In ESG terms, Ben & Jerry’s decision not to renew the contract of its Israeli licensee was described by the company as an “S” decision. The irony is that its “social mission” is likely to prompt a heavy-hitting response by investors in its parent, Unilever, on governance, or “G”, grounds.
It has been widely reported that investors subject to anti-boycott legislation in the United States are weighing up their legal rights and obligations. The indications are that there is more to follow and that this is the tip of the iceberg.
There is, however, another category of investor which may be even more significant. Investors with corporate governance and/or stewardship policies, of which there are likely to be many, will have many questions for Unilever itself.
Unilever has sought to distance itself from Ben & Jerry’s decision. They say that icecream giant was acquired in 2000 and that as part of the acquisition agreement, Unilever recognised the right of Ben & Jerry’s to take decisions concerning “its social mission”.
That may be so, but if the suggestion is something approaching subsidiary autonomy on social issues, then Unilever appears to have failed to recognise that investor views on corporate governance have not been fossilised for the last two decades.
Today’s shareholders find Ben & Jerry’s relative power within the corporate group an odd dynamic and see it as an imperfect reversal of the parent-subsidiary relationship. Group governance 101: the tail is not meant to wag the dog.
The acquisition terms state that Ben & Jerry’s has “primary” responsibility for its social mission. Shareholders will be asking if this is understood by Unilever to mean “exclusive” responsibility. If yes, investors will then ask whether there is a contractual basis for that. If no, they will ask what involvement Unilever had in the decision.
Unilever will also be under pressure to answer how it plans to reconcile Ben & Jerry’s responsibility for its social mission with the overall responspibility the Unilever board has for management of risk. Risk management cannot be limited to managing the risk after the fact. Unilever surely has the power to manage enetirely predictable risk before it crystallises. A share price dip, likely legal consequences in multiple jurisdictions and franchisee wrath were all entirely foreseeable risks.
There are also likely to be questions as to the extent to which an NGO, Vermonters for Justice in Palestine (VTJP), influenced the Ben & Jerry’s board and whether this amounted to a failure to exercise independent judgement or exercise reasonable skill, care, and diligence by blindly following the legal or factual assertions of a boycott activist.
Shareholders in multinationals take governance issues seriously. When a child in the park inexpertly throws a boomerang, it inevitably comes back and smacks the child’s parent on the head. Institutional investors do not expect subsidiary companies to throw a boomerang only for it to come back and hit the parent company. In 2021, group governance beats subsidiary social policy. Scissors cut paper.