As companies court growth and cultural currency by scooping up socially conscious brands, the unfortunate saga offers a useful case study in bad governance and misguided dealmaking.
By Russ Banham
Corporate Board Member magazine
The origin story of the ice cream empire founded by Ben Cohen and Jerry Greenfield is the stuff of legend. Two overweight kids who dislike sports hit it off in a seventh grade gym class at a junior high in Merrick, Long Island. They love ice cream, and ice cream loves them back.
After college, they complete a course in ice-cream making at Penn State and open the first Ben & Jerry’s in a renovated gas station in Burlington, Vermont with a $12,000 stake. Mixing natural ingredients with savvy promotions like making the world’s largest ice cream sundae and quirky flavor names like Cherry Garcia, they grab customers—and attention. Time Magazine takes notice with a 1981 cover story about the super-premium ice cream movement, naming Ben & Jerry’s “the best ice cream in the world.”
Cohen and Greenfield also begin a decades-long commitment to social causes. The company forms one of the earliest certified B Corps, pledging to “eliminate injustices in our local, national and international communities.”
Now this social mission is front and center in litigation filed by Cohen and Greenfield against Unilever, which acquired Ben & Jerry’s Homemade in 2000 for $326 million. Unilever is the world’s largest ice cream manufacturer.
To get the deal done, the transacting parties cobbled together an atypical merger agreement permitting Ben & Jerry’s to operate separately, with its own independent board of directors. The board members were given leeway to make decisions governing the company’s core values, social mission and brand integrity. And that has triggered one of ugliest spats in contemporary business.
The difficulties began in early 2021, when Ben & Jerry’s independent board canceled its license with an affiliate that manufactured and distributed its ice cream in Israel. The board took umbrage over sales in disputed West Bank territory, which it said was inconsistent with the company’s core values. The Israeli licensee subsequently took legal action against Unilever, compelling the British-Dutch multinational consumer goods company to reverse the license termination.
The situation rapidly devolved. In June 2022, Ben & Jerry’s announced that it disagreed with the parent company’s decision, citing the company’s core values as outlined in the merger agreement. To defuse the tension, Unilever opted to sell Ben & Jerry’s ice cream business in the country to the Israeli licensee, with a proviso that the brand be marketed using Hebrew and Arabic names.
That didn’t sit well with Ben & Jerry’s board, which sued the parent company in July 2022 to stop the sale, alleging that Unilever breached the 2000 acquisition agreement. The request was denied in late August by U.S. District Judge Andrew Carter in Manhattan, who said the company did not prove the sale would harm its social mission or confuse customers. His decision alluded to the fact that no English trademarks would be used by the buyer in Israel, effectively making the ice cream dissimilar from Ben & Jerry’s products.
The legal maneuverings nonetheless continued. In late September, Ben & Jerry’s filed a lawsuit against Unilever alleging that the parent company had “covertly” transferred its trademarks more than 20 years ago to a Unilever business unit, beyond the reach of its independent board, in violation of the troubled acquisition agreement.
Back in 2000, the companies seemed made for each other. Following the acquisition, Richard Goldstein, president of Unilever Foods North America, praised Ben & Jerry’s Homemade’s commitment to human rights in a press release. “Much of the success of the Ben & Jerry’s brand is based on its connections to basic human values, and it is our hope and expectation that Ben & Jerry’s continues to engage in these critical, global economic and social missions,” he said.
Certainly, this was the expectation of Cohen and Greenfield. In the same press release, they said, “Neither of us could have anticipated, 20 years ago, that a major multinational would someday sign on, enthusiastically, to pursue and expand the social mission that continues to be an essential part of Ben & Jerry’s and a driving force behind our many successes.”
The enthusiasm appeared not to have waned in 2016, when Jostein Solheim, CEO of Ben & Jerry’s at the time, sat down in an interview with the Wharton School of the University of Pennsylvania. Commenting on the merger agreement and the governance structure it put in place, Solheim said, “Unilever was very visionary in recognizing that it says ‘Ben & Jerry’ on the packaging. If Ben and Jerry go out and say, ‘Well, this is all not really true anymore, and [social justice is] not a mission of the company anymore,’ that would really undermine the value of the acquisition.”
Today, this value is questionable, with some pundits predicting that the only way to end the ice cream wars is to call a truce— Unilever divesting Ben & Jerry’s.
So what went wrong? We asked directors and governance experts for their thoughts. It all comes back to four bad decisions.
• Bad decision No. 1: allowing Ben & Jerry’s to appoint nine of the independent board’s 11 seats. This gave members substantial clout to ensure the company’s brand image as a socially conscious company would not be diluted. Unlike the customary voting by shareholders in board member elections, Ben & Jerry’s effectively has just one shareholder, Conopco, which does business as Unilever, and reportedly defers to the founders’ board member selections. Although Unilever retains the capacity to appoint the CEO of Ben & Jerry’s, that person is expected to defer to the board on social issues.
Longtime board member Stephen Kasnet cites these atypical allowances as counterproductive to Unilever shareholders. “I just can’t understand why Unilever allowed for a board at Ben & Jerry’s whose authority could potentially not be in the best interests of shareholders,” says Kasnet, chairman of the boards of Granite Point Mortgage Trust and Two Harbors Investment Corp.
Grant Griffiths, who has sat on the boards of Siemens UK and mental health services provider Flexmind, agrees. “Unilever ignored the basic premise of good governance and protecting shareholder interests,” says Griffiths. “Full control must rest with the shareholder body represented by the board and management, rather than splitting the accountabilities with a set of quirky individuals who, it would appear, have an agenda that’s not aligned with the strategy or the legal obligations of the beneficial owner.”
• Bad decision No. 2: Not accounting for evolving differences in organizational cultures. In reversing the decision to stop selling Ben & Jerry’s ice cream in the disputed portions of the West Bank, Unilever arguably didn’t appreciate how integral this human rights issue was to Cohen and Greenfield. As Paul Washington, executive director of the ESG center at the Conference Board, puts it, “You need to be sure there is decent alignment on both sides between the acquired company’s culture and your own culture.”
Veteran board director and liability attorney Dan Bailey offers a similar perspective. “An acquiring company and its board would be remiss in ignoring the commitment to an ESG culture of the business it is acquiring; you don’t want different pockets of the business going in different directions on ESG issues,” he says.
Yet, Unilever apparently made such commitments in the merger agreement—which stipulates “Conopco’s commitment to sign on, enthusiastically, to pursue and expand the social mission” of Ben & Jerry’s—and allegedly broke them. “Although the parties may later dispute the binding effect of the commitments, their inclusion in the acquisition documents creates expectations, if not legally enforceable rights and obligations, between the parties that arguably last indefinitely into the future, despite intervening circumstances,” says Bailey, who is a partner at law firm Bailey Cavalieri.
The upshot, as Griffiths puts it, is to “Never do a deal where you cannot manage the acquired company’s culture. These deals always end in failure.”
• Bad decision No. 3: A merger agreement giving a wholly owned subsidiary control over the direction of that company’s values, mission and brand. “When a company is acquired, everyone involved with that company needs to have the mindset that they no longer control it or what it does; that’s the business of the owner,” says Bailey. “While they can express views and expectations on how the company will be operated and managed, as a practical matter it is not realistic to expect in perpetuity the continuation of commitments made to social causes.”
Nicholas Hofgren, who recently stepped down as a board member at investment firm Prince Street Capital, agrees. “I love Ben & Jerry’s ice cream and appreciate the cleverness of flavor names like Netflix & Chilll’d and the goodwill created by references to social issues, but when you sell your company, it no longer yours to run indefinitely,” he says. “That’s how it should be.”
That’s not the way it is in this tale. Hofgren ponders whether or not board members, during the acquisition discussions, questioned the shareholder implications of giving such free rein to a subsidiary’s independent board. “Maybe the members raised the subject, but the financial promise of adding a marquee name like Ben & Jerry’s to Unilever’s other ice cream brands won them over,” posits Hofgren.
• Bad decision No. 4: The permanence of Ben & Jerry’s control over its “Social Mission Priorities.” Many acquirers prefer that management of the acquired concern continue running the business for a period of time, just not forever. “You want to keep them around and provide incentives based on [attaining] specific performance metrics,” says Washington, “but this is not a permanent structural arrangement. Otherwise, it bucks the traditional ability of the parent company to call the shots.”
He notes that acquirers have ownership rights over all subsidiaries, arm’s length and otherwise, for a reason—the business world constantly evolves. “An agreement that makes it difficult for the parent company to make decisions governing a subsidiary… stands against reason,” Washington says.
Going forward, it’s anybody’s guess if the trust that existed between the two companies in 2000 has irrevocably melted away like a cone of Chunky Monkey in a Vermont summer. One can argue that Unilever’s otherwise stellar reputation as a company committed to ESG issues has been damaged, but Ben & Jerry’s repute doesn’t necessarily come away untattered, either.
“Not everyone shares their values or political opinions,” says Griffiths. “As Michael Jordan once famously said when asked to speak up on behalf of Democrats, ‘Republicans buy sneakers, too.’”
Russ Banham is a contributing writer to Corporate Board Member.