Weight in the Saddle

Thursday, July 19, 2007

A couple of things in the business world came together for me in the past few weeks.

Back on July 8 I read Paul Brown’s New York Times review of a new book entitled "Finding Midas." The author, Russell Cleveland, is founder of RENN Capital Group, an investment management firm. Using Wall Street investment wisdom of “bet on the jockey, not the horse,” Mr. Cleveland describes the type of chief executive he looks for when making his investment decisions. It is the entrepreneurial C.E.O. that catches his attention, whether or not the person is the founder of the company. “Entrepreneurial management concentrates on seeking new opportunities, trying to fulfill the needs of others,” he writes. “Professional management is mostly about making assets more effective and efficient. Both types of management are important, but in our economy it is the entrepreneurs who create the economic growth and wealth for everyone else.”

Then on July 12, David Kesmodel and John Wilke’s article (“Whole Foods is Hot, Wild Oats a Dud – So Said ‘Rahodeb’”) appeared on the front page of the Wall Street Journal. In case you don’t know, the Federal Trade Commission (FTC) has filed a lawsuit, seeking to block Whole Foods’ takeover of one of its competitors, Wild Oats, on antitrust grounds. The C.E.O. of Whole Foods, John Mackey, has been quite vociferous in defending his company’s strategy and actions. It turns out that the FTC, in a document it made public late on July 10, included a quotation from the Yahoo Finance stock forums. The footnote reads, “As here, Mr. Mackey often posted to Internet sites pseudonymously, often using the name Rahodeb.” (Rahodeb is an anagram of Mackey’s wife’s name, Deborah.)

Given the speed of Internet journalism, by late evening on July 11, Mr. Mackey had posted seven responses to the question “Who is “rahodeb” and why does the FTC quote this person?” on Whole Foods’ website’s Frequently Asked Questions section. His first three answers were:

• I posted on Yahoo! under a pseudonym because I had fun doing it. Many people post on bulletin boards using pseudonyms.
• I never intended any of those postings to be identified with me.
• 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. Anyone who knows me realizes that I frequently do this in person, too.

Keep in mind that Mr. Mackey posted to Yahoo from 1999 to mid-2006 and only stopped posting because he lost a bet with another correspondent over Whole Food’s stock performance.

Next headline, July 14, in the Wall Street Journal, “SEC Opens Informal Inquiry of Whole Foods CEO Postings.”

Now I have no idea whether his actions violated any securities laws but as a leadership consultant, I find his use of “fun” and “unintentional” to justify his unorthodox actions as reproachable. The smart leader knows that one’s intentions are of no consequence – it is the impact of one’s actions that matter the most. I recognize it must be very difficult for him to separate his identity from the company’s identity, having co-founded it as a college dropout back in 1980. But as can be the case in situations like this one, the moment arrives when it is painfully and publicly clear that the company has grown up but its creator has not.

Then Whole Foods issues the following press releases on July 17:

• “Whole Foods Market’s Board of Directors Begins Independent Internal Investigation Associated with Online Financial Message Board Postings”
• “Whole Foods Market today released the following statement from Co-founder, Chairman and CEO, John Mackey: "I sincerely apologize to all Whole Foods Market stakeholders for my error in judgment in anonymously participating on online financial message boards. I am very sorry and I ask our stakeholders to please forgive me."

Sounds like someone got tired of the jockey doing acrobats while riding the $5.6 billion racehorse.

Postscript: Here is a Wall Street Journal video from Friday, July 20 on the Mackey story.