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nzherald.co.nz | The New Zealand Herald | Thursday, October 31, 2019
Sustainable Finance
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Companies are trying to define a broader purpose for their business but the exercise is fraught with risks writes Andrew Hill
Danone chief executive Emmanuel Faber proposed shifting about half of the company's products to non-GMO Photo / AP ingredients.
powerful shift in the way that large companies think about their purpose and their responsibilities — and an example of the challenges companies face in managing that shift. For 40 or more years, corporate boardrooms latched on to the doctrine that economist Milton Friedman had laid out in a 1970 article with the blunt title The Social Responsibility of Business is to Increase its Profits. That approach was supercharged in the 1980s and 1990s by the ratcheting up of share-based executive rewards. But the tide is beginning to change. In August, the Business Roundtable, the influential US business group, amended its two decade-old declaration that “corporations exist principally to serve their shareholders”. The Roundtable said: “While each of our individual companies serves its own corporate purpose, we share a fundamental commitment to all of our stakeholders” — customers, employees, suppliers, communities and — last in the list — shareholders. Advocates for the idea that companies should adopt a broader purpose argue that the global financial crisis laid bare the limits of pursuit of profit for its own sake. What was once a nice-to-have addition — often tidied away and kept in a box labelled “corporate social responsibility” — is now a must-have, they say. Businesses that combine profit with a wider purpose will benefit from the reinforced commitment of employees and customers. Those that fail to do so will not survive to become the companies of the future. Sarah Kaplan of Toronto’s Rotman School of Management says: “Companies are increasingly a positive
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n February 2016, Emmanuel Faber, chief executive of Danone, put a radical proposal to the French food multinational’s senior US executives at a meeting in White Plains, New York. Against the grain of agricultural production in the US, where the vast majority is genetically modified, Faber proposed shifting about half Danone’s products — representing some US$1b (NZ$1.6b) of yoghurt sales — to non-GMO (genetically modified organisms) ingredients. He argued this was an important change that would improve soil health and biodiversity. The reaction from Faber’s lieutenants was immediate: impossible. One said it could only happen if the group imported the non-GMO feed for dairy cattle from Russia. As they went to work, though, the executives started to change their gloomy prognosis about how long such a shift would take. “Three weeks later, it was 10 years. Two months later, it was five years. Finally, it was two years — and we did it in two years,” says Faber, in an interview at the group’s Paris headquarters. The pledge triggered vocal protests from some US farm and dairy groups. It did not harm sales. Despite a price rise, the children’s yoghurt brand Danimals, now certified as containing only non-GMO ingredients, has increased its US market share from 30 to 40 per cent. Danone’s shift on GMO might be dismissed by some as a marketing gimmick and criticised by others as an exercise in managerial selfindulgence. But it is one sign of a
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