Unilever’s letter to the JLC this week, and other attempts to distance itself from Ben & Jerry’s ill-considered decision to pull out of what the latter termed “occupied Palestinian territory”, are unlikely to be the end of the matter for either company.
Ben & Jerry’s board has managed to distil a highly complex situation into one of childlike simplicity. This is what happens when purveyors of ice cream play at geopolitics. Their mint chocolate chipolitics have been met with widespread indignation and caused both subsidiary and parent companies to suffer ongoing reputational damage.
Where pursuit of a corporate ‘social mission’ increases legal, financial, and reputational risk for the wider corporate group, it is no longer just a social mission.
Notwithstanding the intra-group arrangements, the case highlights how a subsidiary does not exist in a vacuum.
The recent outlier decision by New Zealand’s superannuation fund, a sovereign wealth fund, to divest and exclude certain Israeli banks from its investment portfolio on what it termed to be “responsible investment grounds”, illustrates the point. While the management of that fund is intended to be operationally independent from the New Zealand government, the decision was taken on behalf of a public pension fund comprised of the state’s money. Yes, the fund is on the state’s balance sheet. Reputational damage beyond the fund, to the state of New Zealand itself, was therefore entirely foreseeable.
Similarly, Unilever can expect shareholder wrath on this issue, particularly from those investors who have anti-boycott policies.
For parent companies, there is always a difficult balance to be struck between respecting the fact that a subsidiary is of course a separate legal entity and its role in a corporate group. Nevertheless, the expectation of investors at the top of the structure is likely to be that there will be adequate control over the subsidiary.
The balance struck in the agreement under which Ben & Jerry’s was acquired suggests that this was topsy-turvy, with Ben & Jerry’s calling many of the shots. Even so, the terms are woolly. Ben & Jerry’s has ‘primary responsibility’ for preserving and enhancing the objectives of its historical social mission. But primary responsibility is not the same exclusive responsibility. Surely, Unilever’s lawyers will be looking closely at that.
Where the playing of ill-judged politics has financial, legal, regulatory and reputational consequences within the wider group, that is most certainly a matter for any parent company. When the decision of a subsidiary is not self-contained but has a wider impact on the group, investors are likely to expect comfort that there has been adequate cooperation within the group in advance. This is a basic tenet of group governance.
Looking forward, we must remember that as big as some multinationals are, it is still governments that make laws. When Ben & Jerry’s talks of its “values”, we must not be naive. Regardless of Unilever’s statements that it does not support Boycott Divestment and Sanctions (BDS) against Israel, the Unilever board is not the Ben & Jerry’s board. It would have been difficult for the Ben & Jerry’s board to ignore the “values” of BDS activists lobbying them. This will likely focus minds and expedite work on anti-boycott legislation in Whitehall.
Until now, the typical model for anti-boycott legislation has been the protection of a state’s foreign policy. In the United States, this can be seen both at federal level and in the anti-boycott laws of many states. This is largely because since the 1970s, anti-boycott policy has been treated as a core constituent of foreign policy, a thread running through red and blue administrations alike.
The UK has also cited foreign policy for discrete anti-boycott measures in the past, but there is another way to think about it. It is economic terrorism and therefore a matter of national security. BDS activists have always been at pains to claim they reject violence and distinguish themselves from terrorists.
They assume this to be their trump card, giving them a licence to pursue their campaigns. But in a more streetwise political environment, where politicians are looking past artificial lines between paramilitary groups and political wings, no longer should economic terrorists enjoy immunity.
Business and ethical decisions are one thing; attempts by third parties to delegitimise UK allies by seeking to harness the decision-making power of boards is a matter that is of an entirely different flavour.
Dan Harris is a partner at Chancery Advisors and head of its Boycotts and Sanctions division
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