Well, CERTAINLY NOT without a reduction of the shareholders' short-term capital return expectations.
Setting goals and talking about sustainable economy is one thing, but taking concrete actions to improve social and environmental issues is another, since it requires different capital allocation decisions. And of course, it impacts the profit maximisation and the wealth of the companies' owners.
The current discussions and the pressure made by the activist fund Bluebell on Danone, is the testimony that demonstrates it will be a long way before convincing the shareholders to reduce their expectations.
Especially when companies are being listed.
Photo Canva pour Boostpartners
EASIER SAID THAN DONE
Many companies are talking about ESG and set SDG's objectives, and many are even providing sustainable report in addition to their financial annual report.
Some such as Apple, Volkswagen - even Blackrock- are also talking about changing their compensation plans to include social and environmental goals. It is indeed trendy for CEO, Board of Directors and investment companies to mention that financial performances can be reconciled with societal and environmental goals.
I do not want to go into the detail of the controversy launched by the activist fund on Danone's CEO and the request that the CEO needs to leave because of his poor operational performance and his questionable capital allocation decision.
But it seems to me, that it is an excellent example of our paranoia and contradictions when it comes to moving from words to actions when maximizing profit is not the only objective of the company. When business transforms itself to become a force for good.
" The social responsibility of the business is to increase its profit " Milton Friedman
WHEN IT COMES TO WALKING THE TALK
It is a fact that the targets decided by Danone in 2017 for the year 2020 have not been reached. It is also the CEO responsibility to deliver 3 years financial forecast and KPI even with a pandemic.
I also need to add that the financial performances of Danone in comparison with its competitors such as Neslé or Unilever are not good. And last but not least, the share value has fallen.
BUT there is a BUT
Danone is one of the few companies that has included social and environmental dimensions in its corporate bylaws. It is even the first listed company to be "entreprise à mission".
This means that the legal status now 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. And the shareholders some months ago, have approved the change.
During the period, Danone has also succeeded to get more than 20 subsidiaries and 30% of its worldwide activities to be B Corp certified.
Danone is also reporting its environmental financial performances - not only on its objectives- by publishing a new financial metric “ Carbon Adjusted EPS ” and expose its invisible cost of polluting.
And this KPI is improving fast due to the decline of the carbon emissions. Let us be glad for the Planet and for our heath.
In short, Danone is one of the few companies to really transform step by step its production, its purchasing, its logistics and its practices and methods, .... To not only generate profit but also to reach its social and environmental objectives.
In established companies like Danone, taking into consideration ESG issues is a complete change of culture and it requires time, consistency and also a transformation of the corporate governance.
Photo Canva pour Boostpartners
HAVING THE CAKE AND EATING IT TOO
To be in a position to succeed in their transformation and do good, established listed companies will need the long-term support of their shareholders and also an evolution of the corporate governance.
Here are some pre-requisites I was thinking about :
Accepting the reduction of shareholders' capital returns is a condition.
4 or 5 points reduction appear reasonable.
Avoiding fixing quarterly financial objectives and results is a must at least if they do not include any social or environmental items.
Adapting board KPI and introducing new ones including environmental and social items will help to get clarity and transparency. And of course, without such KPI you cannot measure where you stand and take corrective actions to reach your goal.
Stop thinking that with the change of one single individual - even if it is the CEO - higher performances will be easily reached, because it is a TEAM work and transformation requires time.
Talking about ESG and mission-driven company is already an improvement but without a change in the shareholders expectations returns, it will remain chit-chat and ... MISSION IMPOSSIBLE !
Do you share my point of view ? I would be pleased to have your input.
Article from S.Fontugne published on Linkedin