Skip to content
Case study 1: Danone
DANONE: LEADING CHANGE BY REJIGGING PURPOSE?
On March 15, 2021, the board of directors of Danone S.A. (Danone) announced that as part of a set of key governance changes, Emmanuel Faber, Danone’s chief executive and chair, would be replaced. Faber had led the company for the past seven years, driving its change to an entreprise à mission, or purpose-driven company.
Danone was a leading global food and beverages company, based in Paris and operating in more than 120 countries. The company’s vision had been historically defined by Danone’s spiritual founder, Antoine Riboud, in his 1972 speech in Marseilles. Called the “dual economic and social project,” the vision committed Danone to the twin purpose of business success as well as social progress.
Faber took over as chairman and chief executive officer (CEO) in 2017 and reaffirmed the continuity of the company’s purpose-led philosophy. He also announced that Danone would aim to be the first multinational company to obtain the B Corporation (B Corp) certification, which would attest to the business working as a force of good, balancing profit and purpose.
In February 2020, Danone faced the prospect of a COVID-19 pandemic-led recession and lowered its targets for growth and profit margin. Still, in June 2020, 99 per cent of Danone’s shareholders voted to turn their company into an entreprise à mission under a new law introduced in France in 2019. The new law stipulated that companies must be run with due regard to the social and environmental impacts of their business activity.
However, in March 2021, faced with increasing pressure from dissatisfied activist investors over the company’s poor financial performance compared to its rivals and amid allegations of poor governance, Danone’s board asked Faber to step down. The board appointed a new chair while initiating the search for a new CEO.
The activist investors held a minuscule six per cent of the company’s overall shares. Why did a historically purpose-driven company, motivated by the goal of becoming a B Corp, succumb to these minority shareholders and replace a purpose-driven chief? What should the new CEO do? Should they rejig Danone’s priorities and purpose away from purpose in favour of profits and shareholder wealth maximization?
DANONE: HISTORY
Danone started as a yogurt manufacturing company in Barcelona, Spain, in 1919. By 2020, it had three reporting businesses: essential dairy and plant-based products (54% of the company’s total business), specialized nutrition (31%), and waters (15%). From its inception to its current business, Danone was committed to the purpose of healthy eating.
In 1972, Antoine Riboud took over as the chair and CEO of what was then BSN-Gervais Danone and laid out his vision of a company’s role, which involved achieving both economic and social goals. He considered the goals to be interdependent, stating, “Corporate responsibility does not stop at the factory gate or the office door.” Riboud’s vision, formalized into the dual economic and social project, provided the basis for Danone’s organizational and model development. Redefining the traditional role of business leaders, Riboud pronounced, “Let us conduct our businesses with both the heart and the head.” Danone claimed to be the first French company to stress the human side of business, and it adopted a dual commitment to pursuing both business success and social progress.
In May 1996, Franck Riboud took over from his father, Antoine, as chair and CEO of Danone. Between 1996 and 2007, under Franck’s leadership, Danone refocused on the health-food sector. It divested its grocery, pasta, prepared foods, confectionery products, beer, sauces, and Italian cheese and meats activities. It also sold BSN Glasspack, the holding company behind Danone’s glass container business. In 2006, Danone sold off nearly all of its biscuit and cereal products businesses, which were considered unhealthy and, therefore, inconsistent with the company’s mission. It also acquired two profitable and fast-growing business lines—medical nutrition and baby nutrition—through its takeover of the Dutch group Royal Numico NV (Numico).
Danone’s commitment to its distinctive focus, mission, and values was generally strengthened under Franck’s leadership. The company’s commitment to its values was questioned in 2013, however, when it was accused of misleading mothers in Turkey through a controversial marketing campaign aimed at increasing sales of Danone’s infant formula. The campaign questioned the adequacy of using breast milk as a source of nutrition for babies and recommended the use of powdered baby milk to make up for any shortfall. While the company claimed that both the World Health Organization (WHO) and the United Nations Children’s Fund (UNICEF) had endorsed the campaign, both agencies denied such claims and demanded that Danone stop using their names to sell its products. The controversial campaign also boosted infant formula sales in Turkey by at least 15 percent, and it was suspected to have led mothers to make an unnecessary and unwanted switch to formula feeding their infants.
Despite such controversies, Franck held firm on Danone’s mission, and he also drove the company’s financial performance over his 21-year period of leadership. Between 1996 and 2017, when Franck took on the role of honorary chair, Danone’s market capitalization increased nearly six-fold, rising from €7.9 billion to over €46.9 billion. The company’s recurring earnings per share (EPS) increased from €0.89 to €3.49, while its dividends increased from €0.32 per common share to €1.90. Moreover, Danone’s turnover generated outside of Europe increased from 20 percent in 1996 to 66 percent in 2017.
Role of Corporate Leaders: Shareholder Versus Stakeholder Orientation
Until the 1960s, corporations were seen as organizations designed to serve public, rather than private, interests. As such, corporations and corporate CEOs would conduct business to serve not just shareholders' interests but also the interests of a larger stakeholder group, including directors, customers, employees, suppliers, the state, and society. During this period, the shareholder capitalism approach was challenged by economists such as Milton Friedman, Michael Jensen, and William Meckling, who considered that "shareholder primacy"—maximizing the wealth of shareholders before considering the interests of other stakeholders—was the only role of corporate executives and leaders.
Friedman believed that the only social responsibility of a business was to increase profits for its shareholders. In a 1970 New York Times article, he provocatively asked, “What does it mean to say that ‘business’ has responsibilities? Only people can have responsibilities!” He posited that corporate executives were only answerable to the owners of the corporation and, as "agents" of those owners, their primary responsibility was to "make as much money as possible while conforming to the basic rules of the society." Friedman also considered the notion of a business having social responsibility to be inimical to employers' interests. He felt that achieving various social objectives would necessitate executives and leaders spending "someone else's money," which was unwarranted. They could be fired by shareholders for doing so, and their customers and employees might desert them for producers and employers who were "less scrupulous in exercising their social responsibilities."
As a result of such arguments, corporations refocused, and until the 1990s, they tended to work toward maximizing shareholder wealth, which included engaging in actions that were contrary to the interests of other stakeholders. Employment guarantees declined, and even long-term employees were uncertain of pensions and health care. In 1997, the influential U.S. business group, the Business Round Table, declared in a statement on corporate responsibility, "The principal objective of a business enterprise is to generate economic returns to its owners. If the CEO and the directors are not focused on shareholder value, it may be less likely the corporation will realize that value." The results of a 2007 survey of 34 directors (31 of whom served on an average of six Fortune 200 boards) published in the Journal of Business Ethics represented this mindset: 31 of the directors said that they would "cut down a mature forest or release a dangerous, unregulated toxin into the environment in order to increase profits." This was their response even though no legal requirement existed directing companies to be run in such a way as to maximize profits or share prices.
The 2008 global financial crisis, as well as the resultant recession and income inequalities, caused significant disillusionment with the shareholder-centric capitalist system. This led to the rise of a new model of "responsible capitalism," which recognized that the purpose of companies was to serve society, customers, and employees, not merely investors. Advocates of responsible capitalism, such as Colin Mayer and R. Edward Freeman, claimed that only a business model in which businesses were driven not just by profits but also by purpose, values, and ethics could generate the most sustainable long-term value for shareholders. The change was also supported by practitioners, including leaders of fast-moving consumer goods businesses, such as PepsiCo’s Indra Nooyi and Paul Polman, who had served as CEOs at JP Morgan Chase & Co.’s Jamie Dimon and BlackRock Inc.’s Laurence Fink.
In his annual letter to CEOs in 2018 (which was titled "A Sense of Purpose"), Fink referred to the role that society expected private sector companies to play in addressing social challenges, especially since governments appeared ill-equipped to face the future. He wrote, “To prosper over time, every company must not only deliver financial performance but also show how it makes a positive contribution to society. Companies must benefit all of their stakeholders, including shareholders, employees, customers, and the communities in which they operate.”
Fink warned that without a sense of purpose, no company—whether public or private—could achieve its full potential. Moreover, a company without a purpose would ultimately lose its license to operate from its key stakeholders. Precisely, he wrote, “[The company] will succumb to the short-term pressures to distribute earnings, and, in the process, sacrifice investments in employee development, innovation, and capital expenditures that are necessary for long-term growth.” It will remain exposed to activist campaigns that articulate a clearer goal, even if that goal serves only the shortest and narrowest of objectives.
Fink was not the only proponent of purpose-driven companies in the financial services sector. Sustainable, responsible, and impact-investing assets (categorized as socially responsible investing [SRI] assets) in the US expanded 18-fold, increasing from under $639 billion in 1995 to over $12 trillion in 2018. These assets accounted for 25% of the total assets under professional management in the US. The investments were driven by millennials, who, when compared with older generations, were far more concerned about investing their pensions responsibly.
In 2019, the Business Round Table amended its 22-year-old declaration of shareholder primacy. A total of 181 top CEOs signed a new statement concerning the purpose of a corporation and committed to lead their companies for the benefit of all stakeholders. This statement outlined a modern standard for corporate responsibility. In 2020, at the World Economic Forum in Davos, the CEOs of 120 of the world’s largest companies expressed support for the idea of common metrics and disclosures on non-financial factors for investors and stakeholders, so that mainstream performance reporting could be aligned with environmental, social, and governance (ESG) indicators.
Nonetheless, despite this shift, many investors remained focused on short-term gains, shareholder returns, and the financial bottom line, often ignoring environmental impacts. High-frequency trading and virtual stock exchanges boosted stock turnovers. Reuters calculated that the average holding period for US shares had dropped significantly.
Nonetheless, despite the shift toward responsible capitalism, investors continued to be short-term-centric and obsessed with shareholder returns, focusing on the financial bottom line and ignoring the underlying carbon footprint. This short-termism manifested in high stock turnovers, which were further boosted by high-frequency traders (HFTs) and high-speed connectivity to emerging virtual stock exchanges. Reuters calculated that the average holding period for U.S. shares had dropped from 8.5 months at the end of 2019 to 5.5 months in June 2020. The trends in Europe were similar, with holding periods having contracted from seven months at the end of 2019 to less than five months in June 2020. This shift occurred even though the superiority of a long-term stakeholder orientation was corroborated by increased revenue, net income, market capitalization, and job creation.
Emmanuel Faber
Faber joined Danone as head of finance, strategies, and information systems in 1997 at the age of 33. In 2000, he became a member of the executive committee, undertaking several leadership roles over the next 14 years. In 2014, as part of a planned change of succession, the “ascetic and thoughtful” Faber was made CEO, while the “exuberant and intuitive” Franck Riboud remained Danone chairman. Faber was undaunted by the size of the shoes he was supposed to fill, stating, “Franck loves golf and I climb—and that’s fine.”
A committed Catholic and a father of three, Faber was said to have negotiated additional time off for spiritual retreats as part of his employment contract. His rise was to Danone’s chief would double his salary to almost €2.5 million per year, which was Riboud’s remuneration until then. In his autobiography, Chemins de traverse: Vivre l’économie autrement (Crossroads: Living the Economy Differently), Faber explained that he could not bring himself to squander his newfound wealth on luxuries such as expensive cars, watches, or exotic vacations. Instead, an administrator noted that despite his discomfort, rather than ask for his salary to be reduced, Faber redistributed it generously to charitable associations. Leadership for Faber was about authenticity; the one trait he felt was undesirable in managers and leaders was the lack of connection between realism and idealism.
Pursuit of Sustainable Capitalism
Faber was an unlikely business leader with strong views on a new “humanist” or “responsible capitalism.” Muhammad Yunus, the Bangladeshi Nobel Peace laureate who was associated with Danone in creating a social business that produced affordable nutrient-fortified yogurt (see Exhibit 1), was “surprised to see a person like Faber in a big multinational company.” In fact, one of the reasons why Franck selected Faber as his successor was because Faber’s personal values aligned with Danone’s official values as embodied in the dual economic and social project.
Faber attended the World Social Forum (WSF)—an anti-globalization gathering—in Brazil in 2009, long before he became the chief executive of Danone. He faced criticism for going, but he stood firm in his decision, saying he wanted to understand different points of view. In an interview, he stated, “You don’t need to go to Davos to know what is going on in Davos; if you don’t go to the WSF, you just don’t know.” His views on the role of corporations could be understood from a speech that he gave in June 2016 at his alma mater, HEC Paris, in which Faber exhorted the students to find their higher purpose.
Faber sought to carry out business in a manner that was aligned to Danone’s vision and mission. In 2016, he proposed a radical shift in Danone’s U.S. business, shifting it away from one based on genetically modified (GM) ingredients to one based on non-genetically modified organisms (GMOs). The move, which would improve soil health and biodiversity, would affect the business model of about half of Danone’s products in the United States, representing about $1 billion of yogurt sales. The senior executives of Danone initially resisted the proposal, insisting that the change could happen only if the group imported the non-GMO feed for dairy cattle from Russia or China. Faber was appointed to chair Danone’s board in 2017. Under Faber’s leadership, Danone voluntarily adopted broader societal goals but submits its social and environmental performance, transparency, and accountability to third-party organizations by 2025. This pursuit of responsible capitalism had also financial implications. In 2017, Danone partnered with 12 leading global banks to lower its loan rates by linking them to verified positive impact in the world.
In his annual letter to CEOs in 2018 (titled "A Sense of Purpose") Fink referred to the role that society expected private sector companies to play in addressing social challenges, especially since governments appeared ill-equipped to face the future. He emphasized that “to prosper over time, every company must not only deliver financial performance but also show how it makes a positive contribution to society.”
Fink warned that without a sense of purpose, no company—whether public or private—could achieve its full potential. He predicted that short-term pressures would undermine sustainable investments in employee development, innovation, and capital expenditures that are necessary for long-term growth. This would leave companies exposed to activist campaigns that exploit the lack of a clearer sense of purpose.
Danone and the GMO Debate
In 2016, Faber proposed a radical shift in Danone’s business, moving away from genetically modified (GM) ingredients. This would improve both health and biodiversity. Half of Danone’s sales in the US, representing about $1 billion, were tied to GM ingredients. The senior executives of Danone resisted the proposal, citing the long transition time of 10 years required to implement it. Nevertheless, Faber’s resolve and the subsequent change were set in motion. This angered US dairy and farm groups, but Danone's sales were unaffected. The children’s yogurt brand, Danimals, carrying a certificate of "only non-GMO" ingredients, increased its US market share from 30% to 40%.
In 2018, reinforcing the view that purpose and profit could go hand in hand, research from B Lab revealed that purpose-driven B Corp companies in the United Kingdom were growing at an average year-on-year growth rate of 14%. This was 28 times faster than the national economic growth of 0.5%. B Corp champions attributed this growth to consumer preference for purpose-led brands and employee preference for purpose-led organizations. As more businesses became certified as B Corps, businesses could inspire change and “be a force for good for people and the planet.”
Faber supported projects aimed at preserving biodiversity and spoke of the need to protect local production and communities. In September 2019, he launched the “One Planet Business for Biodiversity” (OP2B) coalition, which included Danone’s competitors—Nestlé SA and Unilever—along with other companies that collectively sold products in more than 120 countries. The 19 coalition companies, representing a combined total revenue of US $500 billion, sought to protect and restore biodiversity within their supply chains and product portfolios.
Faber was a fierce advocate of the idea that companies should go beyond just maximizing shareholder wealth and focus on societal and environmental objectives. He played a key role in supporting the new French law introduced in May 2019, which stipulated that companies must be run with due regard to their social and environmental impacts. This law allowed companies to define their raison d'être and choose a new corporate form, société à mission, by embedding social and environmental goals into their bylaws and establishing a special committee to monitor those goals.
Challenges Faced by Danone
In 2018, following a recipe change for three baby milk formulas in the United Kingdom, Danone faced consumer complaints on social media, with parents claiming their babies had become ill. There were also complaints about a reduction in the packaging volume by 100 grams, despite the price remaining the same.
In 2019, Danone encountered challenges in its specialized nutrition business in China, its second-largest market, which accounted for 10% of Danone’s overall sales. This was due to a shrinking baby population and new regulatory requirements, which delayed product registration.
Faber also faced criticism for Danone’s $10 billion acquisition of US non-dairy producer WhiteWave Foods, especially as WhiteWave’s soy and oats products did not compensate for the decline in demand for traditional dairy. Analysts criticized Faber’s assertion that the food industry needed a fundamental change to ensure growth.
Pandemic Challenges and Governance Issues
The pandemic highlighted the challenges of balancing multiple stakeholder interests. In February 2020, with a collapse in demand in China, Danone’s second-largest market, the company lowered targets for sales growth and profit margin for 2020. Despite the poor financial performance, Faber committed €2 billion to reduce Danone’s reliance on non-recycled plastic packaging and to cut carbon emissions. In March 2020, he announced employment guarantees until June 30, 2020, along with a €1,000 bonus for all employees in French factories and warehouses. Faber emphasized the importance of ensuring employee safety and job security during the pandemic. However, unions resisted, arguing that shareholders should share in the sacrifice through reduced dividends.
Despite the financial challenges, Danone’s board maintained the 2019 shareholder dividends at €2.10 per share. Faber took a personal pay cut of 30% for the rest of 2020, while other board members waived their compensation for the second half of 2020 to finance Danone’s employee health program, Dan'Cares.
The pandemic-induced lockdown also severely affected Danone's dairy, yogurt, baby formula, and bottled water businesses. Despite increased costs of raw materials and logistics, non-dairy substitutes couldn’t compensate for the slowdown in yogurt sales.
Governance Concerns and Activist Pressure
Faber, who had held both the chair and CEO roles since 2017, faced governance criticism, with 25% of the board consisting of former executives, including Franck Riboud. Activist investors, like Bluebell Capital and Artisan Partners, questioned Danone's governance, especially with the company underperforming compared to rivals and Faber cutting profit forecasts three times in seven years. High-profile exits in 2020 further destabilized the company, including key figures such as Cécile Cabanis and Francisco Camacho.
In early 2021, Artisan Partners called for governance changes at Danone. While some, like Unilever's ex-CEO Paul Polman, supported Danone’s stakeholder-focused approach, Artisan enlisted former Danone executive Jan Bennink to advise on a new strategy. They recommended splitting the roles of chair and CEO, removing Faber, halting his restructuring plans, and selling low-profit businesses like the Mizone water brand in China and traditional milk and butter products, which represented 15% of Danone's revenues. v gv
Exhibit 1 (Continued)
Year
Key Event
Year
Key Event
2,008
The Danone Fund for Nature is launched to help the group offset the carbon emissions of some of its brands, primarily Evian, by preserving and restoring wetlands.
2,009
Name of the company is changed to Danone. The company also launched Danone Ecosystem Fund, a €100 million fund to answer local challenges through the professional empowerment of vulnerable stakeholders in Danone’s value chain.
2,010
Dan'Cares, a program designed to provide basic health care coverage to global employees, is launched.
2,014
Emmanuel Faber is appointed CEO, while Franck Riboud remains chair.
2,016
Faber pushes for Danone's US business to use non-GMO ingredients.
2,017
Faber is appointed chair and CEO. Franck Riboud became honorary chair. Danone unveiled a new brand signature, "One Planet. One Health." Faber announced that Danone would aim to be the first multinational company to obtain the B Corp certification by 2025. Danone North America was certified as a public benefit corporation, and five Danone subsidiaries became certified B Corps.
2,018
Danone North America completes its B Corp certification, making it the largest certified B Corp in the world.
2,019
Faber launches a coalition of 19 leading companies at the United Nations Climate Action Summit, called the "One Planet Business for Biodiversity" (OP2B) coalition.
2,020
In February, Danone reports a carbon-adjusted earnings per share, to be reported in addition to conventional performance metrics. In June, it became the first listed company to adopt the French legal framework of entreprise à mission.
2,021
In March, Faber is ousted from the position of Danone’s chair and CEO.
There are no rows in this table
Exhibit 2: Danone’s and Unilever’s Carbon Emissions
Table 23
Column 1
Unilever
Danone
Column 1
Unilever
Danone
Carbon Emissions (in tonnes)
2020
2019
Scopes 1 and 2
778,677
1,102,925
Scope 3
60,388,592
61,020,357
Total Ordinary Shares
2,629,772
1,460,714,804
There are no rows in this table
Source: Unilever, Annual Report and Accounts 2020, accessed April 8, 2021, 56, 144; Danone, February 19, 2021.
Exhibit 3: Growth Share Matrix
Table 24
Market Share
Column 2
Column 3
Market Share
Column 2
Column 3
Growth
High
Low
High
Star
Bright Prospects
Low
Cash Cow
Dog
There are no rows in this table
Note: Boston Consulting Group changed the term "dogs" to "pets" and now uses the term "question mark" instead of "bright prospects."
Source: "What is the Growth Share Matrix?", Boston Consulting Group, accessed July 28, 2021.
Endnotes
Investor Activism and Danone's Strategy
Investor activism as witnessed in Danone’s situation took the form of activist investors acquiring company shares and using their “ownership” to create shareholder value. The implications of this activism could be visualized by mapping the company’s various businesses on a grid, using market share (MS) on the horizontal axis and market growth (MG) on the vertical axis. The resultant quadrants would categorize Danone’s businesses as follows:
This model, developed by Boston Consulting Group in the 1960s and known as the “Growth Share Matrix,” clearly demonstrated the tension between short-term shareholder value and long-term stakeholder value. Selling off “dogs,” reducing funding for “bright prospects,” cutting research for “stars,” and focusing on “cash cows” could increase short-term profits but harm long-term prospects.
On March 2, 2021, in response to shareholder pressure, Danone’s board announced it would split the roles of chair and CEO. A new CEO would be recruited, but Faber would remain as chair, and his strategy for the company would continue. This move was seen as inadequate by critics, who viewed it as evidence of weak governance.
Danone Timeline
Exhibit 1 (Continued)
Table 25
Year
Event
Year
Event
2,008
The Danone Fund for Nature is launched to help offset the carbon emissions of some of its brands, primarily Evian, by preserving and restoring wetlands.
2,009
The company is renamed Danone. The company also launched the Danone Ecosystem Fund, a €100 million fund to address local challenges through professional empowerment of vulnerable stakeholders.
2,010
Dan'Cares, a program designed to provide basic healthcare coverage to global employees, is launched.
2,014
Emmanuel Faber is appointed CEO, while Franck Riboud remains chair.
2,016
Faber pushes for Danone's US business to use non-GMO ingredients.
2,017
Faber is appointed chair and CEO. Franck Riboud became honorary chair. Danone unveiled a new brand signature, "One Planet. One Health." Faber announced that Danone would aim to be the first multinational company to obtain B Corp certification by 2025. Danone North America was certified as a public benefit corporation, and five subsidiaries became certified B Corps.
2,018
Danone North America completes its B Corp certification, making it the largest certified B Corp in the world.
2,019
Faber launches the "One Planet Business for Biodiversity" (OP2B) coalition, comprising 19 leading companies at the UN Climate Action Summit.
2,020
In February, Danone reports carbon-adjusted earnings per share, to be reported in addition to conventional performance metrics. In June, it became the first listed company to adopt the French entreprise à mission legal framework.
2,021
In March, Faber is ousted from his role as Danone's chair and CEO.
There are no rows in this table
Source: Danone, “A Walk through Danone's History,” Medium, November 21, 2016, ; “Our Epic History,” Danone, accessed April 8, 2021.
Exhibit 2: Danone’s and Unilever’s Carbon Emissions
Table 26
Column 1
Unilever
Danone
Column 1
Unilever
Danone
Carbon Emissions (in tonnes)
2020
2019
Scopes 1 and 2
778,677
1,102,925
Scope 3
60,388,592
61,020,357
Total
61,167,269
62,123,282
Total Ordinary Shares
2,629,243,772
1,460,714,804
There are no rows in this table
Source: Unilever, Annual Report and Accounts 2020, accessed April 8, 2021, 56, 144; Danone, 2020 Full-Year Results, February 19, 2021.
Exhibit 3: Growth Share Matrix
Table 27
Market Share
Column 2
Column 3
Market Share
Column 2
Column 3
Growth
High
Low
High
Star
Bright Prospects
Low
Cash Cow
Dog
There are no rows in this table
Note: Boston Consulting Group changed the term "dogs" to "pets" and now uses the term "question mark" instead of "bright prospects."
Source: "What is the Growth Share Matrix?," Boston Consulting Group, accessed July 28, 2021.
Endnotes
Want to print your doc?
This is not the way.
This is not the way.
Try clicking the ⋯ next to your doc name or using a keyboard shortcut (
CtrlP
) instead.