While it wasn’t truly a test of one company’s social mission, nor of the public benefit form of incorporation, the removal of Danone SA’s chairman/CEO in March doesn’t bode well for public benefit corps.
As chairman and CEO, Emmanuel Faber started to transform Danone from a dairy and plastic bottle-proliferating company into a do-good, plant-based food firm. Part of that transformation was to apply for B Corp status, a process that apparently remains under way but was not completed in time to save Faber’s job—if it could have. And that’s my question.
When I first learned of public benefit corporations and/or Certified B Corps (there is a difference) in early 2017, I was excited by the concept. Here was a way to balance shareholders’ financial interests with the benefits these companies bring to people, the planet and society. While most forms of incorporation put an emphasis, even a legal requirement, on maximizing shareholder value—i.e., making a profit—this new legal tool protects a company’s social mission. But how much, really?
Danone’s sales dropped 6.6% during 2020, although profits edged up 1.4%. Bluebell Capital Partners and Artisan Partners—two “activist investors” that recently had bought stakes in Danone—wanted Faber out. Technically, it was only pressure they applied. Technically, Faber resigned. Technically, it happened in France. And Danone apparently hadn’t yet achieved public benefit corporation status.
Frederick Alexander of The Shareholder Commons a non-profit organization engaging in shareholder stewardship and policy efforts, pointed out: “The status is not designed as a poison pill to protect companies from shareholders exercising their voting rights. [However,] the mission of Danone is legally embedded into their charter now, and the change in management does not alter that mission. I think we need to give the situation time to play out to see whether the company can continue to follow that mission...
“Institutional shareholders are coming to recognize that when companies in their portfolios pursue financial return without accounting for their external impacts, the shareholders themselves suffer, because of the systematic harm that redounds to the rest of their portfolios. So the challenge for Danone management will be to convince shareholders that any “sacrifice” of shareholder value ... is beneficial to shareholders’ portfolios overall.”
We’ve all seen this before: A company willing to sacrifice a little profit for a greater good gets beaten up by investors. Admittedly, there are a lot of qualifiers in this Danone example. I hope full-blown public benefit corporations have the power to withstand these kinds of attacks.
