ISBN: 0-03-028931-9

Chapter 1 An Overview of Financial Management

Striking The Right Balance

For many companies, the decision would have been an easy "yes". However, Ben and Jerry's Homemade Inc. has always taken pride in doing things differently. Its profits had been declining, but in 1995 the company was offered an opportunity to sell its premium ice cream in the lucrative Japanese market. However, Ben and Jerry's turned down the business because the Japanese firm that would have distributed their product had failed to develop a reputation for promoting social causes! Robert Holland Jr., Ben and Jerry's CEO at the time, commented that, "The only reason to take the opportunity was to make money." Clearly, Holland, who resigned from the company in late 1996, thought there was more to running a business than just making money.
The company's cofounders, Ben Cohen and Jerry Greenfield, opened the first Ben and Jerry's ice cream shop in 1978 in a vacant Vermont gas station with just $12,000 of capital plus a commitment to run the business in a manner consistent with their underlying values. Even though it is more expensive, the company only buys milk and cream from small local farms in Vermont. In addition, 7.5 percent of the company's before-tax income is donated to charity, and each of the company's 750 employees receives three free pints of ice cream each day.
Many argue that Ben and Jerry's philosophy and commitment to social causes compromises its ability to make money. For example, in a recent article in Fortune magazine, Alex Taylor III commented that, "Operating a business is tough enough. Once you add social goals to the demands of serving customers, making a profit, and returning value to shareholders, you tie yourself up in knots."
Ben and Jerry's financial performance has had its ups and downs. While the company's stock grew by leaps and bounds through the early 1990s, problems began to arise in 1993. These problems included increased competition in the premium ice cream market, along with a leveling off of sales in that market, plus their own inefficiencies and sloppy, haphazard product development strategy.
The company lost money for the first time in 1994, and as a result, Ben Cohen stepped down as CEO. Bob Holland, a former consultant for McKinsey & Co. with a reputation as a turnaround specialist, was tapped as Cohen's replacement. The company's stock price rebounded in 1995, as the market responded positively to the steps made by Holland to right the company. The stock price, however, floundered toward the end of 1996, following Holland's resignation.
Over the last few years, Ben and Jerry's has had a new resurgence. Holland's replacement, Perry Odak, has done a number of things to improve the company's financial performance, and its reputation among Wall Street's analysts and institutional investors has benefited. Odak quickly brought in a new management team to rework the company's production and sales operations, and he aggressively opened new stores and franchises both in the United States and abroad. These changes, coupled with declining milk and butter prices, boosted the company's earnings and cash flow. This enabled the firm to reduce its debt by $5 million and to buy back $5 million of its common stock. In addition, some cash remains for use in future expansion and for possible acquisitions.
As you will see throughout the book, many of today's companies face challenges similar to those of Ben and Jerry's. Every day, corporations struggle with decisions such as these: Is it fair to our labor force to shift production overseas? What is the appropriate level of compensation for senior management? Should we increase, or decrease, our charitable contributions? In general, how do we balance social concerns against the need to create shareholder value?

DISCUSSION QUESTIONS

1. In your opinion, what role should social consciousness play in the management of a company?
2. As a Ben & Jerry's stockholder, to what extent would you be willing to support the company's corporate policy?
3. What mode of compensation (flat salary or incentive-based) do you feel is the most appropriate for upper management? For factory workers? For what reason, would you suggest that these two worker types should receive similar/different compensation plans?

Return to Chapter

Copyright © Harcourt College Publishers, A Harcourt Higher Learning Company. All rights reserved.