Daily Journal: The Ben & Jerry’s and Unilever Governance Fallout and Lessons for M&A Lawyers

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In 2000, Ben & Jerry’s thought it pulled off a rare coup by selling the company but keeping its soul.

Unilever PLC bought the ice cream company and gave it an extraordinary concession – an independent, autonomous board of directors in charge of Ben & Jerry’s social mission and brand integrity.

That arrangement held for more than two decades – until it didn’t.

Now, with multiple lawsuits pending by ousted directors in New York and California, corporate lawyers are asking a blunt question: Was this structure doomed from the start? And what lessons does the acrimonious blowup hold for mergers and acquisitions attorneys?

“Absolutely, it was predictable,” said Antony Page, an expert on corporate governance and mergers and acquisitions and professor at Florida International University College of Law. “The fact that there’s a serious dispute now and has been for several years isn’t really a surprise.”

Ann Lipton, a professor at the University of Colorado Law School, agreed.

“Conflicts were bound to arise, if only because the self-perpetuating board had no obligations to anyone else–that complete lack of accountability was likely to create problems eventually,”she wrote in an email.

What broke the awkward alliance open was the Ben & Jerry’s board decision not to sell ice cream in Israel-occupied territories on the West Bank, and more recently because of the board’s call for an immediate ceasefire in Gaza after the Oct. 7, 2023 Hamas attacks on Israel.

Unilever argued in court papers that the board’s actions put the company out of compliance with many states’ anti-boycott, divestment, and sanctions laws and created a public relations nightmare by issuing what it described as “one-sided statements” on “one of the most divisive and polarizing topics of our time.”

The Ben & Jerry’s board did not back down, not just on Israel but on other progressive causes long associated with the company. The parent company responded by removing all of them at the end of last year.

While the Ben & Jerry’s case is unique in many ways, many corporations are now organized under a structure adopted since 2000 that is intended to protect founders and directors who pursue goals other than maximizing shareholder value.

Those public benefit corporation structures have been used by leading AI companies such as OpenAI Inc., Anthropic PBC and Elon Musk’s xAI, which merged in February with Space Exploration Technologies Inc. (SpaceX) in advance of its planned IPO.

But Page said even that framework, had it been available in 2000, would not have resolved Ben & Jerry’s core problem: the need for clear, enforceable boundaries. He said explicit language in the agreement would have been needed to allow the independent board to take positions on hotly disputed issues.

“The lesson for M&A lawyers would be if your seller has a profound commitment to something other than just finances, you need to make sure you’re properly informing them of what the risks and benefits of the sale are,” Page said.

“The sellers need to understand what they might be giving up,” he added.

But Douglas K. Chia, an independent consultant and a senior fellow at the Center for Corporate Law and Governance at Rutgers Law School, found it hard to imagine even the most careful contract language that would cover every possible dispute.

“Lawyers can find a loophole,” Chia said. “That’s what they get paid to do.”

The company accused Anuradha Mittal, founder of the nonprofit Oakland Institute and chair of Ben & Jerry’s independent board from 2018 until her removal by the company in December, of personally benefitting from money awarded by the company’s foundation after an audit.

Those allegations are the source of Mittal’s defamation complaint, which argues that the audit was pretextual.

David J. Lender, co-chair of Weil, Gotshal & Manges LLP’s global litigation department who represents Unilever in the New York lawsuit, said in an email that Ben & Jerry’s has “objectively flourished” since the acquisition more than a quarter century ago.

The ice cream, available in just four countries at the turn of the century, is now available in 40 countries while revenues have grown six-fold and over half a billion dollars have been invested in Ben & Jerry’s social mission, he wrote.

But while the company may be profitable, the founders are unhappy.

Jerry Greenfield resigned from the company in September after concluding that its independence was “gone.” Ben Cohen remains and has asked that he be able to repurchase Ben & Jerry’s. But The Magnum Ice Cream Company N.V., a spinoff that holds all of Unilever’s ice cream brands, said it is not for sale.

Chia said the lesson for sellers, and their lawyers, is straightforward.

“If you want to stay pure, maintain control,” he said.