Chocolate Wars: The 150-Year Rivalry Between the World's Greatest Chocolate Makers (46 page)

Nestlé continued to grow: It was the world’s largest food company and had 7 percent of the confectionery market. Protected for years by Switzerland’s federal and local governments, it was immune from takeover. Today, its presence is felt in almost every country in the world. Its company literature considers developments in food in the context of feeding the global population. Questions about its size and market dominance seem to dissipate under the sheer might of the company itself.

G
eneral Cinema still held almost a fifth of Cadbury Schweppes’s share register, but the Cadbury brothers had a plan to strengthen the company’s independence. Dominic wanted to focus the business on its strongest global brands in confectionery and drinks.

At the time, Cadbury Schweppes owned a household products division and a food business that included Typhoo tea, Kenco coffee,
biscuits, preserves, and canned goods. For the Cadbury brothers, the most satisfactory outcome was that their managements should be their future owners. Both divisions were successfully sold to their respective managing teams.

Although Cadbury could not grow the chocolate division of the business through mergers with its natural partners—Hershey or Rowntree who shared a similar heritage and ethical values—it was able to expand the confectionery division by acquiring strong sugar confectionery brands: Lion confectionery in 1988, followed by Bassett and then the Trebor Group. This brought in popular brands like Bassett’s Liquorice Allsorts, Bassett’s Jelly Babies, Trebor Mints, Trebor Extra Strong Mints, and many others.

Cadbury was also keen to find ways to make the drinks side of the business more dynamic. Schweppes had nowhere near the share of the drinks market that Cadbury had in confectionery, but Dominic could see a solution. “We signed up with Coke to create a new bottling company called Coca-Cola Schweppes.” This was four times the size of Cadbury Schweppes’s original bottling business in Britain. The company soon acquired soft drink brands in America, including Canada Dry. “The aim was to buy a local company, get a local presence, and bring in the global brands off the back of that.”

As the brothers refocused the business, the share price recovered. Despite the efforts of General Cinema, no bidder came forward. “At no stage did we agree to meet General Cinema for any negotiation over the future of the firm,” Dominic recalls. At the time hedge funds were less of a factor. The share register remained stable. Eventually after three worrying years, General Cinema sold their shares. “It was hugely satisfying to see this threat to the company disappear,” he says. “One of the best moments of my life.”

In the years following Adrian Cadbury’s retirement in 1989, another astonishing opportunity opened up. The collapse of the Soviet Union unlocked an enormous new market. Mars was first to venture into the “Wild East.” In the deadly winter of 1990, Moscow citizens gratefully succumbed to what became known as “Snickerisation,” when eager buyers waited patiently in queues almost half a mile in
length. When Cadbury began exporting chocolates to Russia in 1992, the products sold out almost immediately. Soon Cadbury executives learned that Mars was converting a former military base at Stupino into a chocolate factory. Cadbury was also planning to build a Russian chocolate works—in Chudovo, near St. Petersburg. Two years later, Cadbury and Mars were in Beijing tackling the largest market of all.

“Renowned as a marketing whiz,” reported Andrew Davidson in August 1997 in
Management Today
, Dominic has helped to position a company with good Commonwealth links “into a truly global multinational.” While Cadbury chocolates were selling around the world, the company also had a major presence in America through its soft drinks. Under Dominic’s era as chairman from 1994 to 2000, Cadbury Schweppes acquired Dr. Pepper and 7UP for £1.6 billion ($2.48 billion), swiftly followed by Sunkist, Mott’s apple juice, and Snapple. This meant that Cadbury Schweppes could compete with Coke and Pepsi globally, “with astonishing audacity,” observed Davidson.

When Dominic stepped down in 2000, for the first time in the firm’s 170-year history, there was no longer a member of the family on the board, and less than 1 percent of Cadbury Schweppes shares were in family hands. Over the years, the shares held by the Cadbury benevolent trusts had also declined. The trust’s financial advisors had recommended they diversify their holdings. “That is simply a prudent decision by the trusts,” Adrian says, “and in my view the wealth which the company produced for the family continues to be used for the causes that the family holds dear.” Recent figures show that the Barrow Cadbury Trust, valued at £53.7 million, gives roughly £2.5 million in annual grants. Edward Cadbury’s trust, William Cadbury’s trust, and several other family trusts give a combined 250 grants each year. All the while, the Bournville Village Trust, still run by family members, continues to flourish.

The shareholders in Cadbury Schweppes, however, were increasingly made up of investors who had no direct personal links to the business and its values and whose priorities were purely to maximize profit. The Quaker voice no longer held sway in the boardroom, but
could it be heard anywhere in the modern drinks and confectionery giant?

Dominic argues that it could, proudly citing his brother’s role in developing the first code of corporate governance. “Adrian’s Quaker background influenced his whole career at Cadbury and his understanding of how a company best operates,” he says. “I think you can say the Quaker DNA has shone through the Cadbury company in terms of the work that the former Cadbury chairman has done to help develop the first code of best practice.”

Adrian Cadbury was invited to chair a Committee on Financial Aspects of Corporate Governance in 1991 when he was working as a director of the Bank of England. At the time several sensational business scandals had undermined the public’s confidence in how companies were run. For Adrian, “The proper governance of companies was becoming as crucial to the world economy as the proper governing of countries.” The Governance Committee set a code of best practice on critical issues, among them: honest disclosure, excessive executive pay—especially when not correlated to performance—improving the quality of financial reporting, balancing short-term and long-term interests, and who should be considered stakeholders in the process. The code was the basis for effecting widespread reform of corporate governance.

“Eleven years and twenty-eight countries later,” wrote Simon Caulkin in the
Observer
on October 27, 2002, “Cadbury is the elder statesman of the corporate governance movement and Britain is the corporate governance capital of the world.” The Cadbury Code recommendations have influenced governance in twenty-eight countries and the World Bank. Although Quaker values were not explicitly mentioned in the Cadbury Code, for Adrian, they were crucial. The aim of the code was to bring “greater transparency, honesty, simplicity, and integrity to the process of running a company,” he said.

Even as a global corporation, the company tried to stay faithful to its Quaker heritage, says Todd Stitzer, Cadbury’s chief strategy officer in 2000. A Harvard-educated lawyer, Stitzer worked for the British chocolate company his entire career. “I admired the culture,” he explains. “It’s the appeal of the head-heart relationship that existed
within the business. It mattered hugely to me.” In 2000, Stitzer points out, Cadbury had a major role in Business in the Community, the organization within the Prince’s Trust that Cadbury helped found that focuses on mobilizing business for good. “Cadbury had a very significant role in Help the Homeless and many other causes. And there was a continuing relationship with HIV AIDS and other health projects in Africa.” That year, he says, they launched a program to build wells in Ghanian villages that had no fresh water. To date, they have built over nine hundred of them.

I
n the new millennium, the confectionery industry faced seismic shifts as a fresh wave of consolidation hit. The Hershey Company, so long protected by the Hershey Trust, became the focus of unwelcome attention once more. Just as the Cadbury trusts had diversified their holdings, directors of the Hershey Trust began to question whether the Hershey School would be better protected with a more diverse source of income. They consulted lawyers to find out if the Hershey Trust could sell its controlling stake. “They literally decided that they would auction the Hershey Company,” recalls Todd Stitzer, “and they had a line of potential buyers.”

Wrigley, Cadbury, and Nestlé began separate negotiations with the Hershey Trust. Now that Nestlé owned Rowntree, they wanted to win back the license to the Kit Kat brand in America—which was owned by Hershey. Wrigley wanted a stake in the chocolate market. Cadbury had always seen Hershey as its closest cultural fit. When news of the secret negotiations was leaked, there was an immediate outcry. The Hershey community felt betrayed. Posters were printed warning, “Wait ’til Mr. Hershey finds out!” Residents and workers paraded down Chocolate Avenue reminding anyone who would listen of Milton Hershey’s proud heritage. The state attorney general, Mike Fisher, who was campaigning to become governor of Pennsylvania, was deluged with complaints and mounted a legal challenge to any sale. On September 3, 2002, the case came before the court in Harrisburg, Pennsylvania. The judge ruled no sale could happen
without his approval. By that point, however, negotiations were virtually complete and bids were in. “Much to our surprise, at the very 11th hour, 59th minute plus 30 seconds, the trust decided they did not want to sell,” recalls Stitzer. Once again, Hershey’s chocolate company remained independent.

After spending three months in hotel rooms in New York “trying to put this thing together,” Stitzer politely describes the U-turn as “remarkable.” But his disappointment was quickly forgotten because “literally the day after it happened, the Pfizer people came over to the UK and said, guess what, we are having an auction for Adams.” Adams, an American firm, was the world’s second largest chewing gum concern, and its portfolio included gums like Trident, Dentyne, and Chiclets, bubble gums like Bubbaloo and Bubblicious, and other popular brands like Halls cough drops. Stitzer, who was promoted to chief executive in 2003, was charged with growing Cadbury’s confectionery business, and it was increasingly clear that there were very few public chocolate companies left to acquire. He changed strategy, buying sugar confectionery and gum businesses in different parts of the world. The acquisition of Adams for $4.2 billion made Cadbury Schweppes the world’s largest confectionery giant.

The business was growing so fast that Stitzer was concerned that it might lose touch with the company’s core values. “We consciously said in 2003 that we were going to magnify and modernize the George Cadbury principle that doing good is good for business,” he says. Even if the corporation was number one in world confectionery, he wanted to try to embed Quaker values in the business. The Quaker founders weren’t just philanthropists, he argued, “They were
principled
capitalists.” They worked as long-term stewards, committed to all the stakeholders in the business—the staff and the wider community—not just to gains for themselves as owners.

Stitzer acknowledges that modern capitalism is often seen as a “force in opposition to development—a one-way relationship in thrall to profit margins and shareholder returns.” He points out that this takes many forms. “True,” he says, “unbridled capitalism can be a destructive beast.” Equally true, however, is that overregulated
capitalism constrains creativity and innovation. “But principled capitalism is a wonderful thing.” He defines this as the result of business leaders “purposefully creating an interdependence between two imperatives”—the need “to create long-term value for shareholders” and doing this in a “socially responsible and values-orientated way.”

To embed the values of the company in the business plan in a way that could be applied in all countries, Stitzer set a target of 1 percent pretax profit to be committed to social responsibility. “We consistently achieved 2 percent or more,” says Alex Cole, director of global corporate affairs, “and it’s quite a good measure of to what extent a company considers other things than profit.” The company soon launched other industry leading initiatives, such as Purple Goes Green: a commitment to reduce absolute carbon emissions by 50 percent throughout the company by 2020. Ambitious plans were also in progress to ensure ethical sourcing of cocoa and to provide help to farmers. “In the face of escalating cocoa prices and a 40 percent decline in crop yields in Ghana,” says Stitzer, “if you create a program that helps you get higher crop yields of better quality in Ghana, and it helps the farmer have a better life, the whole thing joins up, right?”