Cambridge College

Graduate School of Management

MM511.CA 01-02-03. Foundations of Management
Written Assignment #2: Ethics and Social Responsibility in Organizations

Instructions: Using the company that you have chosen to study in the course, select
an ethical issue/dilemma that your company is currently facing and complete the steps
outlined below.
Step I.

Describe the facts of the case.

What are the issues of the various stakeholders in this ethical dilemma?
a) Who are the stakeholders?
b) What is the position and obligation to each stakeholder?

With the growth of multiracial economy the concept of global interdependency has been
coined as a compelling factor into the business world. The days are gone when the Illicit
and unethical behavior done by a company were quelled unnoticed. Now in the
presence of international media nothing is just a secret and rather it is really a positive
step for our future ethical development.Thus creating demands on international
managers to take a positive stance on issues of ethical behavior, social responsibility,
economic development in host countries, and environmental protection around the
world. However, there were still several large multinational companies indulging in
ethically questionable practices. If MNCs behave unethically, it soon comes to the notice
of the public and the companys image is tainted. Multinationals are often worse off for
having behaved unethically in the interest of short term gains, as the bad publicity
generated by unethical practices leads to far greater losses in the long run.

In the challenge of modern society, manager or worker often encounters a situation than
challenges ones ethical beliefs and standards. Managing across border increasingly
includes difficult ethical dilemmas. It is less clear where to draw the line between ethical
behavior and the corporations other concerns, or between the conflicting expectations
of ethical behavior among different countries. The paper aims to (1) discuss current
ethical dilemmas in global environmental ethics, (2) examine how multinational would
address conflicting norms and expectations by illustrating one case study of ethical
dilemma and its resolution.

Nestls Corporate Crimes

1.0 Nestls ethical dilemmas
1.1.
Unethical marketing practices
Infant formula
In 1977, Nestle got embroiled in a controversy, when it was criticized for using unethical
marketing practices endangering consumer health to promote its infant formula in
developing nation. A number of aid agencies called for the boycott of Nestle products
and this protest continued right into the 1980s, when Nestle agreed to adopt the infant
formula marketing code laid down by the World Health Organization and UNICEF.
Although Nestle had a charter on infant formula, the company is usually violated the
principles laid down in it (Refer to reference3).
Genetically Modified Foods
Nestle was criticized for using genetically modified (GM)[1] ingredients in its food
products, and was accused of dumping products rejected in Europe in developing Asian
countries where the laws on GM products were either absent or less stringent.
For Kant, the companys decision makers would have to be willing to advocate
marketing the product even if they were themselves in the position of uniformed
consumers. Therefore, providing unsafe products standard and ill-informed consumers
by Nestle is absolutely wrong.
1.2.
Overcharged prices
Nestle launched bottled water, called Pure Life in some Asian countries like
Pakistan and India (in 1998 and 2001 respectively). Nestle introduced bottled water,
which provided safe clean water but priced it so high that it was unaffordable for the
lower income groups. It turned water into a luxury by pricing it around $ 0.4 (in Pakistan)
for a one liter bottle.
According to utilitarianism, ethical action is evaluated by looking at its consequences,
weighing the good effects against the bad effects on all the people affect by it (Shaw &
Barry, 2004). Most developing countries laced basic drinking water facilities. A very high
water price was charged by Nestle limiting a number of people to buy it. Nestls action
produces the worse for the greatest number of South Asian because people could not
afford for water which is basic human needs and is sporadic and contaminated in
south Asia countries.

1.3.
Unfair labor practices
Nestle was one of the biggest purchasers of cocoa from Ivory Coast, a country inWest
Africa. UNICEF studies and International Labor Organization (2002) revealed that the
workers on these plantation lived and worked in poor conditions. They were paid
minimal wages and exploited by the land-owners. Most of the workers had been
trafficked by bought and sold, making them practically slave labor. Nestle purchased
cocoa from these farms despite its awareness of the conditions of the laborers, thus
making it a party to their exploitation.
Child labor was also employed on the plantation. UNICEF and The International
Institute of Tropical Agriculture (IITA) studies (2002) revealed that over 200,000 children
were shipped to Ivory Coast and other cocoa producing countries in Western Africa from
neighboring countries like Mali and Burkina Faso, to work on the plantations, especially
during the harvesting of cocoa or coffee beans.
Another unfair labor practice was occurred in Thailand. When a group of 13 workers,
wording in a sub-contracting facility of Nestle in Thailand, organized themselves to form
a union, Nestle immediately cut the number of orders to that company and asked the
company to put the unionized workers on indefinite leave with half pay. The workers
were force to quit because of their lowered pay (Manager 2001). In doing so, Nestle had
clearly denied these workers their right to organize themselves to better their interests.
1.2. Applying De Georges principles
International business ethics refers to the conduct of MNCs in their relationships to all
individuals and entities with whom they come into contact (Daft, 2002). Ethical behavior
is judged and based largely on the cultural value system and the generally accepted
ways of doing business in each country or society. MNC Manager must decide whether
to base their ethical standards on those of the host country or those of the home country
and whether these different standards can be reconciled (Donalson, 1996).

1.2.1.
Do no harm
Thompson & Stickerland, (2003, p. 65) asserts that a company has ethical duties to
owners, employees, customers, suppliers, the communities where it operates, and the

public at large. The norm of doing no harm requires Nestls management to look
beyond its own interests (i.e., cheap cocoa, and high market-share). Unethical
marketing of infant formula and GM foods in developing countries are example of doing
harm knowingly and willingly and of benefiting from the lack of legal restraints to the
detriment of the eventual consumers. If business follow Kants rule, it will provide a
quality and safe product to its entire market. Nestle decide to sell unsafe (GM) foods
even it knows that the product is unsafe. In addition, Nestls marketing strategy in
developing countries was to distribute free samples to nursing mothers, thus getting the
baby used to the formula very early in order to get a hold on its captive market.
Unethically, Nestl promoted the use of infant milk formula as a substitute for mothers
milk. This unethical manner causes widespread infant malnutrition and susceptibility to
infection, which could even lead to infant death. Following this norm, Nestle should
preserve the safety and health of consumers by disclosure of appropriate information,
proper labeling and accurate advertising.
Workers on cocoa production from Ivory cost were paid below minimal wages and were
practiced as slave labor. Despite its awareness of the conditions of the labors, Nestle
continued purchased of cocoa from these suppliers. The company must pressurize its
suppliers to change because it is in a position of major buyer. Regarding to Nestls
in Thailand, the company should respect the right of employees to organize for the
purpose of collective bargaining. Nestle had better prohibit retaliation to their
employees, though disciplinary action, or an anti-harassment policy. In addition to Antiharassment, companies need to develop policies and procedures to prevent retaliation
against individual who file complaints of harassment or discrimination or who participate
in their investigation (Zimmerman, 2002).
1.2.2.
Do more good
In Ivory Coast, Children worked in hazardous conditions using machetes and spraying
pesticides and insecticides without the necessary protective equipments. Such
exploitation involves in significant Nestls profit since the labors received only a very
small proportion of the price paid for the Nestle product by the final consumer.
According to the norm of doing more good than harm to host country, Nestle must stop
buying cocoa from South Africa, which is under apartheid and uses child labor in
hazardous working condition. For a utilitarian, however, these are considerations that
can be balanced against other considerations, such as the benefit to others. On the
other side of the balance are factors like corporate reputation (Orts, 1995). These

factors can make corporate altruism worthwhile in the long run, even at the short-run
expense of the stockholders. Nestle should demonstrate its ethical commitment through
philanthropic contribution and use of its expertise and resources on numerous social
problem in host countries.
Importantly, Nestle should integrate social and ethical issue in strategic process (see
figure4). Along with an investment appraisal, such planning should include an
environmental impact assessment. According to Whetton & Cameron (2005) leadership
is the key success for organizational change as well as the key to aligning
organizational systems and follower behaviors around a new organizational vision.
Ethical leadership practices are necessary prerequisite for organizational effectiveness
(Ausguien, 2001). Therefore, Nestle top management must train to be ethical leadership
(see Recommendation action in appendix3).
Integrating social and ethical issues in the strategic management process
Social & Ethical Issues
Environmental Analysis
Establishing Organizational Direction
Strategic
Implementation
Strategic Formulation
Strategic Control
Source: Adapted from Thompson & Stickerland (2003, p.7)
To upgrade companys ethics, Nestle must impose codes of conduct that treating other
person with respect and should provide leaderships ethical training as leaderships are
key person to make a strategic-decision. Examples of codes of conduct include do not
use child or forced labor, provide a safe working environment, and respect worker rights
to unionize (Refer to figure2). Corporate moral excellence can be alternative to develop
Nestls ethical culture. For a corporate to be morally excellent, it must develop and act
out of a moral corporate culture (Hoffman, 1994). In a situation with intolerance arise,

manager should be guided by precise statements that spell out the behavior and
operating practices that Nestls demand. Nestle must be careful when placing a foreign
manager in a country whose values are incongruent with his own because this could
lead to conflict with local managers, governmental bodies, customers and suppliers.
1.2.3.
Respect the human rights of their employees
Doing good business and being a good employer is pivotal and important guidelines in
doing todays multinationals. In fact, ethical business must respect for human dignity,
and protect the fundamental rights of people. According to Aristotelian, equal should be
treated equally and unequal unequally (Hirschman, 2001). This infers that individuals
should be treated the same, unless they differ in ways that are relevant to the situation
in which they are involved. If labors work the same jobs, they should be paid the same
wage. If Nestle pays its labors less than other companies, then Nestle has an injustice
in remuneration system. Violating human rights is immoral practices due to Kants
principle. This indicates that Nestle exploited and treated others as means rather than
as ends, as thing rather than as person. Not only does Nestle (exploiter) fail to do its
duty to others, but also fails to do this duty to itself; Nestle make itself into an object.
1.2.4.
Respect local regulations
MNCs are subject to the laws, regulations, and jurisdiction of the countries in which they
operate (OECD, 2004). Nestle must not resist against law that protect the countrys
workers or consumers, even if such laws make operating in these countries less
profitable. It is evidence that Nestle did not respect for domestic rules and regulation.
Nestle broke Thai law bys paying workers less than minimum wage and cut them off.
For consumer safety, Nestle did not respect the laws and regulations of the countries in
which they operate with regard to consumer protection. In China, there is a regulation of
GM food, which required that all products which were contained GM ingredients, be
labeled explicitly. Despite consist of GM ingredients, Nestle products were not labeled.
Indeed, it could not unilaterally continue with its double standard practice and ignore the
concerns and demands of the general public in Asia.

Step II.
Based on the theories/concepts presented in the text:
How would you explain/describe/or categorize the ethical dilemma?

What conflicting and competing values make this an ethical dilemma for the company?
What standards did you use to determine that the issue was one of ethics and
presented an ethical dilemma for the company?
At what points or stages in the life cycle of the dilemma did the situation become one of
ethics?
Step III.
What is the right thing for the company to do in this case?
Has your company decided to do the right thing? If so, what difficulty will the company
experience in solving the dilemma?
What makes it so difficult for your company to decide what is right to do?
What moral obligations does the company have to its stakeholders:
How can the company demonstrate that it is a socially responsive and responsible
company?
Ultimately, what is the companys corporate social responsibility and how is it
demonstrated (or not demonstrated) in the case?
Is it possible in this situation for the company to ever achieve a corporate social
responsibility ideal?