Ben & Jerry’s left a bad taste in the mouth; no wonder Unilever is spitting it out
The business case for Unilever’s spin-out of Ben & Jerry’s has been well covered in the financial press. Behind the dry data pored over by analysts, however, Ben & Jerry’s had left a bad taste in the mouth. It likely took the activist investment by Nelson Peltz for Unilever to finally make the decision to spit it out.
Ben & Jerry’s presented an embarrassing corporate governance issue at the heart of the Unilever group. Let us not forget, some thirty years ago and prior to acquiring Ben & Jerry’s, Unilever plc had itself been a contributor to the seminal Cadbury Report on corporate governance. Unilever was for, not against, effective group governance. Yet it failed to keep its own house in order. While Unilever’s concern is the success of the group, Ben & Jerry’s board risked impeding that. They have long calibrated their sights on the nebulous concept of a “social mission”. Whatever that means, it’s a fundamentally different management outlook.
To seasoned investors, the reality of the contractual arrangements that sought to enable the newly acquired Ben & Jerry’s to continue its social mission within a group structure have been shown recently to be highly unsatisfactory. The norm that group governance policies cascade downstream was turned on its head. Ben & Jerry’s thought it was a case of being true to their social ideals; the market knew that it meant gaps in corporate governance. In practical terms, Ben & Jerry’s board risked compromising the interests of their company to achieve particular social objectives. That ultimately impacted Unilever.
It is baffling that such a deal could have been struck. It is never sufficient for directors of a parent company to turn a blind eye to the operations of a subsidiary. Where the subsidiary has an independent board of directors, this is even more important. Nor can directors avoid their responsibilities by placing intermediate holding companies between themselves and the operational companies in a group, as was the case here. Goodness knows how the lawyers signed off on an intra group agreement that erected a playpen around Ben & Jerry’s within which it could play at geopolitics.
Like Plato, who probably ate ice cream given that it was invented in ancient Athens, Ben & Jerry’s continuing error is the idea of universalism. Their truth, or social mission, is, for them, all that matters. But it is arguably a kind of DIY imperialism: an attempt to impose the Ben & Jerry’s idea of society on others. Let’s see how that works out for them after spin-out / spit-out. Whatever that looks like, the Ben & Jerry’s board will find themselves accountable to end-investors directly, no longer enjoying the protective cover of Unilever. Oscar Wilde once said: “I have the simplest tastes. I am always satisfied with the best.” So too with activist investors when comes to ice cream and ice cream boards. They will want the best.
https://www.ft.com/content/c7b44b4a-e4c7-45b4-8831-c07c2172b181