Compatibility or Conflict between Corporate Social Responsibility and Financial Performance As Henry Morgan’s plane passed over the snow-covered hills of Vermont’s dairy land, through his mind passed the events of the last few months. It was late January 2000. Morgan, the retired dean of Boston University’s business school, knew well the trip to Burlington. As a member of the board of directors of Ben & Jerry’s Homemade for the past 13 years, Morgan had seen the company grow both in financial and social stature. The company was now not only an industry leader in the super-premium icecream market, but also commanded an important leadership position in a variety of social causes from the dairy farms of Vermont to the rainforests of South America.
Increased competitive pressure and Ben & Jerry’s declining financial performance had triggered a number of takeover offers for the resolutely independent-minded company. Today’s board meeting had been convened to consider the pending offers. Morgan expected a lively debate. Cofounders Ben Cohen and Jerry Greenfield knew the company’s social orientation required corporate independence. In stark contrast, chief executive Perry Odak thought that Ben and Jerry’s shareholders would be best served by selling out to the highest bidder.
Ben & Jerry’s Homemade
Ben & Jerry’s Homemade, a leading distributor of super-premium ice-cream, frozen yogurt, and sorbet, was founded in 1978 in an old gas station in Burlington, Vermont. Cohen and Greenfield recounted their company’s beginnings:
One day in 1977, we [Cohen and Greenfield] found ourselves sitting on the front steps of Jerry’s parents’ house in Merrick, Long Island, talking about what kind of business to go into. Since eating was our greatest passion, it seemed logical to start with a restaurant…We wanted to pick a product that was becoming popular in big cities and move it to a rural college town, because we wanted to live in that kind of environment. We wanted to have a lot of interaction with our customers and enjoy ourselves. And of course, we wanted a product that we liked to eat…We found an ad for a $5 ice-cream-making correspondence course offered through Penn State. Due to our extreme poverty, we decided to split one course between us, sent in our five bucks, read the material they sent back, and passed the open-book tests with flying colors. That settled it. We were going into the ice cream business.
Once we’d decided on an ice cream parlor, the next step was to decide where to put it. We knew college students eat a lot of ice cream; we knew they eat more of it in warm weather. Determined to make an informed decision (but lacking in technological and financial resources), we developed our own low-budget “manual cross-correlation analysis.” Ben sat at the kitchen table, leafing through a U.S. almanac to research towns that had the highest average temperatures. Jerry sat on the floor; reading a guide to American colleges, searching for the rural towns that had the most college kids. Then we merged our lists. When we investigated the towns that came up, we discovered that apparently someone had already done this work ahead of us. All the warm towns that had a decent number of college kids already had homemade ice-cream parlors. So we threw out the temperature criterion and ended up in Burlington, Vermont. Burlington had a young population, a significant college population, and virtually no competition. Later, we realized the reason why there was no competition. It’s so cold in Burlington for so much of the year, and the summer season is so short, it was obvious (to everyone except us) that there was no way an ice cream parlor could succeed there. Or so it seemed.1
By January 2000, Cohen and Greenfield’s ice-cream operation in Burlington, Ben & Jerry’s Homemade, had become a major premium ice-cream producer with over 170 stores (scoop shops) across the United States and overseas, and had developed an important presence on supermarket shelves.
Annual sales had grown to $237 million, and the company’s equity was valued at $160 million (Exhibits 1 and 2). The company was known for such zany ice-cream flavors as Chubby Hubby, Chunky Monkey, and Bovinity Divinity. Exhibit 3 provides a selected list of flavors from its scoop-shop menu.
Ben & Jerry’s Social Consciousness
Ben & Jerry’s was also known for its emphasis on socially progressive causes and its strong commitment to the community. Although unique during the company’s early years, Ben & Jerry’s community orientation was no longer that uncommon. Companies such as Patagonia (clothing), Odwalla (juice), The Body Shop (body-care products), and Tom’s of Maine (personal-care products) shared similar visions of what they termed “caring capitalism.”
Ben & Jerry’s social objective permeated every aspect of the business. One dimension was its tradition of generous donations of its corporate resources. Since 1985, Ben & Jerry’s donated 7.5% of its pretax earnings to various social foundations and community-action groups. The company supported causes such as Greenpeace International and the Vietnam Veterans of America Foundation by signing petitions and recruiting volunteers from its staff and the public. The company expressed customer appreciation with an annual free cone day at all of its scoop shops. During the event, customers were welcome to enjoy free cones all day.
Although the level of community giving was truly exceptional, what really made Ben & Jerry’s unique was its commitment to social objectives in its marketing, operations, and finance policies. Cohen and Greenfield emphasized that their approach was fundamentally different from the self-promotion-based motivation of social causes supported by most corporations.
At its best, cause-related marketing is helpful in that it use At its best, cause-related marketing is helpful in that it uses marketing dollars to help fund social programs and raise awareness of social ills. At its worst, it’s “greenwashing”—using philanthropy to convince customers the company is aligned with good causes, so the company will be seen as good, too, whether it is or not…They understand that if they dress themselves in that clothing, slap that image on, that’s going to move product. But instead of just slapping the image on, wouldn’t it be better if the company actually did care about its consumers and the community?2
An example of Ben & Jerry’s social-value-led marketing included its development of an ice-cream flavor to provide demand for harvestable tropical-rainforest products. The product’s sidebar described the motivation:
This flavor combines our super creamy vanilla ice cream with chunks of Rainforest Crunch, a cashew & Brazil nut butter crunch made for us by our friends at Community Products in Montpelier, Vermont. The cashews & Brazil nuts in this ice cream are harvested in a sustainable way from tropical rainforests and represent an economically viable long-term alternative to cutting these trees down. Enjoy!
Questions requiring answers:
1. Discuss the three dimensions of the Ben & Jerry’s mission statement. In your answer explain if three dimensions are compatible with each other or there are conflicts among them, and identify some examples of corporate policy conflicting responses. (15 marks)
2. Discuss the alternative view that the wealth maximisation benefits all stakeholders. (5 marks)
3. Evaluate the performance of the three dimensions in question 1 above, and provide the necessary evidence regarding Ben & Jerry’s performance on each of the three dimensions of the mission statement. (15 marks)
4. Discuss as to why Ben & Jerry’s became a takeover target by providing appropriate evidence. Explain if the current investors will support any of the takeover offers. (15 marks)
5. Estimate the fair value of the company based on multiples (Use the investor multiples of comparable firms listed in case Exhibit 6 and the financial data in case Exhibit 1 to calculate implied stock prices). Do you think the current takeover offers are justifiable? (30 marks)
6. Assume you are an independent director on the board of the company for the last 5 years. Would you defend the agenda of the current management team or support one of the acquisition offers? (8 marks)
7. Discuss briefly the takeover defence strategies used by the management of the company and the state of Vermont, and explain if you support the use of such strategies? (12 marks)