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Management at Ben & Jerry’s Homemade

This case discusses the situation in which management at Ben & Jerry’s Homemade, Inc. found itself in the late 1990’s, with a modest but steady financial growth that was below the market’s expectations, which in turn attracted several take over offers from outside companies. At the heart of the case we find the concepts of corporate governance, wealth creation and the very purpose of a corporation and its responsibility towards shareholders and the community in general.

We will start our analysis by providing the basic conceptual foundation necessary to evaluate the company’s dilemma, pointing out the manner in which the managers were applying, or choosing not to apply, these concepts and how the company and the shareholders were impacted. At the end we will provide a recommendation as to what we believe the best decision regarding the take over offers should be. Finally, with the benefit of hindsight we will present what ultimately happened and quickly state the present condition of the company. Company History Ben & Jerry’s Homemade, Inc.

was founded in 1978, when two grade school friends from New York decided to go into business by following their passion for food. They came up with the idea to open an

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ice cream parlor, after taking a correspondence course in ice cream making. With the goal of making “ice cream for the people” Ben & Jerry’s founders wanted to provide “… great quality products for everybody – not some elitist treat… “1 From its humbling beginning, community involvement and environmental consciousness was at the forefront of all management decisions at Ben & Jerry’s.

After more than twenty years, as their ice cream flavors were famous and their stores spread across the country and even internationally, management was faced with a tough decision. Their products’ popularity continued to expand along with their brand name and corporate image. The company had a history of steady growth in sales, but due to management’s lack of focus on increasing profits, their stock price didn’t reflect it. The combination of these factors positioned Ben & Jerry’s as an attractive target for acquisition by outside suitors.

Social Responsibility At the very heart of capitalism lies the concept of the “firm”. The firm or corporation is the vehicle through which goods and services are produced, distributed and sold, and by which value is created. It follows from this principle that companies are highly involved in the creation of wealth. The role of companies is to provide valuable goods and services – that is to say, outputs worth more than their inputs …

Profit-maximization (or shareholder value maximization, its more sophisticated modern equivalent) is NOT the role of the firm. It is its goal. The goal of profit-maximization drives the firm to fulfill its role. 2 This goal of maximizing profits and providing shareholder value sometimes comes into conflict with the company’s ability or need to make decisions that are considered socially responsible. One such example of this is the high cost of controlling the impacts of a company’s waste to the environment.

Another example is the sponsoring of community events and monetary contributions to different community centers and/or foundations. While it is well understood that these community-centered efforts are beneficial to society, it is also understood that any of these tend to increase operational costs. This increase in operational costs will impact the bottom line of the firm negatively, thus reducing the firm’s ability to provide growth in wealth to its shareholders.

The implication is that management is constantly faced with the task of trying to balance the need to provide shareholder value and the need to be socially responsible. Whenever the management team is not able to balance these two seemingly opposing demands, the firm ends up either with profits that are lower than what could be expected or it places a burden on society that is greater than needed. To address the latter, regulations have been enacted to impose punishment in the form of fines and other restrictions on business operations.

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