Business Ethics Essay Example

joined the company in 1976.

Ernest Saunders, responsible for marketing campaigns, encouraged mothers to switch from breastfeeding to infant formula (Clark, 2001). By promoting formula usage, three issues emerged. Firstly, infants lacked protection against illnesses due to the absence of essential antibodies found in breast milk. Additionally, in less economically developed countries lacking sanitation or boiling facilities, the water used to dilute the formula was contaminated, leading to severe illnesses or death. Moreover, many consumers resorted to diluting the formula to save money, resulting in malnutrition (Boyd, 2012). International Baby Food Action Network and Save the Children accused this promotion of causing health problems and infant deaths, particularly in less economically developed countries (Wakefield, 2013). Ernest disseminated free formula samples to hospitals and maternity wards in developing nations (Wakefield, 2013). The International Baby Food Action stated that once Nestle stopped providing free formula at the hospital, supplementation interfered with lactation and forced families to continuously buy formula (Wakefield, 2013).

When a mother switches from breastfeeding to formula feeding, her milk production will decrease, resulting in a halt of milk supply. In partnership with the International Baby Food Action and Save the Children, Ernest raised concerns with the World Health Organization (WHO). Assigning Saunders to the task, Nestle countered WHO's criticism of the company's aggressive marketing of powdered milk to developing countries. Saunders initiated a campaign utilizing public relations and media to influence public opinion. On behalf of Nestle, he provided $25,000 to a Washington research center to fund a Fortune magazine article opposing the WHO campaign. However, this article failed and only fueled suspicions, leading to more negative publicity. Saunders closely collaborated with the International

Council of Infant Food Industries (CIFS) and eventually became its president. Through CIFS, Nestle negotiated with WHO, resulting in the end of the boycott. Nestle agreed to follow the International Code of Marketing of Breast-milk Substitutes, which was approved by a vote of 118 to 6 through WHO (Connell, 2012).The International Code of Marketing of Breast-milk Substitutes, which was drafted in 1981 (Maxine, 2004), aims to promote breastfeeding as the preferred option over other products. This code prohibits mass media advertising and the distribution of free product samples in third world countries (Connell, 2004). Additionally, it covers not only infant formula but also other milk products, foods, and beverages. The World Health Organization's code grants healthcare workers the responsibility of advising parents on the benefits of breastfeeding and the associated risks of using infant formula instead (Wakefield, 2013). While WHO acknowledges that properly used formula can sustain life and promote growth, there are cases where breastfeeding is not possible or medical reasons necessitate the use of formula. So far, twenty-one countries have implemented or plan to publish this code within their territories, with an additional thirty-eight countries working towards its implementation (Connell, 2004). DRP. Stephen C. Joseph supports this code as his research indicates that one million babies in third world countries die each year due to the consequences of bottle feeding (Connell, 2004).In 1981, the Reagan Administration's decision to vote against the World Health Organization code was believed to have prolonged the boycott. Ernest Saunders, who had nearly ended the boycott before leaving Nestle in 1981, received assistance from Tom Ward and Arthur Freer in negotiating with the World Health Organization. Tom Ward, Nestle's

legal consultant, continued working on these negotiations after Saunders' departure (Nestles Ethical Business Struggles 7, Saunders 1989, p. 46).

Arthur, a Swiss financial expert who joined Nestle in 1954, was promoted to CEO in 1975 and served as the chairman of Nestle's board of directors from 1982 to 1984 (Here 1991, p.374). Ernest Saunders' initial connection with Tom Ward occurred when he sought Ward's help in protecting trademarks. Ward is accused of assisting Saunders during the Baby Milk Scandal (Cochin and Pym, 1987). In 1979, Saunders acquired Beech-Nut as part of his Specialist Nutrition and Infant Product Group (Boyd, 2012).

While the ownership of Beech-Nut was widely known, the association between Ernest Saunders, Tom Ward, and Arthur Freer was undisclosed (Coachman and Pym, 1987). Saunders invested millions of dollars into revamping the marketing for these items as part of an aggressive market campaign.Between 1980 and 1981, Beech Nut experienced a decrease in sales totaling $2.5 million. In 1977, they had introduced a cheaper buggy apple juice concentrate compared to their competitors before Nestle acquired the company. Despite rumors about the juice's purity, no government test was conducted to verify these claims (Consumer Reports, 1989).

Jerome J. Alicia, the Director of Research & Development, sent a memo to senior executives addressing ten rumors surrounding the apple juice. One of these executives was Arthur You're, who served as the CEO for Nestle and did not respond to the memo. Alicia arranged a meeting with the company's president, Neil Heavily, appointed by Saunders before he joined Guinness in London (Consumer Reports, 1989).

Alicia hoped that Heavily would take action, but when no action was taken, Alicia resigned from the company. He then

became a whistleblower and informed the Food and Drug Administration about the situation. The FDA decided to investigate the matter further, prompting Neil Howlad to remark that Beech-Nut could have prevented a scandal by admitting that their juice was actually sugared water (Consumer Reports, 1989).

Saunders could have prevented Beech Nut from receiving a $2 million fine, which was six times larger than their previous FDA fine, as well as a class-action suit for $7.5 million, by testing the purity of the apple juice concentrate they were purchasing (Boyd, 2012). The connection between Nestle and Beech Nut has been established, and now we will delve into the connection between Guinness and Nestle. Saunders joined Guinness in 1981 and successfully increased sales through sophisticated advertisements. He also implemented a strategic approach to acquiring other companies (Boyd, 2012). In 1985, Saunders acquired Arthur Bell and Sons and considered acquiring Distillers as well. Seeking advice from his friends, including Arthur Freer, who served as the Chairman of Nestle and the Chairman of Bank Lee, the sixth-largest Swiss bank during the Distillers takeover. In 1984, Ernest Saunders nominated Arthur Freer to the Guinness board of directors and nominated Tom Ward in 1985 (Boyd, 2012). Once again, all three individuals were involved in the Nestle and Beech Nut scandal. The United Kingdom Department of Trade and Industry received a tip regarding inconsistencies in Guinness' acquisition of Distillers.

The United Kingdom Department of Trade and Industry discovered that Guinness had manipulated the value of its shares during the battle for the acquisition of Distillers, through an underwriting of an international buying campaign (Boyd, 2012). Arthur Freer, the Chairman of Bank Lee at

that time, purchased around $185 million worth of Guinness' shares during the takeover of Distillers (A. P., 1987). On January 15, 1987, Guinness P. L. C. dismissed its chairman, Ernest Saunders, and requested the resignation of two directors, Tom Ward and Arthur Freer, amidst the British Government's investigation of the company (Lour, 1987). This request marked Guinness' acknowledgment that its management had engaged in improper actions during the acquisition of Distillers. The Guinness scandal became Britain's most significant corporate scandal in years, leading to the downfall of one its highest-paid executives and tarnishing the reputation of a British enterprise. It dominated headlines for weeks in national newspapers and ignited public debates over practices and regulation in London's financial district (Lour, 1987). Bank Lee, Switzerland's sixth-largest bank, was also implicated in the Guinness scandal. Within this context, Freer's role as Chairman of Bank Lee and his connection to Nestle becomes relevant once again.

Bank Lee was accused of involvement in the insider trading scandal with Guinness, where they were fighting for control of the Distillers Company. Guinness and Bank Lee had agreed to illegally purchase stock of the Guinness brewing company. They played a crucial role in the trading strategy of shares that would boost Guinness' stock price during the Distiller takeover (Vise, 1997).

During the takeover fight, Bank Lee agreed to buy Guinness stock shares, which led to an increase in Guinness' stock price and helped them acquire control of the Distillers Company. In return, Guinness would later repurchase the shares from Bank Lee (Vise, 1997). Additionally, Bank Lee received $75 million in time deposit from Guinness as compensation for potential losses from the share

sale (Elevenths, 1987).

While Bank Lee did not violate Swiss laws, they did violate British laws. British laws prohibit companies from secretly supporting their stock prices through such arrangements (Vise, 1997).

Arthur Freer, a resignee from Bank Lee, was assured that he was not responsible for any wrongdoing in this scandal (Vise, 1997). The resignation of Arthur Firer was voluntary, and Doll Brindle, a director at Bank Lee, stated that the board never doubted his integrity (G. P., 1987).

Bank Lee sold the Guinness shares and returned the $75 million payment following the disclosure of the insider trading scandal with Guinness. According to Bank Lee, Arthur Freer did not arrange the transactions and neither he nor the bank were aware of their possible illegality in Britain (G. P., 1987).

Nestle was a victim of a well-organized coyote campaign, which was perceived as a dispute over generic bad practices rather than a focused attack (Boyd, 2012). The boycott targeted not only Nestle but also all infant formula providing companies. Since Nestle was the largest supplier of infant formula, it became the primary target of the boycott. However, Nestle had a defective culture at the senior level of management, including Ernest Saunders (Boyd, 2012).

The ten years of conflict and seven-year product boycott directly affected the corporate culture of Nestle. Employee turnover and morale were greatly impacted, and the company faced difficulties in handling other business needs and decisions due to the boycott (Boyd, 2012). In 1982, Nestle issued guidelines for complying with the voluntary international code from the World Health Organization, which promotes breastfeeding and discourages formula use (Hinds, 1982).

Nestle has implemented several measures to ensure ethical practices

in its business. It established an "ethics audit committee" comprising members from the clergy and medical profession (Hinds, 1982). The company now mandates that doctors or qualified medical professionals must request samples of infant formulas for mothers. To meet the standards set by the International Code of Marketing of Breast-Milk Substitutes, Nestle has rewritten and redesigned all its educational materials and product labels (Wakefield, 2013). Nestle adopted Resolution HEEHAW. 22 in 1984, which includes the International Code of Marketing of Breast-Milk Substitutes. The company is required to train its marketing personnel on the significance of protecting and promoting breast-feeding and their responsibilities related to implementing the WHO code (Orchid, 1989). While the boycott against Nestle ended in 1984, it was resumed in October 1988 by Action for Corporate Accountability, which accused Nestle of lying about compliance with the WHO code and not having plans to align its marketing practices (Orchid, 1989). In May 1999, the UK Advertising Standards Authority ruled against Nestle, stating that they could not support their claim of ethically marketing infant formula (Wakefield, 2013).

The International Nestle Boycott Committee currently coordinates the Nestle boycott, which emerged in November 2000 when the FABIAN and EUNICE criticized Nestle for not aligning its policies with the World Health Assemble Resolutions (previously known as the World Health Organization). Despite being invited, Nestle declined to attend the event (Wakefield, 2013).