423(9040):68.
106 The Economist. 2017. A Lidl late? America’s grocery market. 423(9045):67.
107 Turner, Z. 2017. Aldi Bets Limited Choice Will Lure U.S. Shoppers – Private German grocer tries to upend
market with manic eye on costs. Wall Street Journal, September 22:A1.
108 Ibid.
109 Ostrowski, J. 2017. Publix Service Lauded, price gripes persist; Consumer Reports readers give the chain almost
identical reviews. Palm Beach Post, September 3, 2017:Accent & Arts1D.
110 Gasparro, A. & Haddon, H. 2017. Amazon’s Whole Foods Takeover: How a Pioneer Lost Its Way – Whole
Foods set the pace with healthier fare, but its prices and rivals caught up with it. Wall Street Journal, June 17:A5.
111 Ibid.
112 Guarttery, M. 2017. IBISWorld Industry Report 44511: Supermarkets & Grocery Stores in the U.S., 30.
Retrieved October 24, 2017 from IBISWorld database.
113 Haddon, H. 2017. Business News: Kroger Braces for Amazon – grocer needs to show it can defend its turf
against online power; results due on Friday. Wall Street Journal, September 5: B3.

114 Guarttery, M. 2017. IBISWorld Industry Report 44511: Supermarkets & Grocery Stores in the U.S., 30.
Retrieved October 24, 2017 from IBISWorld database.
115 The Economist. 2017. Whole hog; Amazon buys Whole Foods. 423(9046):61.
116 Stevens, L. & Haddon, H. 2017. Amazon Clobbers Grocers With Whole Foods Salvo. Wall Street Journal,
August 25:A1.
117 Ibid.
118 Cusumano, M. 2017. Technology and Strategy Management – Amazon and Whole Foods: Follow the Strategy
(and the Money). Communications of the ACM. 60(10) 24-26.
119 Wegmans Food Markets, Inc. 2017. Company Overview. https://www.wegmans.com/about-us/company-
overview.html, Accessed November 23, 2017.
120 Boyle, M. & Kratz, E. 2005. The Wegmans Way. Fortune, January 24, Vol. 151:2.
121 Trigaux, R. 2016. Publix Faces Tough Foe in Wegman’s. Tampa Bay Times, July 19: Local 4.
122 Bhattari, A. 2017. Wegmans plans to open store at Fannie Mae site. Washington Post, May 23:Metro B5.
123 Ibid.
124 Wegmans Food Markets, Inc. 2017. Company Overview. https://www.wegmans.com/about-us/company-
overview.html, Accessed November 23, 2017.
125 Haddon, H. 2017. The Future of Food (A Special Report) – Grocers Imagine the Store of the Future: Straight
from Kroger labs: customized ads, smart shelves, sensors that deploy cashiers. Wall Street Journal, October 16,
2017:R8.
126 Haddon, H. 2017. Grocers Hit by Glut of Retail Space – industry is vulnerable to store closures after rapid
growth amid shift in shopping habits. Wall Street Journal, August 1:B1.
127 Ibid.
128 Giammona, C. 2017. Why the Retail Crises Could be Coming to American Groceries. Bloomberg. May 4.
https://www.bloomberg.com/news/articles/2017-05-04/why-the-retail-crisis-could-be-coming-to-americangroceries.
Accessed October 29, 2017.
129 Ibid.
130 Ibid.
131 Haddon, H. 2016. Millennials Vex Grocers — Key age group spends less at supermarkets, explores alternatives,
such as online services. Wall Street Journal, October 31:B5.
132 Ibid.
133 Haddon, H. 2017. Business News: Albertsons to Buy Plated Meal Service – Deal marks first purchase of its
kind by a national chain of supermarkets. Wall Street Journal, September 21:B5.
134 Ibid.
135 Alvarez, A. 2017. IBISWorld Industry Report OD5085: Online Grocery Sales in the U.S., 3. Retrieved
November 13, 2017 from IBISWorld database.
136 Eule, A. & Bary, A. 2017. Amazon and Whole Foods: Grocery Apocalypse? Barron’s, June 19:17.
137 Haddon, H. 2017. The Future of Food (A Special Report) – Grocers Imagine the Store of the Future: Straight
from Kroger labs: customized ads, smart shelves, sensors that deploy cashiers. Wall Street Journal, October 16,
2017:R8.
138 Ibid.
139 Smith, D. 2016. Mintel: Grocery Retailing US November 2016, 4. Retrieved October 24, 2017 from Mintel
database.
140 Alvarez, A. 2017. IBISWorld Industry Report OD5085: Online Grocery Sales in the U.S., 21. Retrieved
November 13, 2017 from IBISWorld database.

141 Brown, L. 2017. Schnucks expanding delivery as Instacart enters St. Louis. St. Louis Post-Dispatch, January
29:Business E1.
142 Haddon, H. 2017. Business News: Fresh Pressure on Grocery Delivery — Amazon’s deal for Whole Foods adds
new element to burgeoning market. Wall Street Journal, June 30:B5.
143 Federal Reserve Economic Data. Real Disposable Personal Income: Per Capita. Federal Reserve Bank of St.
Louis. https://fred.stlouisfed.org/series/A229RX0, Accessed November 19, 2017.
144 Epstein, G. 2017. Can the Expansion Last Into 2020? Barron’s, June 26:33.
145 Strauss, L. 2017. The Dow Notches a Strong September. Barron’s, October 2:M3-M5.
146 Haddon, H. 2017. Business News: Kroger Braces for Amazon – grocer needs to show it can defend its turf
against online power; results due on Friday. Wall Street Journal, September 5:B3.
147 Griffin, J. 2017. Challenge for Publix: Stay Ahead. Tampa Bay Times, January 22:Business 1.
148 Guarttery, M. 2017. IBISWorld Industry Report 44511: Supermarkets & Grocery Stores in the U.S., 6-7.
Retrieved October 24, 2017 from IBISWorld database.
149 Ibid.
150 Ibid.

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