Danone: a moment of truth for stakeholder capitalism.
Truth be told, the business community knows the current economic model has failed both people and the planet resulting in historical levels of inequality and a climate emergency that threatens human existence.
Leading investors claim to recognise the need for reform. They have declared an end to the era of shareholder primacy or the speculative model of investment in favour of a shared prosperity model of stakeholder capitalism.
Yet the CEO scalps of those leaders who dare to drive reform are accumulating. If shareholder value falls, whatever the rationale, the knives come out.
A just model of capital cannot be one where labour rights, inclusion and environmental standards are tolerated by shareholders, as long as they are not asked to moderate their demands for ever-increasing wealth.
The commitment to a stakeholder model cannot be realised when corporate greed wins out over a balanced approach to shared prosperity that ensures human and labour rights, protection of jobs and minimum living wages plus the sustainability of production that mitigates carbon emissions and biodiversity loss.
The public struggle that forced Emmanuel Faber the Chair and CEO of Danone to step down last week has exposed stakeholder capitalism for what it is: an emperor with no clothes.
At Danone, he was the driving force behind a transition to a model of business where the foundations of corporate sustainability ensured respect for people and the environment.
When Danone took the pioneering step to register as an Entreprise à Mission I was pleased to support this principled shift and join the Mission Committee with its independent oversight of the commitments made to meet this test; a test that was unanimously supported by shareholders and the board.
However, when investors take advantage of a depressed share price due to Danone’s exposure to specific businesses in the midst of an unprecedented global crisis, when they ask that the Chair and CEO should step down immediately, it can only be read as opposition to the current transformation plan, which trade unions in France, the USA and many other places, have been vocal and public about supporting — the question is why?
Less than two years ago shareholders voted for the renewal of Emmanuel Faber’s tenure. Last week just 3% of activist shareholders were able to turn on him and the model of shared prosperity that he dared to pursue as endorsed by the board.
These shareholders cannot have been genuine in their support for stakeholder capitalism.
And when suddenly the board does not stand behind this CEO who was instrumental in bringing forward an ambitious “climate-acceleration plan” for the brands and products of the company that just last year they supported and expressed pride in — then it very difficult to accept any of their expressed commitments to climate action.
And further when the board dismisses the views of workers and their unions then they break all trust as they reinforce mere greed.
IUF General Secretary Sue Longley wrote to the Danone Board: “Danone’s model is far superior and sustainable than short-term financial engineering models, too often promoted by so-called activist investors. Danone’s model is a model that best serves the interests of the thousands of workers we represent”.
This call was ignored in the interests of activist shareholders demanding returns first and a traditional model of management. Activist shareholders pursuing overt power against a corporation's principled direction is ugly to watch. What is more disturbing however is that there is ample evidence that the board of Danone surrendered and sacrificed their Chair and CEO without opposition to the demands of these minority shareholders.
Corporate change requires medium to long term financing and the tensions that short-termism creates can only mitigate against reform to the detriment of employees and the environment.
Having made a commitment to help monitor the progress of Danone’s reform as part of the Mission Committee personally I cannot see that these tensions can be reconciled and have resigned from the committee.
I can only express my deep admiration and respect for the many talented and dedicated Danone teams I was able to engage with during this work. The respect for and commitment to the reforms and their CEO’s, Emmanuel Faber’s, leadership is pervasive.
Regrettably, there is now considerable doubt that the Danone mission will be respected.
It will be the choice of the new CEO if he decides to be part of the struggle to give this transition to a model of just capital a chance.
The board and the shareholders of this or any company cannot uphold the shareholder primary mantle and at the same time restructure their foundations for a resilient future where investing in the rights of workers, just wages and employment security in climate-friendly jobs requires sharing profits more equitably.
The transition required in all industries to ensure sustainability and address the historic levels of inequality means acknowledging the failures of the existing business models. This does not preclude profit, just profits shared with only one group of stakeholders.
Shared prosperity and stabilising the planet can’t coexist with the demands of an investment model that puts profits before people.
