TEAR DOWN THE ESG STATUES. CORCORAN.
The ouster last month of Emmanuel Faber as top executive at Danone, the French international distributor of brand-name yogurt and evian water, didn’t flap the wings of many news media in North America. One wonders why, given that Faber was the poster-ceo for the global application of woke stakeholder capitalism and environmental, social and governance (ESG) objectives as the new foundations for corporate purpose.
In his new book, global ESG crusader Mark Carney praises Faber as something of a hero and Danone as a prime example of how corporations can be reformed by redirecting their mission away from a hard focus on profits and shareholders. Carney gleefully repeated Faber’s claim last year that Danone had “toppled the statue of Milton Friedman.” Here’s what happened next.
At Danone, Faber led a number of initiatives whose overall objective was to shift the corporate focus to such issues as climate, biodiversity, sustainability and other socio-political objectives. In 2019, at the UN climate summit, Faber was up front when 19 corporations — including Canada’s Loblaws and Mccain Foods — signed a biodiversity pact to protect the planet.
Faber scored his biggest corporatist goal in June 2020, when Danone legally dumped the primacy of shareholders and became the first corporation under new French law to adopt the “entreprise à mission” structure designed to advance stakeholder value creation.
As a consequence of its corporate reform, said Faber, Danone North America alone would become “the world’s largest Public Benefit Corporation,” one of a range of formal corporate social responsibility models. The French “entreprise à mission” law, for example, has origins in the U.S. B Corp model which adds non-shareholder objectives to corporate purposes.
At Danone, a separate board-like group (populated by a majority of former Un/world Bank officials along with the president of the leftist U.S. Rockefeller Foundation) was appointed to oversee the non-shareholder agenda. Danone also began producing a “carbon-adjusted” earnings-per-share (EPS) statement. After adjusting EPS to account for a hypothetical carbon emission price of about $50 a tonne, Danone estimated its 2019 EPS of about $5.70 would be 38 per cent lower.
All of this is very cute (if one ignores the fact that Danone’s profits would be wiped out if it had to pay a $150 a tonne carbon tax). Danone was hailed as a global corporate game changer. They all laughed last June, at the event marking Danone’s transformation into a purpose-based corporation, when Faber raised his verbal fist in the air after having “toppled” the statue of Milton Friedman.
Faber’s woke witticism implied the existence of a street revolt of laptop-wielding investment managers against capitalist enclaves to remove the hegemony of Friedman’s views that profits and shareholders should remain the main focus of corporate management.
Two weeks ago, however, a real investor revolt struck down Faber and sent little shock waves through Danone and across the whole ESG movement. Under shareholder pressure, Faber was ousted as CEO and a major corporate reorganization postponed. According to a Financial Times report, the toppling of Faber’s statue came via a small London-based investment fund, Bluebell Capital Partners.
Bluebell, with only a few shares of Danone, apparently initiated investor protests over Danone’s declining profit levels as it pursued ESG objectives. Under Faber, Danone was putting purpose ahead of profit.
While Bluebell’s holdings were tiny, large Danone shareholders picked up the revolutionary spirit that eventually led to a board decision to remove Faber. Bluebell co-founder Marco Taricco — formerly with Morgan Stanley, Goldman Sachs and other major investment banks — is cagey on the ESG angle. He told Financial Times that Bluestone never criticized the E and the S in ESG. “But it can’t come at the expense of shareholder returns. The first duty of a public company is to remunerate shareholders.”
Let that be a lesson to ESG activists who aim to tear down Milton Friedman.
Unfortunately, the fall of Faber does not mean that stakeholder activism is dead, even though Danone was cited by Mark Carney and others as a revolutionary corporate model. In his book, Value(s): Building a Better World for All, Carney said that the Danone model “translates into corporate value.”
Obviously the former Bank of England chairman had not been tracking Danone’s actual financial performance and the rise of shareholder resistance in the face of a 40 per cent decline in the company’s share price.
Despite Danone, the ESG stakeholder movement is still alive and apparently growing. On Monday, Carney tweeted a link to an announcement that his current corporate employer, Brookfield Asset Management, had joined the 73-member global Net Zero Asset Managers Initiative and its commitment to the net zero carbon emissions goal. The asset managers, including some of the largest in the world, such as Larry Fink’s Blackrock, said the group “will annually report progress against the Task Force on Climate-related Financial Disclosures (TCFD) recommendations, including setting out a climate action plan and submitting this to The Investor Agenda via its partner organizations or review to ensure the approach applied is based on a robust methodology, consistent with the Race to Zero criteria, and action is being taken in line with the commitments.”
My rough translation of that corporate garble is that the Net Zero asset managers plan to impose Danone-like ESG purposes on corporations around the world. The Danone experience suggests there may be a large and powerful segment of the investment world that stands ready to topple the ESG mission.