Sunday, March 18, 2007

Transparency + Long Term Focus = Effective Communicator

John Mackey, chairman, co-founder, and CEO of Whole Foods Market—the world's leading retailer of natural and organic foods, #5 on Fortune 100’s best companies to work for, and one of the leaders of corporate social responsibility—proves effective at managing one of John Hamm’s five messages leaders must manage: financial results. First, Mackey demonstrates Hamm’s point that quarterly results have more leverage as a metric for long term improvement than in only worrying about the gains or losses in the short term. Rather than focusing on the fact that growth in their first quarter for fiscal year 2007 was low compared to other quarters, Mackey communicated these lower results in terms of long term improvement through the following comment within the company’s quarterly report:

“We are pleased with our 7% comparable store sales growth in the first quarter, which was in line with our expectations and against a tough 13% comparison in the prior year… We are producing higher sales growth, comps and sales per square foot than our public competitors. Given our record store development pipeline, continued anticipated acceleration in store openings, and now the announcement of our pending merger with Wild Oats Markets, we believe we are even better positioned to achieve our goal of $12 billion in sales in fiscal year 2010. Over the longer term, however, we believe our sales potential is much greater as the market continues to grow and as our company continues to improve.” (http://www.wholefoodsmarket.com//investor/Q107financial.pdf)


As mentioned in his comments, Mackey not only communicated these results through words, but also through action; he communicated that current results would improve through an action that everyone would participate in: merging with Wild Oats Markets. At the same time these quarterly financial results were released (February 21, 2007), Mackey announced this merger and asserted:

“Our companies have similar missions and core values, and we believe the synergies gained from this combination will create long-term value for our customers, vendors and shareholders as well as exciting opportunities for our new and existing team members…Whole Foods Market expects to recognize significant synergies through G&A cost reductions, greater purchasing power, increased utilization of support facilities and new team member talent.” (http://www.wholefoodsmarket.com//investor/pr07-02-21merger.pdf)

By taking this action right away, Mackey communicated that Whole Foods Market is willing to commit to the future and that employees and shareholders can contribute through supporting the merger. While employees are often most worried about the security of their jobs in relation to financial results, Mackey effectively combated this fear by including the new opportunities for “existing” team members and also acknowledging later in this report that this merger would not result in the elimination of Whole Foods Markets positions, but rather creation of new positions through “immediate access into a significant number of new markets.”

Mackey also illustrates Hamm’s assertion that effective leaders must communicate financial results broadly and focus on the truth. It is obvious that financial results are broadly communicated through the extensive “Investor Relations” section on the company’s website, including direct access to all quarterly reports, press releases, and the 10-K. This direct access communicates to all stakeholders that Whole Foods Market has nothing to hide. More specifically, in his press release on 2006’s fourth quarter results, after announcing lowered expected store sales growth for fiscal year 2007 (6% to 8%), Mackey combines the brutal (expected) truth about the future with his continuing theme of focusing on the long term:

“After producing such strong growth over the last three years, we believe fiscal 2007 will be a transition year for us. As we revert back to our historical comparable store sales growth range, without yet producing a fully offsetting increase in sales from new stores, we believe our total sales growth will be impacted,” said Mr. Mackey. “However, having opened six new stores over the last two months, we believe we are just beginning to execute on delivering an acceleration in store openings that will be a driver of strong sales and comps in the not-so-distant future. We remain confident in our ability to achieve our goal of reaching $12 billion in sales in fiscal 2010.” (http://www.wholefoodsmarket.com//investor/Q406financial.pdf)

Mackey also accompanied the previous statement with an announcement the same day (Nov. 2) that he was reducing his salary to $1 for the year and forgoing any future stock option awards. In solely relying on his current stock options and benefits, this action clearly communicated to stakeholders that Mackey expected improvement in financial results for the future. While the announcement of the expected lowered sales inevitably dominated as Whole Food Market’s stock price plummeted the following day, Mackey’s action demonstrated the trade-off that often occurs with honesty: short term losses. However, the long term gains are looking good as shares have soared after the announcement of the merger with Wild Oats. (http://www.businessweek.com/ap/financialnews/D8NECE6O0.htm?chan=search)

While it will be interesting to follow the anticipated merger (in particular, how Mackey will communicate operational key metrics to new employees as I could not find any information on communication of these metrics to current employees besides supporting the merger), Mackey effectively communicates results through combining thorough transparency and honesty with a focus on long term improvement.

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