University of Paris-Saclay
Alain Charles Martinet*
IAE Lyon School of Management
Jean-Moulin University Lyon 3
*Faculty member of the Business Science Institute.
Article originally published on The Conversation France.
With what should now be called the "Danone" affair, could we be experiencing the first crash test of the new legal status of "mission" companies? Let's remember that this status provided for by the Pacte law (Action plan for the growth and transformation of companies), which came into force in mid-2019 and which can be quickly presented as a way to free oneself from the obsession with the creation of shareholder value, is first and foremost conceived as a "poison pill" to prevent hostile takeovers...
The paradox in the case of Danone - of which the ousting of the CEO under pressure from American activist funds that recently acquired a stake in the company and considered the company's commercial and financial performance as well as the evolution of its share price to be disappointing - lies in the fact that this status of a company with a mission, seen as a kind of morning-after pill to prevent unwanted relationships, could well accelerate projects that have been in the making for a long time.
A failed takeover in 1968
Antoine Riboud, founder and chairman of Danone (1918-2002).Philippe Bouchon/AFP
To fully understand the case, let's take a quick look at the history of Danone. In the mid-1960s, BSN (Boussois-Souchon-Neuvesel) was not yet Danone. The company specialized in glass containers and flat glass. Antoine Riboud's takeover bid for the respected and historic Saint-Gobain in December 1968 was a first in France, and the sales of the highly respected glass and materials producer were seven times greater than those of BSN.
The objective of achieving global critical mass in packaging and glass failed with the takeover, but the question of critical mass would remain a constant problem and leitmotif in the group's subsequent activities and strategies.
After the failure of the takeover bid, the company changed tack with a stroke of genius: Antoine Riboud, Chairman of BSN, foresaw that packaging would play a decisive role in the development of the food industry at the time. Hence the idea of combining glass and plastic containers with contents. At the time of its widest diversification in 1990, under the leadership of Antoine Riboud, the company formed five divisions - fresh products, grocery and cookies, brewing, champagne and mineral water, and packaging.
The group was only one third international, mainly in Europe, and managed a large portfolio of brands, articulating container-content. Social management was intended to be "avant-garde" according to the famous dual economic and social project launched by the provocative Antoine Riboud at the 1972 meeting of the National Council of French Employers (CNPF, now Medef) in Marseille. The corporate culture was centered on this charismatic CEO, organizational processes and fluid human relations.
Consolidation of the company
Always a potential target for a takeover bid because of its dispersed capital, BSN's CEO introduced voting rights restrictions and imaginative "poison pills", such as bonds with share warrants (OBSA), which could be used in the event of a takeover attempt. The company has thus consolidated itself through organic growth driven by a strong sensitivity to market needs and a financial strategy that favors self-financing.
In 1996, Franck Riboud was appointed CEO - an appointment that confirmed the robustness of the governance system put in place by his father - and BSN, then Groupe Gervais-Danone, became simply... Danone in 2009. Over the period, a strategy of positioning itself on "healthy" products was pursued at breakneck speed, leading to the withdrawal from champagne in the 1990s, from beer (including Kronenbourg) in 2000, and then from cookies (notably the Lu brand, which nevertheless enjoyed a huge spontaneous reputation) in 2007.
The paradigm shift was radical. The group adopted all the trappings of the strategic-organizational "style" widely promoted and valued by the financial industry: a clear focus on core business and the development of global brands; divestments and divestitures (profitable in the short term) of activities deemed non-strategic (if the group cannot hope to hold a leadership position in them); geographic expansion towards emerging markets (and in particular China) of the two flagship activities: fresh dairy products and mineral water.
Totally focused for ten years on what will later be described as its "raison d'être" ("bringing health through food to as many people as possible"), the strategic evolution is reflected in the financing: systematic share buybacks, in particular, support the share price, and dividends are paid in cash.
Emmanuel Faber and Franck Riboud, former CEOs of Danone.Eric Piermont/AFP
With Emmanuel Faber, it is moreover the former financial director who succeeded Franck Riboud as CEO in 2014, the latter remaining for some time as chairman before the former combined the two functions ... The complementarity of the two men, with very contrasting skills and personalities, undoubtedly offered a superior potential. Emmanuel Faber, now ousted, has been replaced by Gilles Schnepp, the former CEO of the industrial group Legrand.
The attack often comes from "elsewhere"
This brief "return to the future" is useful to remind us that the status of a company "with a mission" does not mean the pursuit of a corporate project that would thus be free of the constraint of maximizing value creation for the shareholder.
Certainly, when one has no other choice to maintain one's independence than to comply with market expectations, good old Darwinian logic applies: the one that makes CEOs deemed insufficiently efficient be replaced and/or their companies taken by storm. Such former groups, diversified and then refocused, become particularly tempting potential prey, since most of the restructuring work has been done.
This leaves the only real questions that matter today for the future of Danone: can the company remain independent? Where would the potential predators come from and who would they be? Does the status of a company with a mission seem likely to protect it from their attacks?
It is of course impossible to answer these three questions at this stage, but we can already venture to add some elements to the debate.
First of all, the group's independence is, today even more than yesterday, undermined for reasons we know (health crisis, results lower than the main competitors, depressed stock market prices...); this is also the reason for Emmanuel Faber's ouster. The future will tell whether the "organizational changes", with the "local first" restructuring and streamlining plan, will enable us to turn things around in the long term. This plan, which was undoubtedly drawn up in order to give pledges considered insufficient by certain shareholders, could well be shelved.
Secondly, potential predators are not limited to the best-established champions in the sector (we remember the rumours of PepsiCo's takeover of Danone fifteen years ago). The European Union is playing the more fastidious than strategic role of timekeeper for competition law alone, making it difficult to create European champions capable of competing with groups supported by national political powers (China, United States, etc.).
The refocusing on core businesses, which has been practiced with zeal by CAC 40 leaders until now, could give way to new diversifications that many foreign groups (particularly Asian ones) have always maintained and which confirm the return in force of conglomerates (the Tata group in India, for example). This is why the attack often comes "from elsewhere", as we explained in an article in the Revue française de gestion in 2002, which dealt precisely with the case of Danone and which curiously resonates 20 years later.
It is precisely with this idea in mind that the legally enforceable "mission" was also conceived as a weapon of dissuasion. This is undoubtedly what the head of Danone had in mind in 2020, when the change of legal status was adopted.
And it is here that one last point should be emphasized, one that is absent from the many comments on the "Danone affair": what would happen if, in the event of a takeover attempt, the missions of both the prey and the predator suddenly appeared compatible? We can hypothesize here that the mission could then act as a way of provoking a gestation birth, or at least an unprecedented engendering made possible by the circumstances.
In the light of these three points, and with the necessary caution, it should be remembered that corporate strategy is like history: intrinsically made of paradoxes. In this case, Gilles Schnepp, the new chairman of Danone, has also been an independent director of the Saint-Gobain company since 2009, and between "bringing health through food to as many people as possible" and "making the world a better home" (Saint-Gobain's raison d'être), the synergies of "mission" and "reason" - especially when stated in such a broad way! - are strong.
Could this open the door to one of those ironic stories of history that "French-style" capitalism is so good at, with a possible "revenge" of Saint-Gobain five decades later?
In any case, this is the type of hypothesis that strategy and management research invites us to investigate, beyond the endless debates on "financialization" vs. the "economic and social project" or the incompatibility by nature between short and long term objectives. It should be noted that only the long view, but at the level of organizations - which makes the singularity of management sciences and management, understood on these themes as a moral and political science of the present times - allows us to dare to outline them, even if in an apparently iconoclastic way.
Les auteurs remercient Laurent Faibis, président du l’institut d’études économiques privé Xerfi, rédacteur en chef de Xerfi Canal et membre invité du conseil de rédaction de la Revue française de gestion (RFG) pour ses conseils et commentaires qui ont permis d’améliorer très sensiblement les versions antérieures de cet article.
Article translated from French with https://www.deepl.com/translator
Jean-Philippe Denis' articles on The Conversation France.
Jean-Philippe Denis' books & articles via CAIRN.info.
Alain Charles Martinet's articles on The Conversation France.