What Mark Zuckerberg Can Learn From Ben and Jerry

Mark Zuckerberg
Mark Zuckerberg

Despite some ups and downs Wednesday, Facebook's stock closed at $32, a dollar up from where it ended the day Tuesday. But, while the stock seems to be reaching an equilibrium, its rocky IPO has revealed some basic problems that Facebook (FB) -- and, more precisely, Mark Zuckerberg -- will face as they navigate the rocky shoals and treacherous waters of public ownership.

In the frenzied weeks before its IPO, Facebook released a 30-minute "roadshow video," in which Zuckerberg and company discussed their vision of a warm and fuzzy world where sharing is instantaneous and universal. About halfway through, the filmmakers called in Jostein Solheim, the CEO of Ben & Jerry's ice cream, to explain how his company uses the social network to connect with customers: "We really want to have a holistic relationship with our community, with our consumers about values, about great ice cream. So having a platform where we can actually engage in a large-scale conversation, get feedback ... That's what's so powerful about Facebook."

Cuddly relationships with consumers are notoriously hard to quantify, at least in terms of dollars and cents, so Ben & Jerry's global digital marketing manager Katie O'Brien was on hand to explain the company's Facebook's involvement in terms of the bottom line: "For every $1 we spend on Facebook, it returns $3 in incremental sales."

Notably missing from the Ben & Jerry's video segment were Ben Cohen and Jerry Greenfield, the self-described "Vermont hippies" who founded the brand in 1978, and whose faces still appear in much of the company's packaging. The pair was shunted aside in 2000, when their little ice cream company was swallowed by Unilever (UL), a British-Dutch owned multinational.

A Cautionary Tale

Zuckerberg might not have noticed the kerfuffle when Cohen and Greenfield were let out to pasture -- he was only 16, after all -- but he would be wise to read up on the story now. The tale of Ben and Jerry bears a bracing similarity to his own: Like him, the pair was desperate to maintain control of their company against the efforts of stockholders who were only concerned with the short term bottom line.

As with so much of Ben & Jerry's branding, Cohen and Greenfield's first stock offering relied heavily on a sense of community. In 1984, they literally went door-to-door in their home state of Vermont, selling shares in the company for $126 apiece. Ultimately, they sold shares to 1% of all Vermont households, and raised $750,000, which they used to build a new factory. A year later, they offered $5.8 million in shares on Nasdaq, and used the money to expand their distribution and promotions.

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The IPO was a mixed blessing. On one hand, the money it generated enabled Ben & Jerry's to become a national brand. Unfortunately, it also laid the groundwork for the company's ultimate sale.

In 2008, Greenfield looked back on the takeover, telling a reporter for The Guardianthat "We didn't want to get bought ... But we were a public company, and the board of directors' primary responsibility is the interest of the shareholders. It was extremely difficult, heart-wrenching. It was a horrible experience for me and I can probably say it was horrible for Ben too."

And the pain didn't end in 2000: In the years since the sale, many of Cohen and Greenfield's ideals have been pushed to the side in favor of more profitable practices. By the terms of the sale, the ice cream company is still legally obligated to donate 7.5% of its profits to charities, but when it comes to what goes inside the Ben & Jerry's cartons, the all-natural, artisanal ice cream that the founders created has been vastly changed. Today, many of the company's flavors contain artificial ingredients, a fact that forced Unilever, in 2010, to remove the "all natural" claim from many of its flavors.

Dark Clouds Ahead?

Admittedly, Zuckerberg is a lot more sophisticated than Cohen and Greenfield were. Because of careful structuring, the young CEO owns 18% of Facebook's stock, but controls 57% of the voting power. In other words, barring extreme circumstances, the reins of the company will be in his hands for as long as he wants to hold them.

But Zuckerberg also has a lot in common with the two ice cream innovators. Like them, he developed and rapidly built up a visionary company that attempted to be a cultural game-changer. And, like them, the creation of a community -- or, rather, communities -- is central to his business plan. However, while Cohen and Greenfield set out to keep their company in the hands of the little guy, Facebook's pitch was tailored to large institutional investors.

This isn't to say that the Facebook IPO hasn't created a community. For better or worse, the stock offering seems to have created drawn together a disparate, outspoken group of people: namely, shareholders who are ready to pillory Zuckerberg and company for the disappointing performance of its stock. In the few short days since the stock offering, two separate groups have come forward to sue the company for allegedly making "misleading," "untrue" and "materially false" statements in its prospectus.

To add to the fun, there are also claims that main underwriter Morgan Stanley may have insufficiently communicated its estimates about Facebook's earnings potential and that Nasdaq badly mishandled the IPO, costing early investors millions of dollars.

None of these tempests have a direct impact on Zuckerberg's share of the stock or his potential stewardship of Facebook. Still, as recent lawsuits involving Groupon and JP Morgan demonstrate, stockholder lawsuits have become an increasingly popular tool for grabbing power. If recent developments are any indicator, Zuckerberg can look forward to regular struggles with institutional investors whenever Facebook's stock price dips. In other words, while he can hold onto Facebook indefinitely, enough exhausting shareholder attacks might mean that he won't want to.

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