Culture Change

Does the Selling of Stonyfield Farm Yogurt Signal the End of Socially Responsible Businesses -- Or a New Beginning?

I live in a company town. Every day, I drive by a large building on a hill with a picture of Planet Earth adorning its side. A gaily colored sign featuring bemused-looking spotted cows announces the home of Ben & Jerry's, "Vermont's Finest." The ice cream factory in Waterbury, which doubles as a showcase for the company's lefty political values, has become Vermont's largest tourist attraction, with over 300,000 visitors per year.

But today this seemingly idyllic landscape can be likened to a facade. It's a carefully preserved company image that belies the reality of who owns Ben & Jerry's. In April 2000, "Vermont's Finest"was acquired for $326 million by Unilever, the Anglo-Dutch giant that is the world's largest consumer-products company. Overnight, my neighbors who work for Ben & Jerry's were transformed into microscopic blips on the balance sheet of a $52 billion foreign company.

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This change of fortunes is part of a trend of socially responsible businesses, or srbs, being acquired by vast multinational corporations. Such values-led companies boast of having a "triple bottom line" -- people, planet, and profits. But profits for whom? Now when you walk the aisles of a natural foods store, the image of what you are buying (small, local, earthy) may bear little resemblance to reality (corporate, global, industrial). In the last five years, scores of SRBs -- which range from small organic producers on up to a company like Ben & Jerry's that once gave a sizable percentage of its profits to environmental and social causes -- have been bought by corporate conglomerates. To wit: The Samantha and Odwalla premium juice brands have been swallowed up by Coca-Cola, all-natural Boca Burger was bought by Kraft (a subsidiary of Philip Morris), and organic food leader Cascadian Farm was absorbed by General Mills. Two companies, United Natural Foods and Tree of Life, now control the distribution of about three-fourths of all-natural products. The icons of the srb movement -- quixotic activist entrepreneurs like Ben Cohen at Ben & Jerry's and Anita Roddick at The Body Shop -- have been pushed aside at the companies they founded, their voices diminished.

The latest such company to go on the auction block is Stonyfield Farm. In late 2001, the nation's largest organic yogurt brand struck a deal worth an estimated $125 million to be acquired by Groupe Danone, the French parent company of Dannon yogurt. By early 2004, if Stonyfield president and CEO Gary Hirshberg doesn't get cold feet, the maker of the world's top-selling yogurt (in the United States, Dannon is second to Yoplait) will take majority control of America's fourth-leading yogurt brand.

The Stonyfield deal stunned the social business world. The feisty, outspoken Hirshberg built his name and his company by championing progressive political causes. Now, to the astonishment of many, he is singing (with the occasional off-note) the praises of merging with a $14 billion multinational food giant. "These firms can bring synergies that will add great value," Hirshberg says. Despite what happened to his friend Ben Cohen and numerous other examples to the contrary, Hirshberg insists that his deal can serve as a model for how values-led companies can infect big businesses with their social missions.

Skeptics abound. "This is absolutely not a good thing," counters Judy Wicks, owner of Philadelphia's White Dog Café and board member of the Social Venture Network, an association of values-led companies. Corporate takeovers of SRBs, she says, are "a threat to democracy when wealth and power are concentrated into a few hands."

Is Gary Hirshberg heralding the future of socially responsible business, merging lofty principles with vast economic power? Or did he just plain sell out?

Stonyfield "farm" is, in fact, a sprawling single-story factory near Manchester, New Hampshire, shoehorned between an airport and a power plant. Inside, I wander across recycled wood floors, beneath the ultra-efficient lights, past a bathroom with recycled plastic stalls, to meet Hirshberg in his corner office. Clad in jeans, running shoes, and a turtleneck, the compact, slim 48-year-old who enjoys downhill ski racing and soccer on the weekends is sitting beneath a bumper sticker featuring smiling photos of Osama bin Laden and Saddam Hussein and the message "Thanks for driving your SUV!" I ask him to explain the connection between selling yogurt and the looming war in Iraq.

Hirshberg, who describes himself as "a former windmill-building hippie," cracks a half smile, stands, and pulls up a chair next to me. "Business is the most powerful force in the world," he declares, leveling his intense hazel eyes on mine. "I believe that virtually every problem in the world exists because business hasn't made finding a solution a priority."

Hirshberg's solution is an unusual one: preaching from plastic yogurt cups. He calls them "mini-billboards," on which he implores customers to fight global warming, oppose oil drilling in Alaska, and "live larger, drive smaller," among other priorities he holds dear. Stonyfield donates 10 percent of its profits to environmental causes and has even attempted to offset the plant's contribution to global warming by investing in reforestation. Hirshberg has also headed up the Social Venture Network and the like-missioned Social Venture Institute. And he is not shy about pricking the conscience of corporate America. Speaking about toxins at a National Town Meeting on Sustainability, he declared flatly of a fellow panelist, the president of Dow Chemical, "He's wrong."

Hirshberg came to business via environmental activism. In the early 1980s, he was executive director of the New Alchemy Institute, a nonprofit center for renewable energy and organic agriculture located on Cape Cod. It was in that capacity that he met Samuel Kayman, the Brooklyn-born head of an organic-farming school in Wilton, New Hampshire, that made yogurt as a kind of edible showcase for the virtues and practicality of organic agriculture. Kayman's Stonyfield Farm yogurt was famously creamy and delicious. But as a businessman, he was a disaster. He asked the then-29-year-old Hirshberg to turn the yogurt company into a going concern.

Together Hirshberg and Kayman, who's now retired, milked 19 cows every day, often in subfreezing weather. They nearly went bankrupt before the organic market exploded, growing some 20 percent a year throughout the 1990s. On that rising tide, Stonyfield became an $85 million enterprise. To fund the company's rapid expansion, Hirshberg cobbled together an odd mix of investors: family members, dairy farmers, and venture capitalists. By 2001, organics were a $9-billion-a-year industry, and Stonyfield Farm was a poster child for the social entrepreneur's motto of "doing well by doing good."

The explosive growth of organics inevitably caught the attention of mainstream food corporations, whose conventional food and beverage business was growing at only about 2 percent annually. To get in on the action, the large companies "either had to buy or innovate," explains Matt Patsky, portfolio manager at Winslow Management, a division of the venture capital firm Adams Harkness & Hill. The cost of launching a new brand is around $70 million, and 90 percent fail, he explains. "So you were better off allowing the smaller players to innovate, and then acquire them when they found a formula that was getting traction," says Patsky. "That's why we've seen a very frenzied pace of getting into this market niche."

By the late 1990s, a few of Stonyfield's 297 investors, especially the venture capitalists, began clamoring for a return on their investment, demanding far more than the company could afford to pay out and survive. Hirshberg claims he spent two years considering options that would both satisfy investors and preserve his cherished social mission. His enthusiasm for taking Stonyfield public waned when he watched a profitable competitor, Horizon Organic Dairy, go public, only to have its stock tank. Converting to employee ownership couldn't raise enough capital to pay off investors. Then in early 2001, Hirshberg's wife was diagnosed with breast cancer. Suddenly, a multimillion-dollar payday was more appealing, as was a respite from the relentless VCs.

So Hirshberg decided to seek a corporate partner. He announced a list of demands and conditions, foremost of which was that Stonyfield's social mission be left intact and that he be allowed to run the company. Then he waited for the phone to ring.

The most patient and persistent caller was Groupe Danone. Negotiations took an excruciating two years, as Hirshberg repeatedly threatened to scuttle the deal if his terms were not met. When the deal was announced in October 2001, he seemed to have won some major concessions. For example, the acquisition will be phased in: Danone acquired a 40 percent stake in Stonyfield in 2001, but only if Hirshberg approves will it gain majority ownership come 2004. Hirshberg will remain ceo so long as he meets double-digit growth targets, but Danone will support Stonyfield's "profits for the planet" corporate-giving program for at least a decade beyond Hirshberg's tenure.

Franck Riboud, chairman and CEO of Groupe Danone, muses, "The fact that we achieved this negotiation with Gary…shows Danone is a multinational corporation with a special spirit. We are driven by social values similar to Gary's. We have to think not only in terms of economics, but also in terms of social responsibility."

In truth, Danone did not indulge Hirshberg out of crunchy sentiment. Riboud was ultimately persuaded that the profitability of the "yogurt on a mission" was inextricably bound up in the emotions associated with the brand.

Hirshberg insists that because his values are "genetically encoded" in his product, their future is safeguarded no matter who controls the company. Being organic is a political statement, and the more organic product you can sell, the better it is for the environment and people's health. "Danone represents huge buying power and clout," he insists. "If I can become like a Trojan horse within their company, which I think I am, and introduce organics through their many product lines," he stops, fumbling for words for a moment. "It's like what I said to Dick Goldstein, [former U.S. CEO] at Unilever: ‘You can do more good with one purchase order than I can do in the next decade.'"

Franck Riboud seems intrigued with his iconoclastic new partner, and Hirshberg claims the two now have a warm personal relationship. Riboud brought Hirshberg to France to speak to the heads of his billion-dollar divisions, and Hirshberg has been quietly scouting other organic brands for Danone to acquire. "I am convinced we are going to be impacted by the approach of Gary," Riboud says smoothly. The partnership, he insists, "is not only a capitalistic issue. We need people like Gary to develop correctly the business."

So far, little seems to have changed at Stonyfield. "The best thing they've done this year is they've left us alone," says Hirshberg. "They've confirmed our value." When I toured the Stonyfield factory, I asked production supervisor Paul Meyer whether he had seen much change since the Danone deal. He shrugged. "Their quality-control people have been through here. To be honest, I think we've taught them more than they've taught us."

While Hirshberg insists that he's struck an unprecedented deal that preserves his company's social mission, observers say it is really a fairly ordinary acquisition -- wrapped in a whole lot of spin. A former Stonyfield executive says that Danone will indulge Hirshberg only so long as the business is handsomely profitable. If the numbers sour, the social mission will be the first casualty.

Hirshberg does not disagree, but he's confident about his ability to deliver aggressive growth. "As long as the company is performing as it has been, they'd be fools to touch it. They have said all along they wouldn't know how to run a brand like this. Even the hawks know that I'm the one delivering the numbers for them."

Hirshberg's patter is mostly upbeat, but occasionally a hint of ambivalence -- or is it guilt? -- peeks through. "There's no doubt I had to choose which devil to dance with," he finally sighs. "If I didn't have to give shareholders an exit, I wouldn't have done this deal.… But I did have 297 partners. And I feel I did a deal with the best devil out there."

To other social entrepreneurs, who point out that Hirshberg's family made an estimated $35 million in the deal, this smacks of crocodile tears. "It's the cash-out American Dream," swipes a former Ben & Jerry's executive. "Just be honest: Say, ‘I'm gonna cash out for myself and my shareholders.' But don't promote it as the solution to how socially responsible businesses evolve."

In the last few years, there's been mounting evidence that SRBs are at an evolutionary crossroads, and that they must adapt or perish. The movement began in the 1970s, when a few crusading business leaders, such as the heads of Stride Rite, Levi Strauss, Herman Miller, and Control Data Corp., promoted "addressing unmet societal needs as profitable business opportunities," in the words of Control Data Corp. founder William Norris. In the 1980s, even more outspoken entrepreneurs -- notably Ben Cohen, Anita Roddick, Paul Hawken of Smith & Hawken, and Yvon Chouinard of Patagonia -- built successful companies whose core mission was, like Stonyfield's, "to serve as a model that environmentally and socially responsible business can also be profitable."

By 1992, Business for Social Responsibility (BSR) was launched. It now boasts up to 700 members, including many Fortune 500 companies. BSR member companies have nearly $2 trillion in combined annual revenues and employ more than 6 million workers around the world.

Yet according to some social business leaders, BSR is symptomatic of a larger problem. "BSR became a greenwashing organization for large corporations," charges Paul Hawken, who 12 years ago left (and now criticizes) the company that bears his name and has since written several books on ecology and business. "What you are seeing is the corporatization of social responsibility and sustainability. When you have McDonald's issuing social responsibility reports, then you know we are in trouble. They can say, ‘Our napkins are recycled' -- these are meaningless, tiny things, yet they pass that off as their company becoming socially responsible. You can't be socially responsible and not look at your business mission."

But big business has learned to embrace social responsibility for one simple reason: It sells. A survey by the Natural Marketing Institute found that 30 percent of adult American consumers, or 63 million people, make purchasing decisions based on issues of the environment, social justice, health, personal development, and sustainable living. These so-called LOHAS (Lifestyles of Health and Sustainability) consumers -- also referred to as "cultural creatives" -- spent $227 billion on socially and environmentally responsible goods and services in 2001. According to a 2001 study by the Social Investment Forum, more than $2.3 trillion -- or nearly 1 out of every 8 dollars in the United States under professional management -- are in socially screened portfolios.

Socially responsible businesses have arrived. And that might be their undoing.

Back in Waterbury, it is layoff day at Ben & Jerry's, and the only people smiling around the factory are the black-and-white images of founders Ben Cohen and Jerry Greenfield that beam out from the pint containers, exhibiting a happy demeanor from a bygone era. It is October 24, and Ben & Jerry's just announced that 52 jobs -- one-fourth of the staff at corporate headquarters in nearby Burlington -- are being axed.

"Everyone is on pins and needles today," whispers one employee to me in the hallway. "Ever since the change, we don't know what's going to happen."

"The change" came in April 2000, in what was essentially a hostile takeover of the publicly traded ice cream company. Cohen, Greenfield, and many board members opposed a buyout, but when Unilever offered $43.60 per share -- a 25 percent overvaluation of the then-current trading price, and 66 percent more than when buyout rumors had begun four months earlier -- the company was legally obligated to the shareholders to accept. The sale sparked protests at scoop shops nationwide. Even Vermont's governor lamented, "It would be a shame if [Ben & Jerry's] were sucked into the corporate homogenization that's taking over the planet."

Unilever promised that there would be no major layoffs for two years. The moratorium had barely expired when the pink slips began coming. Last spring Ben & Jerry's announced that it would close two facilities in Vermont and cut 124 jobs. Factor in the October layoffs, and 1 out of every 5 Ben & Jerry's employees has been fired since Unilever took over.

Last summer, I attended a party at Ben Cohen's house for the launch of True Majority, his Internet activism campaign. In the midst of the revelry, I asked Ben what had happened since Unilever took over. Standing beside giant fiberglass pigs symbolizing the bloated defense budget, he blanched as if I'd punched him in the stomach. He sighed deeply and wagged his shaggy head. "I can't talk about that. I just can't do it," he said, pursing his lips.

"It's a very painful subject for him," explains Judy Wicks, who's a close friend. "He still feels a great loss, that he was forced to give up a powerful tool for change." Another reason for his reticence was obvious: Though Ben has little role in the company other than to lend whatever cachet that his name and occasional public appearance might still convey, he and Jerry remain on the payroll. To Unilever "the founders" are trophies, preferably seen but not heard. And by continuing an albeit rocky relationship, the company hopes to mute their criticism.

The day after the October layoffs, however, I receive a call from Ben, who's now ready to talk. "If you look at what the values of Ben & Jerry's were at its height, those are not the values of Unilever. You didn't need time to tell that. I think that Unilever is a huge entity, and there're people inside Unilever who want to try to be more socially beneficial, and there're people who don't. I believe that it…" he stammers, "it's a struggle." "I think that most of what had been the soul of Ben & Jerry's is not gonna be around anymore," he adds.

The new voices of Ben & Jerry's deny the company has retreated from its social mission. Spokeswoman Chrystie Heimert notes that the company just "made its largest marketing push ever" with One Sweet Whirled, a new flavor that is the centerpiece of a campaign with the Dave Matthews Band and leading environmental groups to fight global warming. She also points to a 2001 independent "social audit" by Institutional Shareholder Services that concluded, "There is definitely an irony to a counterculture company such as Ben & Jerry's being acquired by a global behemoth such as Unilever, and many members of the Ben & Jerry's family are acutely aware of the irony. But fears that Ben & Jerry's would abandon its commitment to caring capitalism have so far proved unfounded."

Unilever no longer gives 7.5 percent of Ben & Jerry's pretax profits to charity, but it has stood by its agreement to donate at least $1.1 million annually to the now independent Ben & Jerry's Foundation for the next decade. Unilever also made a one-time $5 million gift to the Foundation. (In a jab at Unilever, the three Foundation directors -- including Jerry Greenfield -- donated the money to antiglobalization groups.)

But the recent layoffs -- at a time when Ben Cohen and others insist the company is "quite profitable" -- signal a retreat from the company's philosophy of "linked prosperity" with its employees. In 2001, Ben & Jerry's finally surpassed Häagen Dazs to become the top-selling brand of superpremium ice cream in the country, and last year sales exceeded $212 million -- a 70 percent increase over 1997. But healthy long-term growth is not what counts most in the corporate environment, explains Cohen. "They want to show increased profitability each quarter. So they try to maximize short-term profits." And nothing pumps up the bottom line quite as quickly and definitively as shedding workers.

Cohen calls the layoffs "typical behavior of corporations that acquire businesses." He insists that if he still ran the company "those people wouldn't have been laid off." (His staff at True Majority might beg to differ: Many were unexpectedly sacked in October when his new organization ran low on funds.)

Ben's advice to other social entrepreneurs considering selling out to a large corporation? "Don't do it! Stay independent. I certainly tried to keep Ben & Jerry's independent. I lost that battle. But that doesn't mean that other people can't win it."

As SRBs enter their fourth decade, can the same discriminating consumers that made them so successful ensure their survival? Anita Roddick, who was relegated to an advisory role at The Body Shop last year, hopes so. The corporate takeovers, she says, are spawning "vigilante consumers who are acting like ethical watchdogs. They are looking behind the product and being very focused on the behavior of companies. And companies are starting to wake up."

Shawn Sugarman, president of Odwalla, the juice company bought by Coca-Cola in 2001, concedes that for "core consumers, alarm bells go off when they see big companies take over a Ben & Jerry's or an Odwalla. There's a lack of trust. The proof is going to be in watching what these companies do with these products. If the [corporations] stray from the values that are important to the consumers of those products, they'll damage the value of those brands."

But another view holds that the checks and balances of the free market are not sufficient defenders of high ideals. These advocates of "deep sustainability" posit that ownership is crucial. Alisa Gravitz, executive director of Co-op America, explains, "Deep sustainability people want to know, Who owns the business? How do they make decisions? What does this mean about wealth and power? In every category, consumers now have real alternatives to ‘business as usual.' The deep-sustainability view is that it is better to have smaller independent companies under local ownership that can keep money and jobs in communities and keep products moving up the ladder of sustainability." David Korten, author of When Corporations Ruled the World, adds that sustainable businesses must be "human scale -- not necessarily tiny firms, but preferably not more than 500 people -- always with a bias to smaller is better."

That, however, is a notion that runs counter to the American faith. And whatever the lofty goals of social entrepreneurs, their success comes in no small part because they think big.

Take Gary Hirshberg. He's already found his next act: fast food. It'll be all-natural and organic, of course; still, he's entering a market in which it is axiomatic that you either grow or die. O'Naturals opened its first restaurant in Falmouth, Maine, in 2001. This year, it plans to open two more restaurants. "We want to be McDonald's," he declares, his eyes lighting up. "This is a billion-dollar brand idea. There are big corporations that are probably already thinking about knocking on my door." But this time, he says, "I don't wanna be home."

"I'm on the verge of such cool stuff," he gushes about his dreams of bigger, better SRBs. Then he pauses, sighs, and adds with a weak smile, "Or I'm going to find out that I'm full of bull and none of this is gonna work out."