Cadbury Takeover

1 January 2017

In the beginning of 2010 the US food giant took-over one of the most famous British confectionary companies, Cadbury, affectively making Kraft the largest food confectionary company in the world (Smith, 2010). According to Rigby and Masters (2010) the takeover “was one of the biggest – and most hotly contested – acquisitions in the UK”. The process was exhaustively followed by media, which criticized inability of British Government to limit takeovers of such famed British brands in the future – as it is part of the British identity.

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Moreover, during such process a large number of employees have suffered, not only through a large number of redundancies, but also through the change in management and overall organization of the company, which has affected employees values amongst the other factors. This assignment will be looking into various details of changes in employees values as well as relationships and overall changes of the work ethics. Comparison of employment values before the takeover:

Quakers found Cadbury in 1824 in Birmingham. Quakers, also known as “Religious Society of Friends”, is a Christian movement that believes in equality of people, this creates strong moral ethical behavior, social justice and community (BBC, 2009). Beliefs associated with the movement directly influenced employment values in Cadbury, known for its ‘benign paternalism’ (Lucas and Rappeport, 2011), as it has been placing importance on sociable values, participating and friendly environment since its beginning.

According to Evening Standard (2009): “For most of its 185-year history Cadbury has been viewed as one of the most paternalistic and socially aware employers in the UK”. For instance, recreational, training and education facilities were added into factories (Rose, 1986; Katsoulakos and Katsoulakos, 2006). Furthermore, employees have had access to medical care as well as good welfare system (ibid). According to Leggett (2010) Cadbury places “strong social conscience at the heart … from year one”. This has been strengthened by opening factory in a “green field site” of Bournville in 1979 (Katsoulakos and Katsoulakos, 2006).

Until now the area is mainly associated with chocolate (Robinson, 2010) where a large number of employees have history of working at the factory for many years along their family and friends, this has created a very strong sense of community until the speculations on takeover by Kraft began (Jones, 2010). Kraft was established in the beginning of 20th century and over years had expanded through mergers and acquisitions of various brands, including Oreo cookies, Jacobs coffee and Philadelphia cheese amongst many other brands (Ovide, 2011).

As a result of such historical developments and association with conglomerates such as Phillip Morris – one of the leading tobacco companies, it has developed rather different reputation to Cadbury. In fact it has been called: “union-busting corporate giant that is at the heart of the global obesity crisis … (which) runs with military precision” (Evening Standard, 2009). As a result Kraft’s employment values are different to responsible corporate citizen Cadbury. Kraft is known for its strong bureaucracy with a very layered and tall structure (Holbert, 2010), which is so important to manage multinational corporations of its size.

Additionally to its size and management style, Kraft is known to be very profit driven and due to weak trade unions in the US and overall hire-fire culture in the country, its employees are used to instability, underlined by high turnovers. Thus to summarize, Cadbury has been known for strong paternalistic values, decentralized structure and egalitarianism, whilst Kraft is known for its strong highly structured bureaucracy and centralized structure (Holbert, 2010). Changes in the relationships and structure after takeover: As described above employment values and overall cultures of two companies have a number of differences.

Seeing that Kraft has taken-over “its smaller rival” (Lucas and Rapperport, 2011) Cadbury, they are imposing their own values and culture on Cadbury’s employees, especially as merger was hostile (Rigby, 2010). According to Lawrence Hrebiniak: “Kraft … has scared off Cadbury employees by trying to make their decentralized culture fit the US company’s highly structured approach” (Lucas and Rappeport, 2011). For Cadbury’s employees this meant increased uncertainty about their future employment overall, as well as structure of the internal relationships and anagement style, especially as a result of a closure of a number of factories as well as mass redundancies (Stiff and Ralph, 2011).

Employees on the lower level of the hierarchy had to get used to new structure of the company, which meant that many of them have to report to different managers than previously. On top of that, due to the merger, employees of two different companies now have to work side-by-side, and considering that employees of Kraft feel “they should be dominant” (Lucas, 2011), it can reflect negatively on the relationship between employees not only vertically on the hierarchy, but also horizontally.

Of course, relationships are not changing only for Cadbury’s employees, Kraft workers are also directly affected (Lucas, 2011), as takeover involved changes for them also – including closure of Kraft factories and redundancies of Kraft’s employees (Stiff and Ralph, 2011). The takeover had also impact on the employees higher up on the hierarchy. As mentioned by one of the former employees: “Once you have reported directly to the CEO in a large multinational, to be told ‘we love you and want to keep you but you are going down a level’, it’s a bit of an ego hit as well as everything else” (Lucas and Rappeport, 2011).

This led to a large number of Cadbury senior executives to leave the company after the merger with Kraft (ibid). Thus, overall a the change of ownership has significantly affected and changed relationships between employees of both companies, as well as between employees and employers, mainly due to reorganization of the structure of the company after merger and adjustments brought by changes of the ownership and managerial styles. Finally, it is important to mention, it was announced that Kraft will be divided into two different divisions by the end of this year (Moeller, 2012).

Thus, it will further change management and structure of the company, which is likely to affect internal relationships and values further, of the employees of both companies. Impact of changes upon employees: Changes made to the structure of the ‘newly merged’ company and subsequent changes to relationships, as well as changes to employment values and overall culture, have had a major impact upon employees, especially for former Cadbury workers. Firstly, Cadbury employees were used to aternalistic approach from their employers before the takeover (Evening Standard, 2009).

However after, they had to adjust to Kraft’s “military precision” (Lucas and Rappeport, 2011) and demands for flexibility, as it forced redeployment upon employees. Otherwise, employees would be driven towards voluntary redundancy or get fired (Jones, 2010). This on its own, together with actual redundancies made, created a lot of tension, uncertainty, dissatisfaction as well as decrease in motivation of the employees (Lucas and Rappeport, 2011; Thompson, 2010; Jones, 2010).

It was further aggravated by the fact that Kraft imposed “a three-year pay freeze (on 3,000 Cadbury employees) unless they opt out of the confectioner’s final salary pension scheme” (Rigby and Cohen, 2010). The scheme mentioned had been in place for over 30 years and was underlying paternalistic values imposed by the Quakers who attempted to give security and fair treatment to all its employee (Rigby and Cohen, 2010). Subsequently, a significant number of former Cadbury employees from various positions resigned due to dissatisfaction from all the occurred changes (Lucas and Rappeport, 2011).

Many has also complained about “Orwellian feel of Cadbury under Kraft” (Lucas, 2011), the comparison which underlines radical changes that have been perceived by Cadbury employees. It is, however also important to emphasize once more, that takeover had also a certain impact on the original Kraft employees, as they also were “losing morale” (Lucas, 2011) due to restructuring, downsizing and redeployment. Overall, there has been a major change in the psychological contract for the former Cadbury employees.

They have been accustomed to social contract through paternalistic approach, thus motivated by intrinsic rewards or ‘motivational factors’ (i. e. ‘achievement’ and ‘growth’) as described by Herzberg (Buchanan and Huczynski, 2010). However, after the takeover many of them became more of the Theory X workers (McGregor, 1957), who are mainly motivated by financial remuneration or other intrinsic rewards (ibid). Work ethics: In the beginning of the assignment traditional employment values of Cadbury were described, mainly focusing on the paternalism.

As the result of such attitude of employers to employees, it was common for employees to work hard for a single company for an extensive period of time and move slowly up on the hierarchy (Sennett, 1999). However, as a result of globalization, expansion and overall drive towards profit maximization, the motivation behind traditional work ethics started to disappear, as it started to “become absurd to work long and hard for an employer who thinks only abut selling up and moving on” (ibid: 99).

In case of Cadbury takeover, Kraft had made numerous promises to employees and UK government, such as no additional redundancies or factory closures (Jones, 2010; Thompson, 2010). However, many of the promises made were ignored, with the only one, which made it was a two-year pledge, which is expiring this month when more restructuring and redundancies are expected (Lucas, 2011). This is mainly connected to need for modernization and mechanization of the practices, very common in the modern world (Stiff and Ralph, 2011).

Thus, Kraft had created rather “unrealistic expectations” for their employees as well as former Cadbury employees (Hasenoehri, 2010), negatively affecting their motivation to work and overall gratification. As a result Kraft also put cap on the traditional payment scheme of the Cadbury employees, (Rigby and Cohen, 2010) as mentioned previously. Many of these actions, had led to dissatisfaction of employees, mass redundancies and further speculations.

It has also bought to attention how little power governments have nowadays over actions of large multinational conglomerates, when even in case of the one of the biggest British brands it was not able to protect it, its employees or in general handle hostile takeovers as well as its consequences (Lucas and Rapperport, 2011), which resulted in “elimination (of) one in seven jobs at British chocolate factories” (Lucas, 2011). Evaluation:

Takeover of Cadbury by Kraft exhibits methods used by modern corporations to expand and increase profits, emphasizing on the change companies went through. Modern style and practices are significantly different to traditional and paternalistic employment values – as comprehensively described in Richard Sennett (1999) and showed in this case study. Employers nowadays care less for the employees satisfaction or wellbeing, and as shown by in this assignment it puts a lot of pressure on the employees. Modern employees have to either adapt and become flexible, or look for a new employment.

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