M & A Law Prof Blog

Editor: Brian JM Quinn
Boston College Law School

Wednesday, March 10, 2010

Poor Ben. He Had No Choice...

Poor Ben.  He may have made good ice cream back in the day, but he sure doesn't know the law.  And he probably should have paid for better lawyers - Vermont lawyers, not those fancy ones from NYC.  From a story about balancing corporate social responsibility with duties to shareholders on NPR yesterday:

[Ben & Jerry's] Co-founder Ben Cohen thought the company could better protect its social mission if it stayed independent. But he says the law was on the side of shareholders.

"The laws required the board of directors of Ben & Jerry's to take an offer, to sell the company despite the fact that they did not want to sell the company," Cohen says. "But the laws required them to sell the company to an entity that was offering an amount of money far in excess of what the stock was currently trading at."

That entity was European conglomerate Unilever. Lawyers told the board members that shareholders could sue if they turned Unilever's offer down. Cohen says individual board members were concerned that the company didn't have adequate insurance to cover a lengthy court battle, and that they'd be personally responsible for the legal fees.

"I think most people that are sitting on a board are not willing to lose their house for the privilege of sitting on that board," Cohen says.

And so they sold to the highest bidder. That helped set the stage for today's young, idealistic companies.

First, although it might not have been that obvious in 2000, it was probably still pretty clear that "just saying no" would have been a viable strategy - particularly for a company that had dual-class stock, a classified board, and required 2/3 of shareholders to vote against a director to remove him/her from office.   

Second, notwithstanding what his lawyers said, the record of directors "losing their homes" for turning down an offer when a company is not for sale is somewhat rather less than slim.  In fact, it's non-existent.

Third, what ... didn't the Ben & Jerry's board members have indemnity agreements with the company?!  Just saying.

To top it off, Ben & Jerry's Homemade, Inc. was a Vermont company.  Vermont is one of many states that helpfully defines general standards for director conduct in its statute.   Section 8.30 of the Vermont For-Profit Corporation law reads in relevant part:
a) A director shall discharge his or her duties as a director, including the director's duties as a member of a committee ... (3) in a manner the director reasonably believes to be in the best interests of the corporation. In determining what the director reasonably believes to be in the best interests of the corporation, a director of a corporation ... may, in addition, consider the interests of the corporation's employees, suppliers, creditors and customers, the economy of the state, region and nation, community and societal considerations, including those of any community in which any offices or facilities of the corporation are located, and any other factors the director in his or her discretion reasonably considers appropriate in determining what he or she reasonably believes to be in the best interests of the corporation, and the long-term and short-term interests of the corporation and its stockholders, and including the possibility that these interests may be best served by the continued independence of the corporation ... 
So ... if the board were properly advised in response to an offer from Unilever, they  would have been perfectly within their rights to say something like the following:
Thanks for the offer, Unilever.  We've considered it carefully.  However, consistent with our fiduciary obligations under Vermont law as directors we believe that accepting your offer would not be in the best interests of the corporation, the economy of the state, region, or the community.   We believe the best interests of the corporation are best served by Ben Jerry's remaining an independent corporation with a soul.  So, thanks, but no thanks. 
Poor Ben.  Just think, he could have kept his company rather than sell it to Unilever.  Too bad he didn't have a Vermont lawyer to advise him.  Or, maybe he did.  Maybe Unilever's offer was so good that he felt this was his chance to cash out.  Hey, I don't blame him. 



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