Since Unilever subsidiary Ben and Jerry's announced an Israel boycott last month, triggering numerous state anti-boycott laws, Unilever's market capitalization has fallen by almost $14 billion. Unilever's contractual rights give it a strong basis for overturning the boycott. Its puzzling failure to do so shows immense disregard for its own investors.
Unlike a typical subsidiary, which is fully controlled by its parent company, Ben & Jerry's is governed by a 2000 merger agreement that divides power between Unilever and the Ben & Jerry's board. The board has primary responsibility for "social mission priorities," while Unilever has "primary responsibility for financial and operational aspects" of the subsidiary. According to Anuradha Mittal, Ben and Jerry's board chair, this social provision gives Ben & Jerry's the right to boycott the Jewish state—a judgment to which Unilever has seemingly acquiesced.
But the merger agreement specifically requires Ben & Jerry's to help Unilever sell the premium ice cream in Israel. It says: "[Ben and Jerry's] shall use commercially reasonable efforts to obtain (at [Ben and Jerry's] expense) for [Unilever] the right to conduct all facets of the Business in Israel." It doesn't get much clearer than that. As a matter of contract law, a highly generalized contractual provision giving Ben and Jerry's board the final say on amorphous "social mission priorities" cannot override a specific and tangible legal commitment to conduct business in Israel.
Even if this specific requirement were ignored, the social provision does not permit the board to make "the financial and operational decision" to completely abandon an entire market—especially when that decision subjects Unilever to costly sanctions by states, consumers and investors who think the social priorities run in the opposite direction. That's one likely reason why, again and again, the contract confines the board's discretion within the bounds of "commercial reasonableness."
For example, the merger agreement obligates Unilever "to purchase and use 'fair trade' products, to the extent available at commercially reasonable prices[,]...[or] to use unbleached paper in the packaging...to the extent available at commercially reasonable prices." This insistence on commercial reasonableness is understandable, as an expansive and arbitrary definition of "social" could usurp Unilever's say over the business. Ben and Jerry's hasn't bothered to argue that walking away from Israel is "commercially reasonable."
Ben & Jerry's boycott announcement has walloped Unilever by putting it in the crosshairs of 34 states with anti-boycott laws. New York, New Jersey, Florida, Texas, Illinois, Maryland and Rhode Island have already begun proceedings to divest from or sanction Unilever. And Arizona has already dumped most of its $200 million investment in the company.
Instead of forcing Ben & Jerry's to back down, Unilever is trying to assuage critics by referring them to Ben and Jerry's statement that it will stay in Israel but not sell in eastern Jerusalem—including the Jewish Quarter of Jerusalem's Old City—and other areas across the "green line." But, as Ben and Jerry's has made clear in meetings with activists, this arrangement is a non-starter because it would violate Israeli law. By making knowingly or recklessly false statements, Unilever therefore compounds its problems by exposing itself to the risk of securities fraud litigation.
Unilever apparently rushed out its statement to limit damage from counter-boycotts and state sanctions. But existing countermeasures only scratch the surface of what's coming if Ben and Jerry's actually stops selling its products in Israel. As best as we can tell, the only way for Unilever to rescue itself from this quagmire is to reverse the Ben and Jerry's board using its powerful rights under the merger agreement, much as Airbnb reversed itself after similarly erring. That would reduce the threat of investor lawsuits and counter-boycotts, which are likely responsible for billions in lost market capitalization following the initial boycott announcement. For the sake of Unilever's customers, investors and other stakeholders, let's hope its management does the right thing.
Jesse M. Fried is the Dane Professor of Law at Harvard Law School. David H. Webber is Professor of Law and Paul M. Siskind Research Scholar at Boston University School of Law.
The views expressed in this article are the writers' own.