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Can an employer protect its workers when selling the company? Yogurt-maker Stonyfield Farm did.
Kris Frieswick, CFO Magazine
April 1, 2002
When CEO Gary Hirshberg began seeking a buyer for Stonyfield Farm several years ago, the welfare of its 150 employees weighed heavily on him. After all, he had helped establish the 19-year-old Londonderry, New Hampshire, yogurt producer on an unusual social-responsibility model, taking stands on issues like global warming. He also felt close to the workforce that helped build Stonyfield into an $85 million business. "One of the great fears," he says, was "how a partnership with a larger company would impact their feelings about the place."
To allay those fears, Hirshberg planned for a deal that would leave him with control over both the product and staffing. And last year he found a partner to accept those terms: France's Groupe Danone. While the price hasn't been disclosed, Danone took a 40 percent stake, with rights to buy the remaining nonemployee shares in two years. Even then, Hirshberg will retain board and management control, unless Stonyfield's financial results fall below agreed-upon targets for two straight years. "Our quality and ability to be successful is a direct function of employees being happy," says the CEO.
Although provisions are generally made to retain key people, sizable layoffs often follow mergers. Rare indeed is the stockholder like Walter Hewlett, who objects to the proposed merger between Hewlett-Packard and Compaq in part because it would cause massive layoffs.
Rarer still are the cases like Stonyfield's, where the seller successfully demands terms favorable to employees. Strangely though, there's another example close by: Vermont ice cream maker Ben & Jerry's Homemade Inc. When Unilever acquired that "socially responsible" company in 2000, the target insisted on a two-year "protection" for its 826 workers.
"We've negotiated a lot of deals where employee retention is informally included because the seller wants that" and may take a lower price to achieve it, says Gary Finger of investment bank Houlihan, Lokey, Howard & Zukin. "But working it into the contract terms is unusual."
Companies like Stonyfield and Ben & Jerry's are entrepreneurial, often family-controlled businesses with strong brands. They consider workers to be important stakeholders, and treat them accordingly. That makes layoffs especially hard. And increasingly, some large acquirers may be willing to consider contractual employee protections at their targets.
"We wanted to own Ben & Jerry's, but we didn't want to consume it," says Paul Wood, vice president of corporate affairs for Unilever U.S. "We didn't want to bury it with whatever reputational aspects Unilever has with its consumers."
The Fire This Time
Companies often can't put employees first when their backs are to the wall, notes Jon Gunnemann, a social ethics professor at Emory University. He cites Cummins Inc., a Columbus, Indiana, engine maker known for enlightened employee policies, which "went through corporate hell" in the 1980s when financial pressures forced layoffs. Cummins "could not escape the discipline of the market."
It will be interesting to see what happens at another New England employee-relations stalwart, Malden Mills. The Lawrence, Massachusetts-based maker of Polartec fabric is famous for continuing to pay thousands of sidelined employees for three months after a huge 1995 plant fire.
With the company now in bankruptcy because of textile-industry and management problems, CEO Aaron Feuerstein is negotiating with possible acquirers or equity investors, and says his choice may depend on which one offers the most protection for his 1,500 employees. "The differentiating factor [between Polartec and foreign product] is the quality put into it by these workers," he says. "We always gain by treating them right."
In the end, of course, even companies driven to protect jobs must stay in business, even if that means layoffs. "The commitment to employees is very complex," says Barbara Ley Toffler, an adjunct professor at Columbia University's Graduate School of Business. It benefits no one "if a company goes bankrupt because of doing good for its employees."
Kris Frieswick (email@example.com) is a staff writer at CFO.