Danone: half measures | Financial Times

“Wanted: new chief executive for Danone, French entreprise à mission. Pressing tasks at this purpose-driven yoghurt maker include achieving 3-5 per cent organic growth and executing predecessor’s strategic overhaul. Warning: multiple constraints. Incumbent boss remains as chairman; vice-chairpersons and newly-elevated lead independent board director are dyed-in-the-wool old school. Latitude further crimped by assets that have already been put on the block with proceeds earmarked.”

Headhunters will have a tough job filling this one. Emmanuel Faber, under pressure from activist investors to step down, is relinquishing just half his job by standing down as chief executive but keeping the chairmanship. His record and the French food group’s lacklustre performance have left activist shareholders baying for blood. Faber has presided over three cuts to profit forecasts since taking the helm in 2014. 

Danone, maker of Volvic bottled water and Actimel yoghurt, underperforms peers such as Nestlé and Unilever on a range of metrics including returns and forecast growth. Its markets are looking sluggish. Consumers are turning away from environmentally harmful bottled water. Lower birth rates are denting demand for infant formula.

Like Paul Polman, former boss of Unilever, Faber has championed sustainability and broader ESG: hence last year’s reframing of the yoghurt maker as an entreprise à mission, with social as well as financial objectives. Polman’s efforts were widely lauded but sustainability targets do not always chime with financial ones. That was thrown into sharp relief by Kraft Heinz’s abortive $143bn bid for the Anglo-Dutch consumer goods maker, which pitted a cost-cutting money machine against the more socially conscious multinational.

Accountability, sustainability and diversity are increasingly — and rightly — sought by big investors such as BlackRock but company chiefs can err on targets and incentives. Danone, for example, links 10 per cent of management’s short-term incentive pay to a woolly-sounding metric: “employees sustainable engagement”. 

Still, this puts Danone in a small group of maybe 5-20 per cent of European companies linking incentive pay to ESG targets. Activist investor Cevian Capital is calling on European companies to follow suit, linking meaningful ESG targets into incentive plans. Expect more investors to be this demanding.

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