Danone’s test case for sustainable business

When Danone shareholders approved a change in the French company’s legal status last year to enshrine its social mission, its chief executive declared they had “topped the statue of Milton Friedman”.

However, now the company management is facing the heat from market forces once championed by the economist as necessary for capitalism.

Dissatisfied shareholders have been agitating for changes at the maker of Evian bottled water and Activia yoghurt for months. They have called for the replacement of chief executive and chairman of the board Emmanuel Faber after what they see as a prolonged period of underperformance.

It is a tussle for power that could have repercussions for the wider business world and the approach to a more stakeholder-based capitalism. 

Danone last year became the first big listed French company to become a so-called enterprise à mission, or purpose-driven company. The status requires it not only to generate profit for its shareholders, but to do so in a way that it says will benefit its customers’ health and the planet. Its progress on this front is assessed annually by an independent board.

Faber is a passionate advocate of a new, more responsible form of capitalism that has been backed by everyone from Blackrock’s Larry Fink to the US Business Roundtable. 

However, with Danone’s share price trading at a historically wide discount to larger peers Nestlé and Unilever, the company has come under pressure from shareholders.

Sarah Kaplan, a University of Toronto professor, predicts there will be more conflicts such as the one between shareholders and management at Danone given the depth of the changes under way.

“We are in the early stages of development of a new more responsible capitalism. People may want to run businesses differently but they still do not know how to do it,” she said. “You need to identify the trade-offs and address them head on with employees and shareholders.” 

The dissident shareholders seem to have sensed that attacking the company directly for its green pledges was not the best tactic, so they have taken pains in public to say their beef with the company is over performance, not philosophy.

Activist Bluebell Capital walked a narrow line in its letter to the board, saying it supported the group’s “dual economic and social project” even as indicated that “under the leadership of Mr Faber, Danone did not manage to strike the right balance between shareholder value creation and sustainability”.

In practice, Danone’s pledges on sustainability have included committing to spend billions on efforts to cut its plastic use, help farmers who produce milk for its products, and reduce its greenhouse gas emissions. It also began reporting so-called “climate adjusted” earnings per share last year.

The moves mirror similar initiatives across the consumer goods industry, which has been among the more enthusiastic adopters of the “multi-stakeholder” model. Just think back to Paul Polman at Unilever in 2010 telling his shareholders not to invest in the group if they did not like his focus on sustainability goals that included cutting water usage and improving the lives of its suppliers.

Sector leader Nestlé has also jumped on the green bandwagon, pledging last year to spend €3bn in the next five years on measures to cut its greenhouse gas emissions to “net zero” by 2050. Yet the biggest foodmaker in the world has not been criticised for this additional spending because chief executive Mark Schnieder has executed a successful turnround since joining in 2017.

The upshot seems to be that investors support a broader role for business in tackling environmental problems as long as it does not distract from the main show of growing earnings and returning money to shareholders. Unilever also co-opted shareholders by offering them a vote every three years on its plans to tackle climate change. 

Faber admitted in a Financial Times interview last week that it was not always easy to know if the company was striking the right balance between short-term business needs and its long-term approach. “We are adjusting the balance constantly,” he said. 

Danone did win over one prominent ally recently — none other than the ex-Unilever boss Polman, who tweeted his support for its way of doing business.

leila.abboud@ft.com