The departure of a long-standing, multinational company CEO is a newsworthy event in the corporate world, creating headlines while providing plenty of speculation and intrigue, too. Danone‘s decision in March to part company with Emmanuel Faber was no exception.

The primary catalyst may have been concerted pressure from investor groups Bluebell Capital Partners and Artisan Partners but, in the background, were rumours of a boardroom power struggle and criticism of Faber’s management style.

What set Faber’s demise apart was a dominant narrative that it was his zealous commitment to sustainability and stakeholder capitalism that brought him into conflict with the investors, who, as well as being dissatisfied with Danone’s financial performance, were said to not share Faber’s vision of the future and swift to link the latter with the former.

Danone, however, has consistently stressed its approach to ESG issues will not change. Faber said those who had mobilised against him had made his ESG activism a point of attack, also giving them common cause with the newly-arrived activist investors.

In the wake of Faber’s exit, the investors were keen, at least publicly, to underline it was the way Danone was being run, rather than too much of a focus on sustainability, that was their main complaint.

Challenging shareholder primacy

The recent events at Danone speak directly to the key question companies and policymakers are facing with regard to balancing shareholder return with the interests of stakeholders.

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Perhaps Faber’s most defining act in this area was the move last year, with the backing of Danone’s shareholders, to make the group an entreprise à mission. Introduced by the French government in 2019, an entreprise à mission is defined as a company that has aligned societal and environmental goals with its purpose and set out those targets in its articles of association. The change in Danone’s status built on its efforts to achieve B Corp status, which a number of its business units now have.

Seeing a pathfinder and powerful advocate for stakeholder-inclusive business like Faber depart from such an influential and high-profile position might have been more demoralising were it not for the general sense that momentum is building on a number of fronts.

“The debate on transforming business so that all companies are mandated to operate in the interests of all stakeholders is indeed a very live one in [the] US, UK and EU,” Katie Hill, executive chair of the European arm B Lab, the NGO behind the B Corp certification, says.

Notable in terms of policy developments is the EU Commission’s recent consultation on Sustainable Corporate Governance. This is a framework of proposals to enable companies’ broader human and environmental impacts to be accounted for.

As the European representative organisation of the global B Corp movement, it fell to B Lab Europe to make a submission to the EU Commission’s consultation on Sustainable Corporate Governance in March. Within its submission, B Lab Europe advocated for company directors to be legally required to balance the interests of all those who contribute to business success, such as employees, suppliers, customers, local communities, and the environment, and not only investors. It says this should be ensured by EU-wide mandatory obligations of “duty of care” and “due diligence”.

In the US, B Lab has joined with 50 other campaigning organisations in calling on the Biden administration to launch a White House Initiative on Inclusive Economic Growth. Crucially, this would include a shift from shareholder primacy to stakeholder capitalism, including financial market reforms that adjust the rules and incentives for corporations and investors to ensure they account for their impact on all stakeholders.

Changing investor mindset

However, Frederick Alexander, founding partner and CEO of the US-based non-profit The Shareholder Commons, places more emphasis on changing shareholder attitudes and sees positive signs regarding how institutional investors are understanding and taking greater account of impacts on stakeholders.

Alexander sees the approval, by a 99% majority, of Danone shareholders gave last June to the company becoming an entreprise à mission as far more significant than the actions of investors to oust Faber.

Addressing systemic challenges like climate change is dependent on systems that take into account impacts on a full range of stakeholders, Alexander explains, and large institutional investors are also in a good position to appreciate the merit of accounting for broader benefits rather than looking only at maximising shareholder return.

“Change cannot happen just because of ‘heroic CEOs’. It has to come from investors”

“Most stockholders are diversified so they should care more about systemic health and there is a growing movement in the investment community that is aware of that,” Alexander says.

“Change cannot happen just because of ‘heroic CEOs’. It has to come from investors. Investors have to be willing to tell companies that they do not want companies in their portfolios that exploit the systems that we all depend upon. Investors need to see the bigger picture and not keep urging each company to beat its competitor on quarterly earnings.”

Simon Rawson, director of corporate engagement at UK campaign group ShareAction, however, is not quite as sanguine about growing investor appreciation of stakeholder inclusion, suggesting policymakers will “need to go further in clarifying that”.

The impact of Covid-19

In 2019, Faber had been a driving force behind the formation of the Business for Inclusive Growth (B4IG) coalition in collaboration with the Organisation for Economic Cooperation and Development (OECD). Interestingly, for the time being, Faber remains co-chair of the initiative, a position he held by dint of Danone’s participation. The OECD declined to say when and if a new chair would be elected from the member companies.

With the coalition’s emphasis on how corporations can most effectively address inequality, and also participate with other agencies in doing so, B4IG chief executive Camille Putois believes the initiative has a valuable contribution to make during the post-Covid recovery. “B4IG is more relevant than ever,” Putois tells just-food. “Tackling inequalities is a pressing necessity as the most vulnerable have been hit hardest by the Covid-19 crisis.”

At a December board meeting, B4IG adopted what Putois describes as an “ambitious” roadmap, which calls on businesses and governments to coordinate their post-Covid recovery efforts. Three new companies have joined over the past 15 months and another is due to be added in the coming weeks. “Member companies are more and more engaged,” Putois adds. “The current momentum is strong, probably because of today’s context, and our pragmatic approach.”

In addition to Danone, the other major food manufacturers in the initiative are Unilever and Mars. All have expressed their continued support for the initiative.

To underline Danone’s continued commitment to a purpose-led agenda, a spokesperson for the Activia yogurt maker says: “Having been committed to our dual project whereby we value both social and economic outcomes for how we do business, Danone maintains our commitment to B Corp, to entreprise à mission and indeed to such important coalitions as B4IG, of which we were a founding signatory.”

Meanwhile, Andy Pharoah, vice president for corporate affairs and sustainability at Mars, echoes Putois’ point about the impact of the pandemic. “There is no doubt the social imperative and business case for inclusion, diversity and equity has been clear for some time,” Pharoah says. “That’s why we joined the B4IG effort in 2019 to help create a more inclusive economy, which enables greater opportunity for all. However, the uneven impacts of the pandemic across race, income, gender, and age have made these inequalities in our society and our systems even clearer.”

When it comes to food companies addressing their social impacts and societal challenges, an emphasis on partnership and collaboration should be a sine qua non, and central to an inclusive growth agenda. Pharoah says: “Business can’t help create an inclusive society on its own, but we have a significant role to play.”