25 Oct Danone is the biggest B Corp
Author: Joaquin Garralda, Dean of Academic Affairs, IE Business School
Danone is one of the very few big companies that have made the effort of becoming a B Corp. Does this mean that it cares less about its investors? In addition, why other big corporations that are sensitive about sustainability do not join?
Oftentimes we misunderstand the B Corp hallmark with the Benefit Company denomination. A company that asks to be under the legal umbrella of a Benefit Company – a legal mechanism that has been approved in 30 states of the US – can, without having fiduciary legal problems, not only pursue the common interest of its investors, but also pursue environmental and social interests, that should have clear indicators and targets.
On the other hand, B Corporations are companies that have complied with established requirements set by B Lab, an NGO that evaluates the social and environmental impact of a company, certifying that it has accomplished with some minimum standards and thus can use the B Corp. logo in its communications. This certification has had strong acceptance across Californian enterprises and particularly across SMEs related to food, health and care for older people. If an organisation wants to reach the certification, it needs to reach a minimum of 80 points – over a maximum of 200 – related to environmental, social and transparency issues.
Big companies often have difficulty in meeting or exceeding these requirements. To overcome this issue, Danone worked with B Lab to adapt them for big multinational companies listed on the stock exchange.
To understand the difficulty in achieving these standards, we will use the example of Patagonia. Patagonia, a very renowned company in environmental and social aspects, has obtained 151.5 points in the certification. If we compare this company with the nine Danone divisions that have been certified – which fluctuate from between 80.2 points in Danone UK to 89.8 in its unit Earth Wound Farm (a company with a distinct “organic” personality established in California in 1984 and purchased by Danone in 2016) -, we can see the difference in its achievements. The gap is relevant.
Considering this outcome, could we deduce this pursuit for a B-Certificate is an action of “greenwashing” of Danone? From an opposite perspective, will the investors be the injured party because of this pursuit?
Regarding the latter, Danone’s figures hover around the 80-point mark. This could mean that they do not lose the focus on investors implementing what might be considered “romantic” actions; they reach the 80 points target, but do not follow the record of Patagonia, a private company.
Regarding the “greenwashing” debate, we must acknowledge that the social line of Danone is long standing. In 1972, Danone’s CEO – Antoine Riboud – made a mythical speech in Marseille – after the 1968 May events in Paris – in front of 2000 French entrepreneurs. His speech called for a dual approach to business, managers should take into account social as well as financial targets. His successor, his son Frank Riboud, came to an agreement with Mohamed Yunnus in 2006 to create Grameen Danone. Grameen Danone provides food that is aimed towards underprivileged people; the food is enriched with vitamins and nutritive elements, and pricing considers their lack of means. The present Danone CEO, Emmanuel Faber, posted a “Manifesto” in 2014 referring to the same economic and social goals.
Sceptics might argue about the “triviality” of the label, but it seems that Danone is coherent with its story when looking for B Corp certificates in nine units of the group.
From the opposite perspective, is Danone afraid of a hostile takeover from investors who consider it a wasteful vision? American food companies have attempted to purchase Danone in the past, but the French government approved a law to protect “strategic companies” (Danone is included, so this law is called the Danone Law), which makes its purchasing difficult.
Not every company can profit from this shield. Unilever, a company that has a strong social and environmental purpose, did not have this protective shield when trying to stay away from the hostile attacks of Kraft Heinz. After a tough battle, it has maintained its freedom from this activist investor due to an accurate communication campaign and a loyal board. However, at the end, Unilever did have to accept certain economic compromises following this attack.
As a conclusion, the decision to be sustainable have to be balanced with economic interests, and for that reason sceptics tend to deem such activity as a “PR stunt”. However, we should not allow critics to discourage big companies to implement governance processes oriented towards a “reasonable” sustainability. It will be beneficial for the planet and increasingly profitable for them.