Why did Clif Bar sell?

I admire Gary Erickson and Kit Crawford. For thirty years, they have built Clif Bar with steadfast concern for employees, community and the environment. Clif Bar is a leader in balancing profits and purpose, growing with meaning, and using business as a force for good.

So, it was sad for me to see this week that Clif bar was selling to Mondelez. And, it was shocking to see the CEO say in the announcement, "Mondelēz International is the right partner at the right time to support Clif in our next chapter of growth. Our purposes and cultures are aligned and being part of a global snacking company with broad product offerings can help us accelerate our growth."

I imagine Gary and Kit cringe at that quote, and the CEO herself will regret the notion that Clif and Mondelez are aligned in purpose and culture. The statement is demonstrably false. Over thirty years, Clif has steadily reiterated a purpose that goes beyond growth. The company developed and adheres to a 5 Aspirations framework to keep the company in balance. That commitment has attracted talented employees (who rate the work environment highly), and loyal customers (who keep sales going up).

As a private company owned by a limited set of insiders, Clif could operate with greater balance between shareholders and other stakeholders. Gary and Kit remained committed to these ideals, including creating an Employee Stock Option Plan (ESOP) to provide 20% ownership to the employees directly. Clif stands tall in a very small circle of business leaders, along with Patagonia, who demonstrate a new path for business.

"By the late 1990s, the energy bar category experienced rapid growth and consolidation. As huge, multinational food companies began to acquire Clif Bar’s competitors, husband and wife team, Gary and Kit Crawford, were being pressured to sell Clif Bar. In 2001, they made the brave decision to stay private allowing them to develop an innovative business model guided by Five Aspirations—Sustaining our Business, Brands, People, Community and the Planet. With a portfolio of great-tasting food crafted for athletes and active people, we have become a category leader among health and lifestyle bars.¹ With double-digit, compounded annual growth for the past 10 years, we proven that sustainability is good for business."

The Clif Bar story as written on the Clif Bar website, June 22, 2022 (I suspect this too will change going forward)

Mondelez does not share these same concerns. The makers of Chips Ahoy and Oreos sell sugar heavy products to indulge, not to support a healthy lifestyle. The company rates near the bottom of the list of similar sized competitors in environmental impact. Last year, over 1,000 Mondelez employees went on strike in a labor dispute. Like most public companies, they explicitly and directly state they are governed to provide "to strong corporate governance practices that promote and protect the long-term interests of our shareholders."

So, why did Clif sell? Because it could.

I don't know Gary and Kit, but I know they are already wonderfully wealthy. And, they clearly care about their company, their community and their legacy. Surely they know about Stewardship Models of ownership. They could have transitioned the company to a perpetual trust, overseen by a Board instructed to follow the corporate values to balance profit and purpose in perpetuity. Doing so would have met their fiduciary responsibility, and upheld their ideals.

Perhaps the ESOP justified the sale, as long time employees now will get new found liquidity. Perhaps there are other shareholders who needed an exit to return their capital. Perhaps bankers, lawyers or other advisors won the argument (and the fees for the transaction).

The Clif Bar story proves stakeholderism cannot endure without broader governance reform. Good intentions and honest, caring leaders are not enough. Rating systems and management commitments are illusory. Even when delivered in earnest, they only last while serving other goals.

What stakeholderism doesn't appreciate is the need to constrain the decision set of current business owners. One idea for this is a pre-commitment device - deciding early in the life of the company to pre-commit to an exit that explicitly retains corporate values. This can be done in a variety of ways through corporate governance mechanisms, but the essential condition is to lock future managers into a decision framework that protects the initial founders views.

Gary and Kit in 2022 decided to sell their business to Mondelez for more than $2.5B. Would Gary and Kit in 1990, full of hope and idealism, and less than $1M in revenue, agree to eventually sell the business to a perpetual trust to ensure the business will never be able to sell away from its values? Would they knowingly limit their future financial upside to some arbitrarily high number in the multi-millions of dollars in exchange for making a binding commitment to their future selves, and future customers, employees and investors, that while the financial upside for shareholders of this business is capped, the commitment to values is enduring. I believe so.

I believe such a binding pre-commitment on the part of Founders and early investors is both rational and better reflective of their long term perspective. At the start, entrepreneurs are hopeful and hungry. Importantly, they have not yet earned the trust of future customers, employees and investors. They have also not adapted themselves to the wealth and fame they will earn from their future success.

We can't know if Gary and Kit would have made the decision in 1990, or indeed whether they will come to regret the decision they just made to sell the business in 2022. We do know that in this moment, when the burden of running the company for thirty years bears its full weight, and the opportunity for generational wealth was in front of them, the pressure to forgo legacy for sale was greater than at the start of the company.

If both 'early Gary and Kit' and 'late Gary and Kit' would indeed prefer to keep the 5 Aspirations business model for Clif, why does the outcome rely only on the 2022 version of Gary and Kit? We can ask the same for Honest Tea, Ben and Jerrys, Whole Foods, and so many other important stakeholder driven brands founded by inspirational, values driven leaders.

With traditional corporate governance models, the judgement scales aren't balanced when time is considered. To create an evergreen company, the Board must at all times through the life of the company keep faithful to the commitment to balance purpose and shareholder profits. In contrast, it only takes one moment in time, one period of exhaustion, or frustration, or temptation, for the company or irrevocably step off the stakeholder path and sell to a shareholder driven acquirer.

We must chart a better path. The next stage of conscious capitalism is to provide leaders like Gary and Kit with sufficiently well defined, well financed and well structured alternatives that allow leaders to maintain values over time. Leaders need to be able to sell to a buyer than provides liquidity. But, they can also ensure values are retained as ownership transfers.

Stewardship models enable this type of long term planning. Founders can legally pre-commit to ensure an ongoing balance between purpose and profits. The movement is already underway, with over 100 companies in the Purpose Economy and the Tugboat Institute's Evergreen business concept. (Stewardship sales can also come at the time of the transaction, but as we have seen with Clif, it is hard to pull off at that late stage).

Unfortunately, this came too late for Clif Bar. Gary and Kit have pioneered in another business venture as well, an investment firm called White Road Investments. On the landing page, they pronounce:

We wish we would have had access to capital like WHITE ROAD INVESTMENTS at pivotal moments during CLIF BAR's first 10 years.

I suspect they will come to wish they had found stewardship ownership models in Clif Bar's first ten years as well. Perhaps, like Seth from Honest Tea, Gary and Kit will go to start another company after the conglomerate runs down the company they sold.

I believe they will continue to lead positive change through White Road, and with the new resources provided by the sale of Clif. I thank them for their leadership, with appreciation for all that Clif Bar has done for the community over the past thirty years.

Unfortunately, Clif will not carry forward as the model for purpose driven business. Current customers and employees Clif will eventually move on, as it becomes clear Mondelez does not in fact share the 'purpose and culture' so painstakingly developed at Clif. The stakeholder capitalism movement has lost another leading light. Rather than celebrate, or mourn, the sale, we should look for lessons learned.

I used to believe we could change incentives. That informed customers would shift spending to purpose driven companies enough to lock in the long term benefit of the balanced approach. That Benefit Corporation law would change how leaders would look at fiduciary responsibility. Now, I believe we need to change governance to create stewardship oriented corporate design.

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