case study

Whole Foods Market CEO John Mackey prided himself on founding a company that offered nutritious products and con- tributed generously to all manner of charities (see Figure 18-10). Mr. Mackey founded the company as a 25-year-old college dropout, in Austin, Texas. When he and his co-founder (his 21-year-old girlfriend) were evicted from their apartment for stor- ing food products in it, they decided to live at their small health foods store. Because it was zoned for commercial use, there was no shower stall, so they bathed using a water hose attached to their dishwasher. Thus was born the world’s foremost purveyor of healthy produce. As Whole Foods increased its market share and became the nation’s largest natural and organic grocer, its reputation as a model for corporate behavior grew as well. With 270 locations in the United States, Canada, and the United Kingdom, Whole Foods Market produced all manner of wholesome produce—seafood, grocery, meat and poultry, bakery, prepared foods and catering, beer, wine, cheese, whole body, floral, pet products, and household products. The company was consistently ranked among the most socially responsible busi- nesses and placed second on the U.S. Environmental Protection Agency’s list of Top 25 Green Power Partners. For many years, Whole Foods and its socially responsible CEO could do no wrong. Right up until CEO Mackey’s “secret blogging life” was exposed.

“Rahodeb, Is that You?” On July 20, 2007, The Wall Street Journal reported that CEO Mackey was, for at least seven years, using the pseudonym, “Rahodeb” (an anagram of his wife’s name, Deborah), to post to Yahoo! Finance forums opinions criticizing rival supermarket chain Wild Oats Market. The Journal reported that both the Federal Trade Commission and the Securities and Exchange Commission were investigating. The anonymous CEO’s postings painted a bleak future for Wild Oats Market, while predicting a bright one for Whole Foods. An early Rahodeb posting posited the following: “I think it is highly unlikely a conventional supermarket chain will buy OATS. Why not? What does OATS bring to the table? “Good locations? No. For the most part they have poor real estate (based on the stores that I have seen). Their stores are also on average quite small—not the size stores that supermarket chains want to operate. Anyone that buys OATS is taking on huge operating lease liabilities from this poor real estate. OATS has many underperform- ing stores that should be written off.” Another Rahodeb posting proclaimed in 2006: “The writing is on the wall. The end game is now under- way for (Wild Oats) . . . Whole Foods is systematically destroying their viability as a business—market by market, city by city.”

In another 2006 posting, Rahodeb warned: “Bankruptcy remains a distinct possibility (for Wild Oats) if the business isn’t sold within the next few years.” Anyone reading these dire anonymous warnings about the future of Wild Oats might have found it inconceivable that any company in its right mind would ever be interested in buying Wild Oats. Who would be that gutsy or ignorant? The answer was a shocker. Rahodeb Makes His Move What Rahodeb aka Mackey didn’t reveal in the anonymous post- ings was that his company, Whole Foods, planned to make an offer to buy Wild Oats. In February 2007, Whole Foods announced it intended to do just that at an aggregate price of $565 million—not bad for a firm that had been knocked so vociferously by the anony- mous blogger. Four months later, the Federal Trade Commission filed a lawsuit to block the proposed $656 million sale, on antitrust grounds, that it would hobble competition and increase prices to consumers. Whole Foods Market CEO John Mackey took the unusual step of initiating a blog on the subject to explain his opposition to the FTC’s stance. Papers filed by the FTC revealed that for several years, CEO Mackey posted highly opinionated comments under the pseudonym “Rahodeb” on the Whole Foods Yahoo! investment message board, raising serious legal and ethical questions. Additionally, the Securities and Exchange Commission began an investigation of the Mackey secret postings. Whole Foods responded to the FTC complaint by saying its CEO posted comments under an alias “to avoid having his com- ments associated with the company and to avoid others placing too much emphasis on his remarks.” Nonetheless, the company also decided to launch a board investigation of the postings and to restrict its CEO and other senior officers from posting future industry-related thoughts on the Internet. And CEO Mackey, himself, mounted his own defense on his own blog, bashing the FTC and stating: “The views articulated by rahodeb sometimes represent what I actually believed and sometimes they didn’t.
Sometimes I simply played ‘devil’s advocate’ for the sheer fun of arguing. “All of rahodeb’s posting also need to be understood in the context of the time that they were written. Because the competitive market has evolved so much in the last 5 years, older postings mean far less today than they did when they were written.” The FTC–Mackey/Whole Foods battle raged on for two years when, in 2009, the government settled with the company, forcing Whole Foods to sell the Wild Oats brand and 13 functioning stores, in order to keep another 19 outlets. As a postscript, the SEC concluded in 2008 that it had decided to take “no action” on the anonymous CEO Web postings.

Questions 1. What are the ethical implications of the CEO’s anonymous postings about the competition?

2. Would Mackey have been better off signing his name to the postings?

3. If you had been public relations director at Whole Foods, what would you have advised the CEO as to his Web postings and his blog?