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September 26, 2011 / or4green

Corporate Buyouts, Sustainability in the DNA?

Organic Industry Structure by Philip H. Howard in Journal of the New Media Caucus

There was an interesting article in a recent issue of E Magazine about corporate buyouts of green companies (“The Big Green Buyout” by Christine MacDonald, July/Aug 2011). Products like Tom’s of Maine toothpaste, Honest Tea, Stonyfield Farm yogurt now come from large corporations – Colgate-Palmolive, Coca-Cola, and Group Danone respectively. It may not be clear from the packaging, and the original companies may still run as independent units to some extent within the larger corporation, but they have in fact been bought out. The argument in favor usually runs something to the effect of, “with the resources of the large corporation behind it, our eco-friendly product will reach a much larger number of people, displacing a less green alternative, and that is a good thing.” The counter-argument usually goes like this: “you have sold out to a corporation, which is beholden to its shareholders. As long as the product stays profitable, things may not change, but if it starts to become unprofitable, some of the original values behind it, whatever they may have been (organic ingredients, fair trade, no animal testing, etc.) will become compromised”.

The article includes interviews with a number of green CEO’s: Seth Goldman from Honest Tea, Gary Hirshberg from Stonyfield Farm, Greg Steltenpohl from Odwalla, and Jeffrey Hollender from Seventh Generation. There are some choice quotes from Hollender: “choose your investors more carefully than your employees because they are a lot harder to get rid of”, and “if you have a business that is owned by investors whose primary goal is to make money, how good can the business ever be”. There has been a lot written about corporate social responsibility, including Hollender’s own very readable book “What Matters Most” and the more scholarly “The Market for Virtue” by David Vogel. Many believe in the concept, but Hollender has come to have his doubts.

To what extent is sustainability in the “DNA” of a given company? For many of the eco-companies that started small with a strong sustainability vision, like Honest Tea, Seventh Generation, Odwalla, etc. it seems it was deeply embedded. The risk is that this will diminish with a corporate buyout, large investment of venture capital, or even partnerships with major corporations. It will not necessarily happen, but it is a challenge. Tom Szaky of Terracycle wrote eloquently about the partnering issue here and the venture capital and buyout ones here. And Goldman, Hirshberg and others make their cases in the E Magazine article.

I was thinking about the sustainability in the DNA question with regard to OR companies. An OR consultant can find some work in sustainability (I have, and as he makes clear on his blog, so has John Poppelaars). And as I mentioned in a recent post, one can certainly work on sustainability challenges at companies like Waste Management and UPS, as well as at IBM and SAP. Just check out the twitter feeds of the latter two (click on them). On a smaller scale, I’ve written about Lumina (of Analytica fame) and their work in sustainability a couple of times. In each of these cases, impressive work is being done, but often the sustainability is in concert with other goals (efficiency, lowering costs). And that is great as long as it continues. This was the issue I felt listening to the UPS talk at the INFORMS Business Analytics conference last year. I wondered to what extent going green would still find favor when its costs were high. It depends on how deep the commitment is.

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