beech nut case study

BOGUS APPLE JUICE

PRESENTED BY— AKSHITA CHAMARIA AKRUTI PATHAK ASHISH KUMAR

GOYAL SOURABH MITTAL NEHA NATANI

ETHICS: THE KEYSTONEEthics is defined as the “discipline dealing with what is

good and what is bad, and right and wrong or with moral duty and obligation”

Business ethics “is the application of general ethical principles and standards to business behavior”.

There are three Domains of human action:Domain of Codified Law (legal standard)Domain of Free Choice (personal standard)Domain of Ethics (social standard)

AMOUNT OF EXPLICIT CONTROL

AMOUNT OF EXPLICIT CONTROL

Ethic

s

Ethic

s

HIGH LOW

CO

DIF

IED

LA

W

FR

EE

CH

OIC

E

DRIVERS OF UNETHICAL BEHAVIOUR Overzealous pursuit of personal gain, wealth and

other selfish interest Heavy pressures on company to meet the earning’s target

Company culture that puts profitability ahead of ethical behaviour

The caseBEECH-NUT2ND in Baby Food Industry behind Gerber15% Market Share1972, bought by Frank Nicholas and his partners Financial Trouble1979, take over by Nestlé

1981, Lars Hoyvald joined as PresidentAim “aggressively marketing top quality product”

In June 1982, he found:1. Strong evidence that Beech-Nut Apple Juice for babies was made from concentrate that include NO APPLE.2. Since 1977 the company had been purchasing low cost apple concentrate from Universal Juice Company.3. John Lavery the vice president in charge of operation, brushed aside tests that showed the presence of corn syrup

COMPANY’S DILEMMA

To switch on the suppliers and recall the product already

sold in the market To carry the business as it is,

continue selling their bogus apple juice in the market.

Issues that Hoyvald took into consideration while arriving to this decision:

1. His promise to nestle superior that he would return a profit of $7 million for the year

2. The cost involved in switching the suppliers which amounted as $4.25 million loss to the company for the first year n $.75 million each year

3. The company’s position to take such decision

Hoyvald decided to continue selling the bogus apple juice Fear of that federal investigator might seize the stock of apple juice Aggressive foreign sales campaign Managed to sell the bogus apple juice until march 1983 1988 both Hoyvald and Lavery were convicted on charges of consumer fraud Received a sentence of one year and one day and fined $100000

New owners in 1972, Frank Nicholas and his partners, Undercapitalized & Overloaded with Debt

New owners in 1979, Nestlé, invested $60 million in capital improvements and marketing

Supplier to be Universal Juice

Switch to another supplier could well have tipped the scales toward insolvency

Juice adulterated but NOT HARMFUL

ETHICAL

JUSTIFICATION

Recall not feasible

Dumping product into foreign market justified

Avoid negative publicity

The corporate culture of nestle values and praises above everything else competitive aggressiveness

The influence of corporate culture can explain mitigate one's unethical behaviour

Ethics - against beech-nut

Baby Product

Hoyvald’s claims of selling high quality product

Lavery’s indifference to unpleasant discoveries about the raw material

Justification by the company

Foreign Sales campaign in fear of TOTAL recall

Lack of Value Based Decision Making

Alternate ethical strategy

conclusion Hoyvald and Lavery tried and convicted

Each sentenced for 1 year and 1 day

Fined $ 100,000

Company settled a suit bought by consumers for $ 7.5 million

Hoyvald’s Lawyer seeked proposal for his client to give lectures in B-schools

Proposal rejected

Utilitarianism- theory given by Jeremy Bentham and later discussed by John Stuart Mills Sum of total benefits accruing from that action less the sum of cost from that action is Maximum-choose that alternative Utilitarianism also maintains that an ethical act produces the “greatest possible good for the greatest number of people.” A decision which was acceptable by Utilitarian standards- Stockholders, suppliers were also stake holders Kantian ethics- (treated them as means) Deemed unjust by critics who argued that Beech-Nut sacrificed consumers for the company’s long-term economic viability.

Questions???