In February 2016, Emmanuel Faber, chief executive of Danone, put a radical proposal to the French food multinational’s senior US executives at a meeting in White Plains, New York.
Against the grain of agricultural production in the US, where the vast majority is genetically modified, Mr Faber proposed shifting about half Danone’s products — representing some $ 1bn of yoghurt sales — to non- GMO ingredients. He argued that this was an important change that would improve soil health and biodiversity.
The reaction from Mr Faber’s lieutenants was immediate: impossible. One said it could only happen if the group imported the non-gmo feed for dairy cattle from Russia. As they went to work, though, the executives started to change their gloomy prognosis about how long such a shift would take.
“Three weeks later, it was 10 years. Two months later, it was five years. Finally, it was two years — and we did it in two years,” says Mr Faber, in an interview at the group’s Paris headquarters.
The pledge triggered vocal protests from some US farm and dairy groups. It did not harm sales. Despite a price rise, the children’s yoghurt brand Danimals, now certified as containing only nonGMO ingredients, has increased its US market share from 30 to 40 per cent.
Danone’s shift on GMO might be dismissed by some as a marketing gimmick and criticised by others as an exercise in managerial self-indulgence. But it is one sign of a powerful shift in the way that large companies think about their purpose and their responsibilities — and an example of the challenges companies face in managing that shift.
For 40 or more years, corporate boardrooms latched on to the doctrine that economist Milton Friedman had laid out in a 1970 article with the blunt title “The Social Responsibility of Business is to Increase its Profits”. That approach was supercharged in the 1980s and 1990s by the ratcheting up of share-based executive rewards.
But the tide is beginning to change. In August, the Business Roundtable, the influential US business group, amended its two decade-old declaration that “corporations exist principally to serve their shareholders”. The Roundtable said: “While each of our individual companies serves its own corporate purpose, we share a fundamental commitment to all of our stakeholders” — customers, employees, suppliers, communities and — last in the list — shareholders.
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Advocates for the idea that companies should adopt a broader purpose argue that the global financial crisis laid bare the limits of pursuit of profit for its own sake. What was once a nice-to-have addition — often tidied away and kept in a box labelled “corporate social responsibility” — is now a must-have, they say. Businesses that combine profit with a wider purpose will benefit from the reinforced commitment of employees and customers. Those that fail to do so will not survive to become the companies of the future.
Sarah Kaplan of Toronto’s Rotman School of Management says: “Companies are increasingly a positive force for society and, as people see their governments let them down, [they] see companies replacing that role.” As for “the idea that shareholder value is the only way”, she says it “is just a consensus”, in the same way the more socially responsible postwar model was once a consensus.
Mr Faber, 55, exudes enthusiasm for the wider purpose of his company. He has set an objective to turn Danone into a “B Corp”, a business which voluntarily adopts broader societal goals but submits its social and environmental performance, transparency and accountability to third-party certification.
Mr Faber says from the 1980s the economy, “instead of serving people, started to really serve finance and all the processes — the governance, the incentives, the stock options, the compensation committees, the independent boards — went in the same direction”.
But catering to multiple stakeholders is a “super-delicate balance”, he adds. “What keeps me awake at night is the pace of change. Are we changing too fast? Or not fast enough? And where?”
Not everyone believes he is getting that balance correct. One of the main criticisms of the stakeholder approach is that it can allow executives to set their own criteria for success and let them off the hook for poor financial performance. Danone already faces investor scrutiny for distracting itself from more profitable business.
Jefferies’ sector analyst Martin Deboo summed up the doubts in a note about the French company published last October. “We worry that a too-obsessive pursuit of purpose-driven benefits and brand-as-social-advocate might blind Danone to the value of more mundane, but potentially broader, consumer appeals,” he wrote. “It is shareholders, not other stakeholders, who are most in need of convincing with regard to Danone’s good intentions.”
A variety of factors is driving companies towards asserting a broader purpose. One is a desire to offset a lack of trust in business that has lingered well beyond the end of the financial crisis. Another is the realisation that job hunters — particularly younger candidates — will shun employers that cannot prove they have a positive, and sincerely held, purpose.
