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From: Issue 84 July 2004, Page 70
By: Charles Fishman
URL: http://www.fastcompany.com/magazine/84/wholefoods.html

The Anarchist's Cookbook

John Mackey's approach to management is equal parts Star Trek and 1970s flashback. It seems like a recipe for disaster, but at Whole Foods it's a prescription for world-beating growth — and maybe for a world-changing company.

In March 2003 in the elegant ballroom of the Fairmont hotel in Santa Monica, California, John Mackey, CEO of Whole Foods Market, tried several times to cut off the animal-rights activist.

Lauren Ornelas, director of Viva! USA, a group devoted to improving the living conditions of farm animals, was doing a lot more than asking a question at Mackey's annual shareholder meeting. She had taken the floor to make a speech about ducks — a speech about the treatment and lives of the ducks that end up trussed and chilled in the display cases of Mackey's stores, ready to cook and eat.

“She was disrupting our meeting,” says Mackey. “She was trying to force her worldview on other people.”

Ornelas, in fact, was lecturing a man who has done more to improve the quality, sustainability, healthfulness, and purity of the food Americans eat — from farm field and barnyard to kitchen table — than anyone else in the past 25 years.

Whole Foods, the company Mackey cofounded and heads, is the largest organic- and natural-foods grocer in the country, and the world. It is also Mackey's ongoing experiment in battling the industrialization of the food supply, in making apparently ordinary work engaging and rewarding, and in running a large public corporation in radically new ways. At a time when grocery chains treat food as just another SKU in the supply chain, to be bar-coded, shelved, and self-scanned, Whole Foods has succeeded with exactly the opposite strategy. In 157 stores in 28 states, the District of Columbia, Canada, and Great Britain, Whole Foods creates markets that are a celebration of food: bright, well-staffed, and seductive; a mouth-watering festival of colors, smells, and textures; an homage to the appetite.

Worried about the safety of the farm-raised salmon? Some of Mackey's stores recently displayed placards detailing test results for PCB contamination in the chain's farm-raised and wild salmon, along with FDA limits. Curious about the life of a chicken in the display case? It comes with a 16-page booklet and an invitation to visit the live chickens at the company's Pennsylvania farm.

And so Mackey's initial response to the duck lady was dismissive — even classically corporate. “I actually said to Lauren, 'We have the best animal standards in the country — go bother somebody else,' ” he recalls. And then, as Ornelas talked on about the meager lives of farm ducks, Mackey stepped from the lectern and strode from the ballroom. He says he was just taking a bathroom break, but it looked as if the CEO was walking out in a huff — so much so that he was followed by several of his senior executives and a handful of Whole Foods stockholders.

After he returned and the meeting wrapped up, Ornelas found Mackey in the crowd. They had a cordial chat, and the CEO gave the activist his email address. For several weeks, they traded arguments about how animals are raised. Mackey quickly found the exchange tedious — rhetorical rather than persuasive — and says he sent Ornelas a final email that basically said, “I'm done. We're not going to agree about this.”

And then the CEO of what will this year be a $3.7 billion corporation did something very un-CEO-like — something that shows why he is such an unusual leader and ultimately such an influential one. Instead of simply dismissing Ornelas from his busy brain, Mackey decided to try to make sense of her and her beliefs. “I didn't understand why these people were so passionate about this issue,” he says. “I perceived them as our enemies. Now, the best way to argue with your opponents is to completely understand their point of view.”

He tackled the puzzle of Ornelas the way he has addressed other difficult questions over his career — by reading dozens of books about Japanese management in the 1970s to figure out how Whole Foods should be organized, for example, or becoming a student of labor unions when he was confronted by unionization efforts in the 1990s. Over three months, he gave himself a solo tutorial on modern factory farming. “I read a dozen books about how animals are raised in this country,” he says, “going all the way back to Peter Singer's Animal Liberation in 1975. The more I read, the more I was interested in it. I said, Damn, these people are right. This is terrible.”

Mackey did two things. He changed his vegetarian diet to vegan (he no longer eats food produced from animals, including dairy products). And he sent Ornelas an email telling her she was right — not just about ducks, but about chickens, pigs, and cows. Mackey wrote that Whole Foods would immediately begin using its influence and buying power to demand that the meat it sells comes from animals that have been treated with a measure of dignity before being slaughtered. He invited Ornelas to help.

“I was at the office when that email came in,” she says. “And I just about fell on the floor.”

Mackey's conclusion is both simple and revolutionary. And if his past record is any guide, it may ultimately change the lives not only of every American but of hundreds of millions of farm animals. Before being consumed by humans, animals should at least be allowed, in his words, “to live out their fundamental animal nature.” The ducks that so concerned Ornelas are a perfect example.

Whole Foods has been buying ducks from Grimaud Farms in California for nine years. Grimaud is known as a small, high-quality raiser of ducks. That means no antibiotics, no steroids, and feed that is free of animal by-products. Still, says Mackey, the ducks raised by Grimaud spend their lives in barns. They don't have access to the outdoors. Their bills are trimmed so they don't peck one another. Most stunning to Mackey, “they are not allowed to swim. Ever. Ducks who never get to swim.”

Right this minute, at one of its California farms, Grimaud is designing swimming areas for its ducks.

John Mackey started out with a small health-food store that he opened with his then-girlfriend, Renee Lawson Hardy, in a three-story building on 8th and Rio Grande in Austin in 1978. There was the store on the first floor, a health-food restaurant on the second, a bed on the third. “We didn't even have a shower,” says Mackey. “Renee and I would take showers in the Hobart dishwasher in the restaurant, you know, using the spray hose.”

It has always been easy to underestimate Mackey, who says that he first discovered vegetarian food when he joined a vegetarian group house in college. “I thought I would meet some really cool women there,” he says. “And I did.” His business acumen, his instinct for the market, and his astonishing competitiveness were well camouflaged back then. They still are today.

Now 50, Mackey still has an undisciplined head of hair, and he typically wears shorts and hiking boots to work. Before the adjournment of every business meeting at Whole Foods, including the ones that Mackey conducts, participants do a round of “appreciations,” saying something nice about the people in the meeting.

Mackey flies commercial and likes to rent the cheapest car. A half-dozen times a year, his two senior operating executives — A.C. Gallo and Walter Robb, each of whom runs half the country for Whole Foods, from Boston and San Francisco, respectively — come to Austin and stay at Mackey's house. They make their own beds, and talk shop at 6:45 a.m. over soy yogurt and fruit. Mackey “is hardly a manager at all,” says a former executive who reported to him for years. “He's an anarchist.”

Maybe so. But there is nothing undisciplined about Whole Foods' performance. The company cleared $188 million in profits in the last two years. Food Lion, with seven times as many stores as Whole Foods and five times the revenue, made $150 million in the same period. Safeway lost $1 billion.

As for consistency, Whole Foods has five-year performance numbers that are little short of incredible. In the last five years, grocery sales in the United States have grown a total of 13%, or 2.5% a year compounded. Here, in reverse order, are the year-over-year sales increases at Whole Foods, starting with last year: 17%, 21%, 21%, 23%, and 14%. For Whole Foods, the five-year total growth in U.S. grocery sales would have been a bad single-year performance.

Even more revealing than the overall sales growth, though, is Whole Foods' comparable-store sales growth. Comparable-store sales are a measure of how well similar stores that are already open do year over year. You can grow by frantically opening stores (see, for instance, Gap), or you can grow by attracting more and more customers and selling more and more stuff in existing stores. Again, in reverse order, here are Whole Foods' comparable-store sales increases, starting with last year: 8.6%, 10%, 9.2%, 8.6%, and 7.7%. A typical Whole Foods store that did $15 million in business in 1999 did $21.4 million in 2003 — $6 million in added sales that it mostly took away from the likes of Safeway, Kroger, Albertson's, and Food Lion.

Whole Foods has even tromped the nation's largest grocer, Wal-Mart. In each of the last four years, Whole Foods beat Wal-Mart in both overall and comparable-store sales growth. In the last two years, as the nation slogged through the downturn, Whole Foods' comparable-store sales have grown at nearly twice the pace of Wal-Mart's.

Ten years ago, Mackey was worried about a lot of things with what then seemed like a big ($402 million in sales, 35 stores) company. What worried him most was that someone much bigger would catch on to the potential of natural food, and simply wallop him. “If someone had been ruthless enough, or opportunistic enough — or, really, just smart enough — we could've been crushed,” he says. “But I don't fear that anymore. We're not that vulnerable anymore. Our culture is too strong. Our locations are too good. And we know so much more than we used to.”

Just yesterday, it seems, Whole Foods was a cute, engaging market, obsessed with organic and natural foods, and with a puzzling egalitarian work culture. The customer-service staff had piercings, tattoos, spiky hair — and an apparently limitless patience to talk about the origins of the fresh mozzarella cheese, or the ingredients of the orzo salad, or the virtues of various homeopathic remedies.

The company had a written “Declaration of Interdependence” (1,571 words, 249 more than the Declaration of Independence). It had a set of written core values (“satisfying and delighting our customers,” “team-member happiness and excellence”). And most striking of all, even for a small company, it had a set of quirky management rules that made Whole Foods an odd but effective workplace.

Each store had a book in the office that listed the pay of every employee for the previous year. The book was available to anyone — and was especially valuable if you were promoted or if you relocated, and wanted to see how your pay compared with your colleagues'. The pay book, surprisingly little used, set a tone of what Mackey called “no secrets management.”

Every store was divided into about eight functional teams: You were hired to the seafood team, or the prepared-foods team, or the cashier/front-end team. But you didn't just get hired. You got hired provisionally. After four weeks of work, the team you had joined voted whether to keep you; you needed a two-thirds yes vote to join the staff permanently.

Additional pay (beyond base wages) was linked to the teams, so people were careful about who got their votes. Thirteen times a year, Whole Foods calculated the performance of the people on each team in every store. How productive had the team been against goals? Teams that did well shared in the profits — up to $1.50 or $2.00 extra an hour was paid right back to team members, every other paycheck. So people didn't want buddies on their teams; they wanted workers — people who were going to make them some money.

Individual team leaders made decisions about what to stock in their stores, in consultation with the store team leaders. No one in regional offices or in Austin dictated what would go on the shelves. Stores were encouraged to buy and stock local produce, fish, or meat, so long as they met Whole Foods' quality standards. Stores competed against each other in 11 “customer snapshot” reviews a year — on everything from cleanliness to the drama of the produce displays. Ordinary employees qualified for stock options, and executives limited their own pay to eight times that of the average frontline employee. The company gave 5% of its after-tax profits to charity. And, of course, whenever possible, Whole Foods stocked organic or natural foods.

In 1992, a year after going public, Mackey announced, “We're creating an organization based on love instead of fear.”

The question of the 1990s — after Whole Foods had acquired Wellspring, in North Carolina (two stores); Bread & Circus, in New England (six stores); Mrs. Gooch's, in California (seven stores); and Fresh Fields, on the East Coast (22 stores), while opening an average of five new stores a year — was about how the whole charming, loving, unlikely enterprise would scale up.

In 2004, with 26,000 employees (twice the number at Apple Computer) and nearly a billion in sales in just the first three months of the year, what has happened to all those Woodstock-generation management ideas?
The question was how a charming, loving, unlikely enterprise would scale up.

Every one of them is still in place — except that executive salaries are now limited to 14 times frontline workers' pay.

The salary book is still in every store. If you want to join a team — including, say, the national IT team — you still need a two-thirds thumbs-up vote. Nonexecutive employees hold 94% of company stock options. And just last year, the National Leadership Team took the health-insurance options to employees for a vote. (Whole Foods pays 100% of the cost for full-timers.)

The ideas have been put to the test as Whole Foods slowly opens larger stores in labor markets where untraditional management may seem, simply, weird. This February, Whole Foods opened a signature store in Manhattan, in the new Time Warner building at Columbus Circle. It is the largest supermarket in Manhattan, with 59,000 square feet. The ceilings are airy, the cafe is skylit, the aisles are so wide that two shopping carts and a baby stroller — three abreast — can easily slide past one another. The Columbus Circle Whole Foods is a carnival of comestibles. The prepared-foods area includes a sushi bar, staffed at lunch with 11 people; a pizza bar with 14 kinds of pizza; a coffee and tea bar; a salad bar with 40 items; and a daily hot-lunch bar that includes separate arrays of Asian, Indian, and Latin food. The produce section recently offered 15 different varieties of organic greens, including dinosaur kale; the meat case held four dozen kinds of meat. The store has 30 checkout stations, a single bank-style line, and a line monitor to speed customers to the next open cashier.

But as gorgeous, and even sexy, as it is, the food is really not the challenge. It's the people. Columbus Circle opened with 292 people on staff, which means some of the 14 teams had 50 or more members, a hard group to wrangle. The key is one of Mackey's favorite metaphors: yogurt culture.

Of those 292 staff members, 70 came from other stores. With their understanding of the company, they were the starter culture, in Mackey's metaphor, launching the fermentation that would turn Columbus Circle into a true Whole Foods store. Some even took lesser titles just to get into Columbus Circle. The store has a team leader and two associate store team leaders, both of whom were previously running their own stores in Georgetown, Maryland, and Albuquerque, New Mexico, before coming to New York.

Although Whole Foods is pricey — customers have ruefully nicknamed it “Whole Paycheck” — the opening staff was quickly swamped by the business in New York. Three months after it opened, Columbus Circle now has 468 team members, including 140 people on the cashier/front-end team alone, more people than used to work in a whole store.

Aaron Foster, 22, a two-year company veteran, came to Columbus Circle from a Philadelphia Whole Foods. He's a cheese buyer, and standing at the cheese display, he's pondering the tension in Whole Foods' values — as he puts it, to “further the goals of sustainable agriculture and artisanal food production while being as big as we are and growing as fast as we are.” A customer comes up. “Excuse me,” she says, “I'm looking for a certain cheese.” She's abashed. “It begins with a C.” Foster is all ears. “It's one syllable,” she says. Foster focuses on the roster of C cheeses in his brain. “I bought it yesterday at Dean & DeLuca!” the woman offers, as if this might be helpful.

“Comte,” Foster suggests.

“That's it!” the woman says, and they head off to get her some.

Barry Keenan is working the fresh-seafood case with full-throated theatricality, calling the weights of the salmon and the shrimp he is selling before the scale can display them. “I shopped at the Whole Foods in Chelsea all the time,” the 32-year-old says. “I figured I'd put in my application; they hired me in September.”

So is Whole Foods a New York kind of workplace? Keenan laughs. “Not at all. People here are used to being trod on. I was in the restaurant business 10 years. I got no benefits of any kind the entire time, not to mention, say, a lunch break.” The restaurant veteran has no qualms about working retail at the seafood counter. “They have a lot more respect for you as a person here.”

Indeed, Chris Hitt, who was at Whole Foods for 16 years and who left as president in 2001, says, “Customers experience the food and the space, but what they really experience is the work culture. The true hidden secret of the company is the work culture. That's what delivers the stores to the customers.”

Wendy Steinberg, 44, has worked at Whole Foods since 1992 (her husband works at Whole Foods, too), and she is now one of the associate team leaders at Columbus Circle. She has a story from her first year at the company, when she was working in a store in Providence, Rhode Island.

“I was on break, in the break room. I hadn't been a team member more than six months, and there was this guy in the break room. He was sitting there, with his hands crossed, with this big 1970s-style Afro, just checking things out. We talked. He asked me a lot of questions. I had no idea who he was. I figured he was just another team member.”

Finally, says Steinberg, “I was like, who are you, anyway?”

That was John Mackey.

“He's an observer,” Steinberg says of her CEO.

It's hardly the oddest description of Mackey. His management style, his beliefs, are a baffling blend that defies categorization. Through stock ownership, Mackey is a multimillionaire, but he is unpretentious and uninterested in money. He's now a vegan, on the principle that all food causes harm to the animals that produce it. He does eat eggs produced by the chickens that he and his wife raise on their Texas farm “because I know those chickens are happy. They live in chicken heaven.”

Raised in Houston, Mackey studied philosophy at the University of Texas in Austin, but he never got a degree. He remains an omnivorous intellect. In the course of an hour's conversation, he'll quote from the management theories of Ryan Matthew and Watts Wacker's The Deviant's Advantage , the demographics book Millennials Rising , Somerset Maugham's novel set in 1930s Paris, The Razor's Edge , and J.R.R. Tolkien's Lord of the Rings . Animal-rights activist Ornelas says Mackey read books about animal husbandry that even she had never heard of. On a wall of Mackey's office is a framed poster of the starship Enterprise ; Mackey is an admirer of the political organization of Star Trek's United Federation of Planets — and the regional organization of Whole Foods is similar.

The National Leadership Team of the company has 24 people on it, and, says Mackey, “We make decisions by majority vote. I almost never overrule them.” He doesn't just delegate; in fact, he can seem almost diffident about his company. Asked how 140 cashiers can function as a single team in the way that Mackey originally imagined — an absolutely fundamental question in preserving the culture of Whole Foods — he looks like an anthropologist who has just had a student ask a great question.

“That does sound like a problem,” he says. “A team that large could confound the basic operating principle. But I'll tell you, I don't have the faintest idea how they've solved that problem. That's not my job anymore. But call them up, ask. I guarantee they have found a solution. I'd be curious to know what it is.” (In practice, the team has 13 supervisors, one subteam, and everyone meets as a massive group each month.)

And yet last year, Mackey spent months on the road, visiting 135 stores, talking to hundreds of employees. He overruled everyone to dictate the massive size of the new Austin flagship store — it will be 80,000 square feet. And as inclusive and decentralized as he wants management to be, Mackey is more clearly in charge at Whole Foods than ever before. Eight years ago, two longtime veterans of the business and the company, Chris Hitt and Peter Roy, were each helping run operations nationwide. Both eventually had the title “president,” and Mackey said either could run the company.

Both Hitt and Roy are gone now, as are cofounder Craig Weller, food guy Lex Alexander, and several other longtime executives. Feelings are still pretty raw on all sides — “There are power struggles and crap that goes on below the surface at every company,” says Mackey — but there was no crisis. Just personality differences, growing pains, and people whose expectations didn't get met. Mackey has taken back the title of president, and he won't say a word about succession except, “I have no plans to go anywhere for at least 10 years.”
Trouble in paradise? “There are power struggles and crap at every company,” the CEO says.

Hitt says he thinks Mackey may one day be considered as much a pioneer as Bill Gates or Steve Jobs. But in the same breath, he says, “Whole Foods isn't just John Mackey. It's a huge number of incredibly committed senior executives and people who [have worked] in those stores their whole careers.”

Mackey and Whole Foods are already having a profound impact on how Americans eat. No less a giant than Dole Food now sells organic bananas — bananas are the number-one produce item in the nation — to Whole Foods and will soon sell organic pineapples. Much to Dole's surprise, half the demand for its organic bananas comes from conventional supermarkets.

Organic Valley cooperative, a large national supplier of organic milk, grew up alongside Mackey and Whole Foods — “When they would open a single store, we would increase our production,” says Organic Valley's marketing chief, Theresa Marquez. And Whole Foods' markets are still 16% of Organic Valley's business, but no longer its number-one customer. Organic Valley's biggest account is Publix, a classy regional supermarket chain in the Southeast that is five times the size of Whole Foods — and thoroughly mainstream. “Sixty percent of our business is the mass markets,” says Organic Valley CEO George Siemon.

It's unlikely there would be organic milk in every supermarket coast to coast, and it's hard to believe Dole would be busy scouring Central America for farmland to convert to organic production if Whole Foods' sales hadn't tripled, and tripled again, since 1994. Says Doug Greene, founder and former editor of Natural Foods Merchandiser , the 25-year-old trade bible of the organic- and natural-foods business: “If you look back 100 years from now, history will show that Whole Foods will be in the top-five companies that changed the world.”

Still, for all of Whole Foods' success and influence — one meat supplier uses the un-hippielike word “juggernaut” — the organic- and natural-foods business remains a pretty small niche. True, production and sales are growing at more than 20% a year in an industry that, overall, is stagnant or drifting up at only the glacial rate of population growth. But the total U.S. market for organic and natural foods is now estimated at about $13.5 billion, between 1% and 2% of all foods sold in the United States, and less than the sales at any of the top-11 grocery chains in America. Cropland and grazing land is rapidly being converted to organic production, but for all the talk, right now less than half of 1% of U.S. land is certified for organic growing or grazing. “Wal-Mart spills more milk than we sell every year,” says Organic Valley's Siemon.

But here's the funny thing. The production of natural and organic foods is a virtuous cycle: You have to start off with clean land to grow grain for your clean breakfast cereal, or to feed to your clean chickens. The baby-boom demographic trends are all surging in Whole Foods' direction; the Columbus Circle store is already filled with little old ladies loading their grocery carts. Americans are on hair-trigger alert to issues such as mad cow disease. It's hard to envision the market doing anything but growing.
Mackey believes we will shun factory farms that treat animals like products.

Mackey's new determination to raise Whole Foods' standards for animal care — a command decision to which there has been nothing but assent internally — may rock the cattle, pork, and poultry industries. After six months of meetings, Whole Foods settled on rules for ducks, and this summer will begin setting standards for pig raising. And Mackey believes Americans will soon shun factory farms that raise and slaughter 9 billion animals a year as if they were protein products, not creatures. “Right now,” he says, “Americans have to pretend factory farms don't exist. They turn their eyes away, because there's no alternative, there's no choice.” Once there is a choice, he says, we will allow ourselves to be outraged. Equally dramatic transformations have happened in the past 25 years. Consider the revolution in attitudes about drunk driving and smoking in the United States.

In 20 years of making predictions about his company and his business, Mackey has never missed a bet, except for underestimating the market for organic and natural foods. (At one point in the early 1990s, he said there were only 100 good sites for Whole Foods markets in the entire country.) Sitting in his office in 2004, he says without hesitation, “Twenty years from now, factory farms will be illegal in the United States.”

As bold, and even outrageous, as that prediction is, Mackey is nothing if not a hardheaded realist. And he hears regularly from counterculture critics who complain about the corporatization of their stores. “People write me letters, they send me emails. They say, 'You've forgotten the people who made you.' They say, 'How can you let people who drive SUVs shop at the stores?' “

Mackey says they simply don't get it. “The stores are larger, nicer, prettier — they are more inviting to the mainstream shopper,” he says. “Whole Foods is not a business for a clique, or for the elite. We wanted the philosophy of the stores to spread throughout the culture. We wanted to change the world.”

Mackey is a persistently puzzling fellow: self-effacing, but with a hint that he senses his own legacy. During 2002, in the heart of the recession, he took four months off to hike the Appalachian Trail, fulfilling a longtime dream.

People who hike the whole trail end up with “trail names,” a moniker that acknowledges that the Appalachian Trail is a universe unto itself, a place where the roles of the outside world are set aside. Mackey had been warned in advance to pick his own trail name, lest he be tagged with something derisive, as is the custom.

“My trail name is Strider,” he says. For someone tall, lanky, and energetic, it seems an innocuous enough choice. “I'm a great admirer of Tolkien's Lord of the Rings ,” Mackey says. “Before I was in high school, I had read it five times. And one of the characters I admired was Strider.”

But as with much about Mackey, that nickname is not quite what it seems. “Strider isn't his real name; it's his nickname on the trail. He is really Aragorn, the king. But he wasn't a king on the trail. In 2002, when I was hiking, I was certainly the richest guy hiking the Appalachian Trail. I was a kind of secret king. But that wasn't my identity, or my role, on the trail.”

Fast Take: Management Whole Foods Style

Imagine if every new hire had to win a two-thirds yes vote from employees before being permitted to join the staff permanently. And imagine if a list of everyone's pay was posted publicly, with names attached. Those are just two of the distinctive elements at Whole Foods, management ideas born back in the 1980s when CEO John Mackey and his colleagues were looking to scale up the work culture of the corner health-food store. Japanese management ideas were in vogue back then, and Japanese principles of team-based management are infused throughout Whole Foods' structure.

“Empowered” teams

Stores, and even individual grocery departments within stores, such as seafood or produce, still have a lot of say about what gets stocked, based on local products and local tastes. Regional managers design their own new stores rather than take blueprints from headquarters.

“No secrets” management

Whole Foods releases a flood of financial data, far more than most companies. It's aimed not at the public or the press, but really toward employees, in order to help them understand how their company is doing. The information starts with the most basic: Every store contains a binder with the previous year's gross pay for every company employee, including executives.

“Shared fate” from the front lines up

Mackey feels strongly that dramatic pay differences between the front lines of companies and the executive suites are corrosive over time: Executives and the employees who do the day-to-day work end up with completely different perspectives. At Whole Foods, executive pay is limited to 14 times the average pay of frontline workers. Frontline employees qualify for stock options, and the company says 94% of options go to nonexecutive staff.

“Shared fate,” part two

Whole Foods has a distinctive profit-sharing feedback loop. Every four weeks, individual work teams (there are roughly 10 per store) are assessed for productivity, and profit sharing is awarded in every other paycheck. That's one reason staff members are careful about who they vote onto teams: Your closest colleagues have a direct impact on your paycheck.

“Team-member happiness”

Whole Foods has always been clear that customers, and their needs, are the number-one priority. Employees aren't far behind. Whole Foods has a liberal dress code, pays 100% of health insurance for full-time employees, and provides full-timers with 20 hours a year of paid time to do volunteer work.

Fast Take: You Decide

John Mackey runs a large coast-to-coast grocery-store chain with a uniquely decentralized style. The key is a single question, says Mackey. “I often ask, Whose decision is this?”

That's why employees voted last year to pick their health-insurance plan, rather than having it imposed from headquarters in Austin. Health insurance is the decision that frontline employees care most about, and whose elements they can most effectively judge.

The fundamental operating unit of Whole Foods is not in Austin, or in one of the regional offices, or even the 157 individual stores. The basic unit at Whole Foods is the team — the produce, seafood, or bakery team at a particular store. Decisions, from hiring employees to what products to carry, are often made at that level, by a few dozen employees. That reflects the core decision-making philosophy at Whole Foods: Decisions should be made closest to the place they'll be carried out, should directly involve the people affected, and should leave out people who aren't involved. Simple ideas, but not the way most bosses think about their prerogatives. Here's Mackey's matrix for thinking about decision making.

Command-and-control decisions

These are the ones that Mackey makes himself — or the “boss” in a particular setting makes. They happen when timing doesn't permit wide consultation, or when Mackey thinks the stakes are so high that he feels that he has to decide. “I almost never make a command-and-control decision,” he says.

Consultative decisions

These are decisions that Mackey, the senior leadership team, or the appropriate group of people make — but only after wide conversation and consultation with those involved. It's the most common form of decision making at Whole Foods. “I make a ton of decisions where I consult with people I trust, with the people involved,” Mackey says.

Consensus decisions

These occur when the team involved strives for general agreement. Each team at each store meets monthly to provide a forum for this kind of decision making; among the decisions reached by consensus are hiring decisions: Every new employee must be voted onto the staff after a tryout; it takes a two-thirds yes vote from the team to stay. Even Mackey's National Leadership Team of 24 people routinely votes on decisions. “I don't overrule the National Leadership Team,” says Mackey. “I've done it maybe once or twice in all these years.”

“I will make a decision about what kind of decision something is,” says Mackey. The most common decisions, he says, are also his favorites: “decisions that are not my decision.”

Charles Fishman , Fast Company 's southeast bureau chief, first wrote about Whole Foods in 1996, for issue number two.