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Ethical business   |   Environment & ethics   |   Employee ownership

Scale and ethics: trade-off or holy grail?

Your heart might sink when a favourite eco-conscious brand gets taken over by a big corporate. From Unilever’s Pukka Herbs and Cadbury’s Green & Blacks to Coca Cola’s Innocent Drinks and plant milk brand Oatly’s receipt of $200 million from a private equity firm, so many ethical brands now have multinationals behind them. Will such ‘selling out’ be detrimental for decision-making further down the line? Or could this be the quickest and most effective way to scale up ethical business and make it more mainstream?

Earlier this month, Nestlé agreed to acquire a majority stake in healthy recipe box company Mindful Chef, with CEO Tim Lee stating that: “Nestlé’s experience and support gives us the opportunity to build on this success in the UK and beyond, making healthy eating easy for more consumers.”

For smaller businesses, this route to big capital is clearly a chance to amplify their impact. For the big business, a collaboration offers access to a new market, but if there’s any whiff of greenwashing or hint that adding an ethical brand to their portfolio is just a tick-box exercise, the backlash of eco-conscious consumers will be swift.

ethical brands
Ethical brands face a dilemma in how to scale up while staying true to their values. 

Sustainable business commentator Ian Welsh, who hosts the Innovation Forum podcast, acknowledges the pros and cons of scaling up, but concludes that when it’s done well, a small ethical business can become a real agent of change: “If it’s the brands that are nailing their ethical, social and environmental colours to the mast that are actually taking advantage of that growth, then that’s great,” says Welsh, who doesn’t think any other business model offers a quick enough turnaround.

“Mars is still privately owned but it can take generations to build up a brand this way – employee ownership can also be a slow burn, whereas venture capitalists will want to see a return quite quickly.”

Perhaps the focus shouldn’t always be on growth per se. Surely true sustainability is about improving efficiency and productivity whilst meeting social and environmental goals? In reality, time is of the essence in order to reimagine supply chains and transition to a greener, regenerative economy and meet net zero targets before 2050.

Mindful Chef
Mindful Chef says its acquisition by Nestle will scale up its healthy eating impact. 

Mats Larsson, a Swedish business and sustainability consultant and author of The Blind Guardians of Ignorance: Covid-19, Sustainability, and Our Vulnerable Future, believes that the ownership debate is at the core of the transformation to sustainability. “Change and financing on a small scale cannot achieve the large-scale results that will become necessary in order to transform society to sustainability.” But as he puts it, selling sustainable companies can be like “letting the Big Bad Wolf take care of Little Red Riding Hood”.

“When a stronger customer demand for sustainable products develops, it will become increasingly interesting for venture capitalists and large companies to also develop sustainable products that can take over in many industries,” he says. “But until then, this [transition to a greener economy] has to be driven by governments, because they can make long-term investment without demanding short-term profit.”

The most constructive partnerships help the ethical brand expand without compromising its credentials. When Anita Roddick sold The Body Shop to French cosmetics giant L'Oréal in 2006, she insisted that selling up wasn’t selling out. She told the Guardian that her mission was to “be a trojan horse” and influence the decisions this huge firm could make, but sadly Roddick died soon after acquisition. There was backlash at the time about L'Oréal’s use of animal testing practices and when the financial crisis hit The Body Shop went through a rocky time. Perhaps the transition could have been improved if Roddick’s vision had been better embedded into the terms of sale.

To ensure that their ethical principles stand the test of time, a company’s terms can be built into the sale contract to guarantee retention of existing processes, or customers can hold the business to account more publicly. B Corp certification is another way.

B Corp
B Corp companies are certified against high standards of environmental and social impacts. 

B Corps such as Pukka Herbs and Innocent Drinks have certain legally-binding commitments that provide some protection against the dilution of their ethical intentions. When a business certifies, it makes a legal change known as a ‘mission lock’ that specifies that the business exists to benefit all, from customers to workers, communities and the environment, not just shareholders. If it undergoes a ‘significant change in control’, a company must recertify within 12 months in order to assess its operations under the new ownership.

“There are a lot of issues around mergers and acquisitions because of differences in business cultures,” says William Hughes, the sustainability services lead at Mazars, an international audit, tax and advisory firm, who argues that sustainability has to be driven from the CEO or board level. “It can’t be a bolt-on so if the culture is profit at all costs, it’ll be really difficult for a small business to fit into that. I don’t think that would last.”

Welsh warns that founders should be careful to enshrine worker terms and conditions, and any perks, post-sale, but admits that’s no easy task: “Once founders no longer have control, there’s not a lot they can do about it. If the acquiring business truly values what they’re buying then they should want to retain the morale of their new staff.”

The question, perhaps, boils down to: are ordinary people more ethical than big corporates? Helen Lofts, ethical entrepreneur and founder of swimwear brand Davy J, says that there will inevitably be trade-offs because “doing things in an ethical way is rarely the easy or quick way”.

Yet, she insists that we have to move beyond the idea that small business is good and big business is bad. “When a small business ‘sells out’ to big business, that often comes with negative connotations,” says Lofts. “But some small businesses operate unethically while some big businesses operate ethically, so the outcome of a business sale and the direction of the business will be a direct result of the decisions that follow it. Both good and bad.”

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