French food group likens change to toppling statue of free market economist Milton Friedman
Save Leila Abboud in Paris JUNE 26 2020
Danone shareholders voted on Friday to enshrine the group’s mission to bring “health through food” to consumers into its corporate bylaws, becoming France’s first big listed company to adopt a new legal status created by the government last year. After 99 per cent of shareholders voted for the change, Danone will turn into a so-called enterprise à mission, or purpose driven company. The legal status requires Danone not only to generate profit for its shareholders, but do so in a way that it says will benefit its customers’ health and the planet. France passed a law last year to modify its civil and commercial codes to allow companies to take greater consideration of social and environmental issues. It sought to broaden the idea of what animates companies by rejecting the traditional idea that a company exists primarily to maximise the wealth of its owners, the shareholders. Danone chief executive Emmanuel Faber was instrumental in building support for the French law, and has long been an advocate for the idea that companies need to act both for economic and social ends. For example, he has pushed Danone to disclose a new financial metric called “carbon-adjusted EPS” to expose the invisible cost of polluting. “You have toppled the statue of Milton Friedman here today,” said Mr Faber at a video-streamed meeting, referring to the renowned American economist and proponent of free markets. In 1970, Mr Friedman wrote an article with the blunt title “The social responsibility of business is to increase its profits” to debunk the idea that corporations should also do good. The move comes at a time when many companies are re-examining their priorities, including their purpose and sustainability programmes, as they brace for a coming recession. With the changes, Danone has set out social, societal and environmental objectives, and its progress towards them will be judged by a committee of 10 outside experts. They will report once a year to the annual shareholder meeting, and will be paid €25,000 a year. Their ranks include Guido Barilla, the chairman of pasta maker Barilla; Rose Marcario, the former head of outdoor clothing maker Patagonia; Pascal Lamy, the former head of the World Trade Organization; and Sharan Burrow, who heads the International Trade Union Confederation. Danone’s shares closed little changed on Friday, and it remains to be seen whether the governance changes will affect investors’ view of the company. Danone has for years traded at a lower valuation multiples than larger consumer goods companies like Nestle and Unilever, reflecting its poorer performance in terms of returns on invested capital. Since the Covid-19 pandemic hit, the gap has widened. Its forward price-to-earnings ratio stands at 17, while Nestlé’s is 23.9 and Unilever 19.5, according to S&P Global Market Intelligence.