Risk Management Reports

March, 2000
Volume 27, No. 3
Ben and Jerry’s Conundrum

To whom are directors responsible? Should they devote their efforts exclusively to increasing shareholder wealth, as some economists (and some laws) argue, or should they be responsive to values delivered to a broader range of stakeholders including customers, suppliers, employees, and other communities that their organization serves?

The Ben & Jerry’s Homemade Inc. situation is a case study in risk management conflict. This world-famous ice cream maker from Burlington, Vermont, announced in December 1999 that it might consider potential buyers to provide additional capital and fresh leadership. In early February 2000 it received one offer at a 28% premium on its stock price, and others bidders may appear. Should the directors accept such an offer? This decision is replete with risk. On the upside, current shareholders (including the two founders and a third director, who together control 46% of the stock) could see substantial capital gains. On the downside, many others could lose. If the new owners shift some operations elsewhere, possibly to reduce costs, employees in Vermont would lose jobs, local dairy owners who provide 300 million gallons of milk a year would lose sales, and the state would lose visitors (the B&J factory attracts more visitors than any other site in Vermont). Many charities might lose contributions from the 7.5% of pre-tax profits that Ben & Jerry’s now donates, assuming the new owners end this practice. Cost rationalization could also lead to a reduction in the quality of the ice cream, affecting customers. The company could cease being an emblem for the state.

These are important risk factors in the decision process, but the lid to Pandora’s Box is no longer in place. If the directors decline a bid, responding to the concerns of their broader community of stakeholders, who desire the company to remain as it is in Vermont, they could open themselves to lawsuits from angry minority shareholders alleging that they were deprived of justified profits.If they accept a bid, they could irretrievably alter the culture of a unique company and economically injure many other stakeholders. These might not have similar recourse to legal action but their inevitable recriminations could affect Ben & Jerry’s reputation.

What should the directors do? Minority shareholders have rights, with other stakeholders. Can an undeniably maverick corporation maintain its unusual culture in the face of speculators whose interests are bottom-line numbers, stock prices, and short-term rewards?

I believe that a candid and thorough risk analysis can play a part in leading to a better decision, weighing the potential rewards and penalties, and communicating them and the ultimate decision to the entire family of Ben & Jerry’s stakeholders. Not everyone will be happy, but a sounder future for this company will be assured.

At least the stock price jumped up after the announcement of the bid. Investors who sold then have already reaped a reward!

Copyright H. Felix Kloman and Seawrack Press, Inc.

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