BEECH NUT CASE STUDY

Ethics 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: ØDomain of Codified Law (legal standard) ØDomain of Free Choice (personal standard) ØDomain of Ethics (social standard)

CONTROL

HIGH

D O C

D EI FI

W A L

Ethics

C H O IC

E

F R E

E

BEHAVIOUR Ø Overzealous pursuit of personal gain, wealth and other selfish interest

Ø Heavy pressures on company to meet the earning’s target

Ø Company culture that puts profitability ahead of  ethical behaviour 

BEECH-NUT Ø2ND in Baby Food Industry behind Gerber  Ø15% Market Share Ø1972, bought by Frank Nicholas and his partners ØFinancial Trouble Ø1979, take over by Nestlé

1981, Lars Hoyvald joined as President Aim “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

Ø To switch on the suppliers and recall the product already sold in the market Ø 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

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

Ø

ETHICAL JUSTIFICATION New owners in 1972, Frank Nicholas and his

partners, Undercapitalized & Overloaded with Debt

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

Ø Supplier to be Universal Juice ØSwitch to another supplier could well have tipped the scales toward insolvency

ØJuice adulterated but NOT HARMFUL

Ø Ø Ø Ø

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

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

Ø Baby Product Ø Hoyvald’s claims of selling high quality product Ø Lavery’s indifference to unpleasant discoveries about the raw material Ø Justification by the company Ø Foreign Sales campaign in fear of TOTAL recall Ø Lack of Value Based Decision Making Ø Alternate ethical strategy

conclusion Ø Ø Ø Ø

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

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

Ø Proposal rejected

Ø

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

Questions???