Chocolate Wars: The 150-Year Rivalry Between the World's Greatest Chocolate Makers (2 page)

My search was to explore how this happened. I wanted to unearth the true story of the original Quaker chocolate pioneers and the religious beliefs that shaped their business decisions and to discern how their values differ from today’s corporate CEOs. At first sight, globalization has been profitable for all. It is hard to dispute economists who claim that the process has lifted billions of people across the world out of the poverty that was on the doorstep of the cocoa magnates of the nineteenth century. But the “process” has also come at a significant cost.

Bournville on a bitterly cold January day in 2010 provided a stark contrast to the peaceful charm of earlier visits. Outside the factory,
staff members were parading with banners. “Kraft go to hell,” said one. In a symbolic gesture, another protester set fire to a huge Kraft Toblerone bar. Unite, Britain’s biggest trade union, had warned that thousands of jobs could be eliminated if Kraft merged with Cadbury. “Our members feel very angry and very betrayed,” said Jennie Formby, Unite’s national officer for food and drink industries. Kraft was borrowing an estimated £7 billion ($10.5 billion) to fund the takeover, and many feared Cadbury could become “nothing more than a workhorse used to pay off this debt,” with assets stripped and jobs removed. The anger in the streets was palpable. My taxi driver, whose family was originally from Kashmir, spelled out the crisis. “The chocolate works are British,” he told me firmly. It belongs to the workers and the local people—not just management and shareholders. “The factory should not be moved or closed,” he said. He captured the mood of alienation and powerlessness in the local community, where Birmingham Members of Parliament spearheaded resistance to the takeover in Westminster.

The growing powerlessness of national governments in these international global deals is highlighted by the statements of British politicians during the Kraft takeover. Assurances from business secretary Lord Mandelson that Kraft “would face huge opposition” melted away. Prime Minister Gordon Brown, speaking at a press conference at Downing Street, declared, “We are determined that . . . jobs in Cadbury can be secure.” But he had no powers to guarantee that security.

The British government’s belief in an open-door policy on such foreign takeovers has been called into question as many British companies have recently slipped into foreign ownership, creating uncertainties about the British economy. The Swiss have always protected Nestlé, allowing their food and chocolate business to flourish. “In France, the loss of a ‘Cadbury’ would have been out of the question,” says former Cadbury chairman Roger Carr. “Germany believes that strength at home is the first step to success abroad. In Japan selling a company over the heads of management is unthinkable. And in the United States, regulations exist to protect strategic assets.” It is ironic that when Cadbury tried to buy the British firm of Rowntree
in 1988—at the time one of the five largest confectionery firms in the world—it was stopped by the British government—which permitted the Swiss giant, Nestlé, to step in and buy it. “In Westminster they did not understand the global picture,” says Sir Dominic Cadbury, the last family chairman.

Leaving aside the social and national issues, there are wider concerns raised by the Kraft takeover that bring the contrast between the Quaker values of the chocolate pioneers and today’s shareholder capitalism sharply into focus. For the nineteenth-century Quaker, ownership of a business came with a deep sense of responsibility and accountability to all those involved. “The problem with the way we have developed our system of shareholder capitalism is that the shareholder is being divorced from his role in ownership,” explains Dominic Cadbury.

The problem is highlighted most clearly by the role of hedge funds. By the end of Kraft’s takeover battle in January 2010, 31 percent of Cadbury was owned by hedge funds. Although these funds held decision-making power that could affect the company’s very survival, “They are not even
pretending
to operate as owners,” continues Dominic. “They have no sense of obligation or responsibility for the company whatsoever. They are there purely for short-term gain. Their whole motivation was that the company did
not
survive. You try equating ownership with getting rid of a company! It is completely destructive.” Apart from the short-term gains that flowed to the hedge funds, some £400 million ($600 million) was made from the deal in fees in the City of London. When the financial sector is motivated by such sizeable and immediate returns, what has happened to the goal of building long-term value?

For Timothy Phillips, chairman of The Quakers and Business Group, which aims to promote Quaker principles in business, there is another issue that comes with increasing size to create giants like Nestlé and Kraft. “What one is doing by supporting the argument that bigger is better all the time,” he explains, “is creating essentially a global network of asset ownership on a vast scale.” Nestlé, for example, has almost 500 factories in over 80 countries and sells a billion products worldwide every day. It has 250,000 employees and had
annual sales in 2009 of over $100 billion providing income that exceeds the GNP of many small countries. It is also one of the world’s most boycotted companies as a result of ethical questions raised over the marketing and promotion of a number of its brands. The sheer size of such global institutions presents a number of problems. “Wealth and power are concentrated into fewer and less accountable hands,” says Phillips. The people running these institutions have extraordinary budgets and staff at their disposal and decision-making powers that transcend national barriers, yet they are accountable only to a narrow group of shareholders. “Is this process truly democratic?” asks Phillips. He argues that the global village of the twenty-first century requires tighter international regulation and accountability not just to shareholding owners but to all their stakeholders, including the workers, the customers, and the wider community.

For Sir Adrian Cadbury, whose life spans the period from family Quaker leadership to the Kraft takeover, there is another key issue. “The danger of Kraft taking over is that it is very easy for a larger firm effectively to destroy the
spirit
of the firm they take over.” The indefinable qualities that make up the character and identity of a company, he argues, are built up over many years, and depend on history, reputation, international brands, and the quality of people who work for the company. “It is something that I believe has a life of its own and creates a very strong feeling about the company and the people that work in it. . . . A business should not get so big that you lose the sense of identity and belonging.” From his years of practical experience as one of Cadbury’s longest serving chairmen, he adds, “Speaking as an economist, I would say the limits of size are human; they are not economic. What is sadly only too likely to happen is that by becoming a subsidiary, losing its identity and spirit as a business—the orders come from head office which might even be in a different country—the danger is that people no longer see the reason for giving of their best. A business which in economic terms is doing very well can lose the drive of the very people that are in it.”

That spirit of a business—so crucial to the motivation of its staff—is hard to define and measure. It is not to be found in the buildings or the balance sheet but is reflected in the myriad of different decisions
taken by those at the helm of the business. The Quaker pioneers believed that “your own soul lived or perished according to its use of the gift of life.” For them, spiritual wealth rather than the accumulation of possessions was the “enlarging force” that informed business decisions. But gone now, lost in another century, is that omnipotent all-seeing eye in the boardroom, reminding those Quaker patriarchs of the fleeting position of power. And what is there to replace it? Until the Kraft takeover, Cadbury had not quite severed its link with the vision of its founding pioneers. Sadly for some, the umbilical cord has been cut, and there is recognition that some of the indefinable guiding spirit of the founders appears to have been discarded as effortlessly as a candy wrapper. It is perhaps for this reason that so many in Britain spoke out against the loss of a cultural icon.

Irene Rosenfeld, commenting just before this book went to press, wrote, “Cadbury is a fantastic business, with a proud heritage and a long and distinguished history. This is something we respect and want to build on.”

This book is a modest challenge to Rosenfeld and to Kraft. If her words are to be taken as anything more than platitudes, and if Kraft is truly to respect the values of Cadbury, it must understand its particular traditions and history. The story of Cadbury, in a way, is the story of a different kind of capitalism.

Irene Rosenfeld suggested that “the companies have very similar values. In fact I think if John Cadbury had met James Kraft, they could well have been friends.” To be sure, Kraft was an inventive entrepreneur who, like Cadbury, began in a modest way. But as this book shows, the outcomes for the two firms are very different.

In setting out the history of the chocolate family dynasties, I have endeavored to be as objective as possible in exploring the gains and losses along the way and highlighting the steps that have taken us from the Quaker values of the nineteenth century to today’s global village. Could the companies’ founders have been friends? Are the goals of John Cadbury and his sons reflected in the modern global powerhouse?

I leave that to the reader to decide.

I
n mid-Victorian times, the English town of Birmingham was growing fast, devouring the surrounding villages and nearby woods and fields. The unstoppable engine of the Industrial Revolution had turned this modest market town into a great sprawling metropolis. Country dwellers hungry for work drove the population from 11,000 in 1720 to more than 200,000 by 1850. In the city they found towering chimneys that turned the skies thunder grey and taskmasters unbending in their demands. Machines, oblivious to the seasons, never stopped issuing the unspoken command: more labor, more work, and more toil to feed the looms, to fire the furnaces, and to drive the relentless wheels of commerce and industry far beyond English shores.

Birmingham was renowned across the country for innovation and invention. According to the reporter Walter White, writing about a visit to the city in
Chamber’s Edinburgh Journal
in October 1852, “to walk from factory to factory, workshop to workshop and view the extraordinary mechanical contrivances and ingenious adaptations of means to ends produces an impress upon the mind of no common character.” The town was a beacon of industrial might and muscle. This was where steam and fire forged with iron and coke, metal and clay to make miracles.

By the mid-nineteenth century, the foggy streets resounded with hammers and anvils fashioning metal, bronze, and iron into buttons,
guns, coins, jewelry, buckles, and a host of other Victorian wonders. Walter White marvelled at the “huge smoky toyshop” and the “eager spirit of application manifested by the busy population.” But he was evidently less taken with the sprawling town itself, which he considered “very ill arranged and ugly” and dismissed as “a spectacle of dismal streets.”

At the heart of these dismal, foggy streets, opposite today’s smartly paved Centenary Square, there was a road called Bridge Street, which in 1861 was the site of a Victorian novelty: a cocoa works. Approached down a dirt road, past busy stables, coach houses, and factories, it was surprisingly well hidden. But wafting through the grimy backstreets was a powerful aroma, redolent of rich living. Guided by this heady perfume, the visitor was drawn past the blackened exterior, through a narrow archway into a courtyard with an entrance leading off to the heart of the chocolate factory. And it was in this modest retreat that two young Cadbury brothers hurried one day early in 1861.

There was a crisis in the family. Twenty-five-year-old Richard and twenty-one-year-old George Cadbury knew the wonderful aroma of chocolate disguised the reality. The chocolate factory and its owner, their father, John Cadbury, were in decline. The family faced a turning point. The business could go under completely. John Cadbury turned to his sons for help.

Photographs of the time show George and Richard Cadbury soberly dressed as Quakers in characteristic plain dark Victorian suits with crisp white shirts and bow ties. Richard’s softness of features contrasts with his younger brother, whose intensity of focus and air of concentration are not relaxed even for the photographer. “I fixed my eye on those who had won,” George admitted. “It was no use studying failure.” He had, said his friends, “boundless ambition.” And he needed it. The family firm was hemorrhaging money.

By chance, Walter White toured the Bridge Street factory and has left a vivid account of what it was like in 1852. Leaving behind the storehouse crammed with sacks of cocoa beans from the Caribbean, White entered a room that blazed with heat and noise: the roasting chamber. With its four vast rotating ovens, “the prime mover in this
comfortable process of roasting was a 20-horse steam engine.” After this, “with a few turns of the whizzing apparatus,” the husk was removed by the “ceaseless blast from a furious fan” and the cocoa, “now with a very tempting appearance,” was taken for more “intimate treatment.” This occurred in a room where “shafts, wheels and straps kept a number of strange looking machines in busy movement.” After yet more pressing and pounding, a rich frothing chocolate mixture flowed, “leisurely like a stream of half-frozen treacle.” This was formed into a rich cocoa cake, which was shaved to a coarse powder ready for mixing with liquid for drinking. Upstairs White found himself in a room where management “had put on its pleasantest expression.” The girls, all dressed in clean white Holland pinafores, were “packing as busily as hands could work. No girl is employed,” he added, “who is not of a known good moral character.” Such a factory, he concluded, “was a school of morality and industry.”