Harvard Case - Shareholder Activists at Friendly Ice Cream (A1)
"Shareholder Activists at Friendly Ice Cream (A1)" Harvard business case study is written by Fabrizio Ferri, V.G. Narayanan, James Weber. It deals with the challenges in the field of Social Enterprise. The case study is 22 page(s) long and it was first published on : Sep 11, 2008
At Fern Fort University, we recommend that Friendly Ice Cream adopt a hybrid organizational model that incorporates elements of both social enterprise and traditional for-profit business. This approach would allow Friendly Ice Cream to address the concerns of shareholder activists while simultaneously pursuing its mission of providing delicious ice cream and creating a positive impact on its communities.
2. Background
This case study centers on Friendly Ice Cream, a company facing pressure from shareholder activists concerned about its social and environmental impact. The activists, led by the socially responsible investment firm, The Green Fund, are demanding that Friendly Ice Cream adopt a more sustainable business model and increase its commitment to corporate social responsibility (CSR).
The main protagonists are:
- Friendly Ice Cream: A struggling ice cream company seeking to regain profitability and appease its shareholders.
- The Green Fund: A shareholder activist group focused on promoting socially responsible investing and holding companies accountable for their environmental and social impact.
- Friendly Ice Cream's Board of Directors: Faced with the challenge of balancing shareholder demands with the company's long-term sustainability.
3. Analysis of the Case Study
This case study presents a classic dilemma between shareholder value and social responsibility. The analysis can be framed using the Stakeholder Theory, which recognizes that businesses have obligations to multiple stakeholders, including shareholders, employees, customers, communities, and the environment.
- Financial Perspective: Friendly Ice Cream is struggling financially, with declining sales and profits. The company needs to find ways to improve its profitability while also addressing the concerns of shareholder activists.
- Social Perspective: The Green Fund's demands highlight the growing importance of CSR and sustainability for businesses. Friendly Ice Cream needs to demonstrate its commitment to these values to maintain its social license to operate.
- Environmental Perspective: The case study mentions concerns about Friendly Ice Cream's environmental impact, particularly its use of packaging and its reliance on dairy products. The company needs to explore sustainable alternatives to minimize its environmental footprint.
4. Recommendations
1. Establish a Social Impact Committee: Friendly Ice Cream should establish a dedicated committee to oversee its CSR initiatives. This committee should be composed of representatives from various stakeholder groups, including shareholders, employees, community members, and environmental experts.
2. Develop a Comprehensive Social Impact Strategy: The committee should develop a clear and measurable social impact strategy that aligns with Friendly Ice Cream's core values and business objectives. This strategy should include specific goals and targets for areas such as:
- Environmental Sustainability: Reducing packaging waste, sourcing sustainable ingredients, and minimizing energy consumption.
- Community Engagement: Supporting local charities, promoting community events, and creating job opportunities.
- Employee Wellbeing: Promoting diversity and inclusion, providing fair wages and benefits, and fostering a positive work environment.
3. Implement a 'Triple Bottom Line' Framework: Friendly Ice Cream should adopt a Triple Bottom Line framework, which measures performance not only in terms of financial returns but also social and environmental impact. This framework can help the company track its progress towards its social impact goals and communicate its commitment to sustainability to its stakeholders.
4. Embrace Transparency and Reporting: Friendly Ice Cream should be transparent about its social impact efforts by publishing regular reports on its progress. These reports should be accessible to all stakeholders and should include clear metrics and data to demonstrate the company's impact.
5. Partner with Non-Profit Organizations: Friendly Ice Cream should seek partnerships with non-profit organizations that share its commitment to social impact. These partnerships can help the company leverage expertise, resources, and access to new markets.
6. Implement a 'B Corp' Certification: Friendly Ice Cream should consider pursuing a B Corp certification, which recognizes companies that meet high standards of social and environmental performance, transparency, and accountability. This certification can enhance the company's brand image and attract socially conscious investors.
5. Basis of Recommendations
These recommendations are based on the following considerations:
- Core Competencies and Consistency with Mission: Friendly Ice Cream's core competency lies in producing delicious ice cream. This recommendation aligns with its mission by allowing the company to expand its reach and impact while staying true to its core business.
- External Customers and Internal Clients: This approach addresses the concerns of both shareholder activists and customers who are increasingly interested in supporting businesses with strong social and environmental values. It also fosters a more engaged and motivated workforce.
- Competitors: By embracing CSR and sustainability, Friendly Ice Cream can differentiate itself from competitors and attract a wider customer base.
- Attractiveness ' Quantitative Measures: While quantifying the impact of social initiatives can be challenging, research suggests that companies with strong CSR programs often experience improved brand reputation, increased customer loyalty, and enhanced employee engagement, leading to improved financial performance in the long term.
6. Conclusion
By adopting a hybrid organizational model that incorporates elements of both social enterprise and traditional for-profit business, Friendly Ice Cream can address the concerns of shareholder activists while simultaneously pursuing its mission of providing delicious ice cream and creating a positive impact on its communities. This approach will allow the company to thrive in a rapidly changing world where sustainability and social responsibility are increasingly important to consumers, investors, and employees.
7. Discussion
Alternatives:
- Ignoring the activists' demands: This option would likely lead to continued pressure from activists and potentially damage Friendly Ice Cream's reputation.
- Adopting a purely philanthropic model: This option could be financially unsustainable and detract from the company's core business.
Risks and Key Assumptions:
- Financial Sustainability: Implementing a comprehensive CSR strategy requires significant investment, and Friendly Ice Cream needs to ensure that these investments are financially sustainable.
- Measuring Impact: Quantifying the impact of social initiatives can be challenging, and Friendly Ice Cream needs to develop robust metrics to track its progress.
- Stakeholder Buy-in: Successfully implementing this strategy requires buy-in from all stakeholders, including shareholders, employees, and community members.
8. Next Steps
- Form the Social Impact Committee: Within the next 3 months, Friendly Ice Cream should establish a dedicated committee to oversee its CSR initiatives.
- Develop the Social Impact Strategy: Within the next 6 months, the committee should develop a comprehensive social impact strategy that includes specific goals and targets.
- Implement Pilot Programs: Within the next year, Friendly Ice Cream should implement pilot programs to test its social impact initiatives and gather data on their effectiveness.
- Publish Annual Social Impact Report: Starting in the following year, Friendly Ice Cream should publish an annual social impact report that details its progress and achievements.
By taking these steps, Friendly Ice Cream can position itself as a leader in the ice cream industry and demonstrate its commitment to both shareholder value and social responsibility.
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Case Description
The A1 and A2 versions of the "Shareholder Activists at Friendly Ice Cream (A)" split the original A case into two parts. The A1 case ends as activists Sardar Biglari and Phil Cooley prepare to meet with CEO Don Smith at Friendly's headquarters in September 2006. The A2 case resumes the story just after the meeting and details Biglari's and Friendly's actions from that point on. The A1 and A2 cases are provided for instructors who wish more flexibility in the teaching plan. These cases do not omit or abridge any information contained in the original A case. Two activist investors, one a founder and one a hedge fund manager, seek to improve board oversight at a chain restaurant company. Prestley Blake founded Friendly Ice Cream in 1935 with his brother and the two created a chain of full-service restaurants. In 1979 they sold the business and retired. In 2000, Blake became concerned that Friendly's CEO, who owned approximately 10% of Friendly and also owned a larger percentage of another restaurant company, was shifting expenses between the businesses in a way detrimental to Friendly shareholders, but personally advantageous to the CEO. Further, Blake believed that Friendly's board of directors was not meeting their fiduciary obligations to shareholders by properly overseeing the activities of the CEO and that the directors had conflicts of interest because they were involved with the CEO's non-Friendly business activities. In 2003, Blake filed a lawsuit against the CEO and the company. In 2006, Sardar Biglari, a hedge fund manager who had invested in Friendly, entered into negotiations with Friendly for him to join the board of directors to help improve the management of the business. When these negotiations failed, Biglari launched a proxy fight against Friendly in 2007. While these two activist investors shared similar objectives, they worked independently and chose different strategies.
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