Nova Southeastern University Wayne Huizenga Graduate School of Business & Entrepreneurship

Integrating Values - The Legality, Morality, and Social Responsibility of Caffeine-Alcohol Drinks
Introduction
The subject of this paper being presented is a specific review of how Phusion Projects, maker of the Four Loko alcoholic drink, acted between 2005 and 2010 in regards to their operation within the caffeinated alcoholic drink market. The paper will review the FTC and FDA legal issues specific to 2010 that were filed against Phusion Projects. There will be 3 different ethical theories used to determine how the company morally acted in their choices. The ethical theories that will be used are Utilitarian, Kantian, and Machiavellian views. Finally, we will review how Phusion Projects handled their social responsibilities. We will be limiting the focus of the paper to the decision to operate within the caffeinated alcohol energy drinks and the marketing decisions made by Phusion Projects. Their actions were important because they forced the government to ban the niche market they had worked so hard to operate within. To better understand the case we have included this brief overview of the market and specifics to Phusion Projects and the Four Loko product. Phusion Projects was formed in 2005 by a group of 4 friends. They chose to enter the alcohol energy drink market based on current drinking trends at that time. Red Bull and vodka was very popular and a new market introduction from Sparks in 2002 had a growing market. Phusion Projects introduced a similar beverage with a slightly different flavor and began marketing to college students in the Midwest. The first products did not have the success they were looking for and they eventually introduced the Four Maxed product in January 2008. This product came in fruit punch, grape and orange flavors and contained 10% alcohol by volume. In August of 2008 the Four Loko product was introduced to the market with an alcohol content of 12%. In 2007 the market for caffeinated alcoholic drinks was very popular with young drinkers on college campuses all over the United States and was under scrutiny from a number of different state’s attorneys. In December 2008 Miller-Coors and Anheuser-Busch agreed to reformulate their alcoholic drinks to remove caffeine under pressure by state attorney generals. Phusion Projects, as well as a number of other small makers of this type of drink, became an overnight success with the market withdrawal of the two largest competitors. By 2009, they were distributing product in 47 states and were selling product in Europe. These types of beverages were very popular with novice drinkers. The other issues that were getting greater attention were that the combination of alcohol and stimulants allowed people to think they could drink more than they really could; and, they were some deaths blamed on the product. Additionally, the product had become a social media sensation with people posting stories or videos of themselves acting inappropriately for others to see. College administrators and government officials realized there was a problem and were able to have both the FDA and FTC review this specific niche of business. The FDA in November of 2010 sent a letter to Phusion Projects, along with other manufactures of similar products, to stop using caffeine and stimulants in the drinks. The FTC also sent out a notice that changes regarding labeling and deceptive marketing practices used by the makers of these types of products. Phusion Projects, as well as a few others, have complied with all of the new rules and made changes to their products to be in compliance with all agencies. Phusion Projects does continue to grow and is now doing over $100 million per year in sales.
Legal Analysis When it comes to food and beverage consumption there are two primary agency guidelines that companies must follow: the Food and Drug Administration (FDA) and the Federal Trade Commission (FTC). The purpose of the FDA is to safeguard the public health and provide people food that is safe, unadulterated, and honestly presented (Food and Drug Administration [FDA], 2009). Like the FTC slogan, “Protecting America’s Consumers,” its purpose is to prevent business practices that are anticompetitive or deceptive or unfair to consumers. Both the FDA and FTC have designated codes as it pertains to caffeinated alcohol beverages (CAB). In late 2010 there were about four companies that produced caffeinated alcoholic beverages: Charge Beverages Corporation, New Century Brewing Company, LLC, United Brands Company Incorporated, and Phusion Projects, LLC. These companies produced drinks such as Core High Gravity HG, Moonshot, Joose and Max, and Four Loko. Each of the four companies was issued warning letters from the FDA and FTC in late 2010 regarding the safety and marketing of the caffeinated alcoholic beverages they produced. Phusion Projects received the most media attention for its alcoholic malt beverage Four Loko. The November 17, 2010 warning letter to Phusion Projects Incorporated from the FDA referenced several codes that defined and explained the violations under investigation. It was stated that the FDA had reviewed the ingredients in the beverage called Four Loko which contained caffeine added to alcohol. The combination of caffeine and alcohol mixed in this drink was considered as an unsafe food additive. Which caused Four Loko to be deemed adulterated under section 402(a)(2)(c) of the Federal Food, Drug, and Cosmetic Act (the Act) [21 U.S.C. § 342(a)(2)(C)] (FDA 2010). Title 21, code of federal regulations, part 170 (21CFR 170) gives the general requirements in regards to food additives. Section 201(s) of the Act [21 U.S.C. § 321(s)], defined the term "food additive" as any substance the intended use of which results in its becoming a component of any food, unless the substance is the subject of a prior sanction or is generally recognized as safe (GRAS) among qualified experts under the conditions of its intended use (FDA, 2010). Then under section 409 of the Act [21 U.S.C. § 348], a food additive is unsafe unless a regulation is in effect that prescribes the conditions under which the additive may be safely used, and the additive and its use or intended use are in conformity with that regulation (FDA, 2010). The ruling of the FDA also influenced several other agencies. Under the FTC Phusion Projects was instructed that its marketing and sale of Four Loko constituted an unfair or deceptive act or practice in violation of the Federal Trade Commission Act, 15 U.S.C. § 45 (Federal Trade Commission [FTC], 2010). The FTC warning letter went into further detail and cited information about incidents that occurred after the consumption of Four Loko that ultimately ended with consumers being hospitalized. The FTC also sided with the FDA and discussed the ruling of the FDA. The Tax and trade Bureau (TTB) whom is responsible for the regulating labels and advertising of alcoholic products was also involved. In September 2009 after a group of state attorneys general contacted the FDA and asked that they review the safety of CABs. In response, November 2009 the FDA began a safety review. Information was requested and reviewed from manufactures about the caffeine added to the products met the legal standard of GRAS. In response to the investigation and in an effort to meet the standards of the GRAS Phusion Projects, LLC submitted a notice of GRAS exemption claim for the use of caffeine in alcoholic beverages to the FDA in June 2010. This letter provided details of the scientific study by experts as it related to caffeine to justify the production of its drink Four Loko. Along with the letter submission was a dossier of the scientist research, regulatory status, safety evaluation, uses of caffeine, and all the proof the manufacture had that the drink was not in violation of GRAS. In November 2010 a little over a year after the initial review began the FDA finally issued warning letters to manufactures. The letter stated that they failed to show that adding caffeine to their product was GRAS, therefore making caffeine an illegal food additive in those products. The FDA then gave each company 15 days to respond. Phusion Projects announced its intention to remove caffeine and others stimulants from its drink. Then advised the FDA that it has ceased producing caffeinated alcoholic beverages, is no longer shipping such products, and expects to have all of its caffeinated alcoholic beverages off retail store shelves by December 13 (FDA, 2010). The FTC issued warning letters to the same companies on the same day as the FDA. However the FTC letters warned the companies that their marketing and sale of caffeinated alcohol products may constitute an unfair or deceptive act or practice in violation of the Federal Trade Commission Act (FTC, 2010). Just like the FDA the FTC gave a 15 day time period to in which they need to know what actions were going to be taken to protect the consumers. There were several reasons the FTC felt the marketing was unfair. First the malt beverage came in fruity flavored oversized cans of 24 ounces with an alcohol content of 12% by volume. The price was also a factor since the drink cost less than $3.00 a can. This is attractive to younger adults trying to get a quick fix while on a budget. The TTB position was that adulterated alcoholic beverages are mislabeled under the Federal Alcohol Administration Act (FDA, 2010). The Center for Disease Control and Prevention stated the caffeine can mask the depressant effects of alcohol leading drinkers to feel less intoxicated or impaired than they are. The caffeine does not make drinkers less intoxicated or impaired; it only makes them feel that way (FDA, 2010). Phusion Projects, LLC ultimately made several changes in order to comply with regulations to produce the drink Four Loko. The caffeine was removed, along with guarana, taurine, ginkgo. Secondly since criticized for size and that it was too much to drink in one serving they made smaller cans called Poko Loko. They even went a step further to make re-sealable bottles and cans. To comply with the FTC, Phusion changed the design on its can. The can now states the alcohol content and discourages underage drinking with the statement “We ID”. Compliance was in the best interest of Phusion Projects due to the fact so many incidents happened to individuals drinking Four Loko. If Phusion had continued to try to argue that Four Loko meets GRAS and a change in the product was not needed, they would not have been acting in the moral interest of the people. The framework of an organization is to consider the people within the organization and those that there business will reach because there is not clear definition as what business ethics involves. According to Ann Lawrence business ethics is defined “as the application of general ethical ideas to business behavior” (Lawrence). Ethics is a grey area when it comes to business ethics because it is difficult to determine the rules that ought to govern humans. Companies should maintain a proactive role in maintaining a culture of humanitarian effort for the rights of people and animals. Some factors that companies and consumers should consider to determine if a certain ethical threshold is achieved is quality of service, fair business practice, integrity of business, quality product, performance, stability and community involvement. Companies and consumers that foster ethical behavior help our communities to grow and ensure health and wellness across a global economy.
Ethical Review- Utilitarian View The utilitarian principle is one of many theories to answer the ethical nature of human beings. Being of the most influential western philosophy thoughts, the utilitarian approach is defined as an ethical theory that holds that an action is right if it produces, or if it tends to produce, the greatest amount of good for the greatest number of people affected by the action. Otherwise the action is wrong. While evaluating utilitarianism, after identifying the action for ethical evaluation, a utilitarian determines those people directly and indirectly affected by the action. The utilitarian then attempts to ascertain consequences of the action, good and bad, on the affected parties. In the most challenging aspect of this ethical theory, the utilitarian then strives to measure and weigh the good as compared to the bad consequences. If the good consequences outweigh the bad, the action is moral; if the bad outweigh the good, the action is immoral. Utilitarianism treats all people as equally important. Each person's life, happiness, pleasure, and pain have the same value and determine morality by focusing on the consequences of actions. Actions are not good or bad in themselves; they are judged right or wrong solely by virtue of their consequences (Mujtaba, 2008) Utilitarianism assumes that one can measure on a common numerical scale the quantities of pleasure and pain produced by an action. Once one adds up the quantity of pleasure and then subtracts from it the quantity of pain, one thereby can determine whether the action produces more pleasure than pain; and when comparing actions, one can determine which produces the greatest total good or perhaps the lowest total pain. The utilitarian ethical theory is founded on the ability to predict the consequences of an action. To a utilitarian, the choice that yields the greatest benefit to the most people is the choice that is ethically correct. With this theory, I will support that Phusion Projects of Chicago (Four Loko) is not acting in an ethical way by producing and marketing these drinks in their current form. Four Loko is a malt-liquor based concoction, which can contain up to 12 percent alcohol and comes in eight fruity flavors, has been involved in a string of incidents in which people were hospitalized or died. Doctors say Four Loko's caffeine masks its alcoholic effects, leading drinkers to consume more than they normally would. With this product, consumers are at a greater risk of alcohol poisoning due to not feeling their limits and other injuries which are high risks to the public and themselves. There are also large concerns with the way they market their product to college students and glorify binge drinking. The marketing page clearly encourages drinkers, particularly college students via its on-campus marketing push and a now-vanished Facebook page (more on that, below), to "show us your happy face" by uploading and sharing photos of themselves enjoying Four drinks. Four says these photos will be "immortalized on the Internet" (a prophetic statement, as it turned out). And despite the brand‘s claims about "Making college campuses safe and healthy environments for learning," the gallery featured in the screenshot features Northwestern University students (one of whom is holding a drink bigger than his head — interesting message when one can is equivalent to up to a six pack of beer) (Sauer, 2010) Exhibit [pic] Source: http://www.brandchannel.com/home/post/2010/10/28/Four-Loko-Declines-To-Own-Its-Excellent-Marketing-Strategy.aspx Stakeholder Analysis: Action Statement: “Are the products and marketing tactics of Projects of Chicago, moral if evaluated under the Utilitarian ethical philosophy?”
|Four Loko Stakeholders |Stakeholder Type |Description |
|Four Loko Partners in the |Primary and most |Partners have a formal and contractual relationship with the firm. The profits made |
|LLC |important |by the company are the value of the investment for these individuals |
|Four Loko Employees |Primary and most |Employees have a formal and contractual relationship with the firm which makes them a |
| |important |primary stakeholder. There jobs and income are dependent on the company doing well |
| | |enough to key tem around |
|Four Loko Suppliers |Primary and most |Suppliers have a formal and contractual relationship with the firm which makes them a |
| |important |primary stakeholder. There expected income, inventory surplus and profit are directly|
| | |tied to how many inputs are sold due to demand of Four Loko output on the market. |
|Four Loko Consumers |Primary and most |Consumers have a formal and contractual relationship with the firm which makes them a |
| |important |primary stakeholder. Customers are purchasing a product for a purpose. They are |
| | |hiring a product to do a job. In this case, acquire alcohol and make me feel better or|
| | |happy. |
|Consumers loved ones |Indirect |Consumers loved ones are impacted by the possible decisions and fatal mistakes made by|
| | |the consumer while under the influence of this product with less physical effects to |
| | |make them aware |
|FDA- US Government |Indirect |The government’s concerns are that these products cause an undue health risk and are a|
| | |danger to the public at large. They are concerned with the public interest |
|Media |Secondary |Media concerns are that people are aware of the dangers of drinking these products and|
| | |not 'feeling" the effects until something bad has happened. They are concerned of the |
| | |public interest |
|Citizens in areas where sold|Indirect |Citizens are large have an ongoing or abiding interest in the firm's practices as it |
| | |could have a negative effect on their lives but no direct transactional contact |

Pleasure vs. Pain Analysis
|PRIMARY Four Loko |Positive Consequences |Negative Consequences |
|Stakeholders | | |
|Four Loko Partners in |1. The more products are sold, the more profit is |1. The company’s main products could be ruled illegal and the |
|the LLC |made by the partners (High Likely) |company could go bankrupt and all investment will be lost (Less|
| | |likely) |
| | | |
| | |2. If product components are required to be re-arranged to make|
| | |less of an risk, the partners will incur the cost of |
| | |reformulation and rebranding (Highly likely) |
|Four Loko Employees |1. Employees have a job and income (Highly Likely)|1. 90 employees are employed at Phusion Projects, these jobs |
| | |could be lost if the products were deemed illegal without |
| | |changes in the product and marketing (Highly Likely) |
| | | |
| | |2. All medical benefits (100%) are paid by the company today, |
| | |if the product sales were greatly reduced due to mandates or |
| | |bad press these benefits could be lost or reduced (Highly |
| | |Likely) |
|Four Loko Suppliers |1. The company plans on selling 400,000 cases this |1. Expected component sales could falter if product is deemed |
| |year, which translates into a large profit |illegal without product changes |
| |generating activity for suppliers and distributors | |
| |( Highly Likely) | |
|Four Loko Consumers |1. Consumers get drunk with very little taste of |1. Consumers get drunk with an inaccurate feeling of not being |
| |alcohol (Highly Likely) |intoxicated and get hurt or die ( Highly likely) |

Indirect and Secondary Analysis
|Indirect & Secondary |Positive Consequences |Negative Consequences |
|Four Loko Stakeholders | | |
|Consumers loved ones | |1. Consumers get drunk with an inaccurate feeling of not being |
| | |intoxicated and get hurt or die ( Highly Likely) |
|FDA- US Government | |1. Citizens get hurt and the FDA gets blamed for having |
| | |research these products have dangerous outcomes and they do |
| | |nothing (Highly Likely) |
| | | |
| | |2. Public Officials are not re-elected due to public perception|
| | |( Highly Likely) |
|Media |1. The Media gets sensationalism at its best with |1. The media gets blamed for not making more citizens aware |
| |"air time" filling news stories (Highly Likely) |especially as it relates to not talking to their college |
| | |children about the product (Highly Likely) |
|Citizens in areas where| |1. Society as a whole could be impacted inadvertently if |
|sold | |someone is hurt by a person under the influence of the product |
| | |without a true sense of whole intoxicated they are (Less |
| | |Likely) |

Utilitarian Analysis Results: [pic]

As you can see by the final consequence output of a net of negative 16, the products and marketing tactics of Projects of Chicago are not moral if evaluated under the Utilitarian ethical philosophy. Ethical Review- Kantian View There are many ethical theories regarded throughout the world today. One highly regarded theory is Kantian ethics. The Kantian ethical theory was born of German philosopher Immanuel Kant. Kant declared that reason is the source of morality. Morality is ultimately based on reason and reason alone. Unlike Utilitarianism, Kant’s theory states that morality is to have no regard on consequences of actions. One must act morally, despite any consequences, good or bad. Kant believed that all humans are rational beings and therefore able to apply reason when making moral decisions. Kant did not believe that the ordinary person needed direction to come to a moral conclusion. Reason is built into one’s character, so moral conclusions will be clear to all. Kant called the ultimate ethical rule the Categorical Imperative. This rule is the basis for all human rationality and moral judgment. In order for an action to be considered moral, it must meet the three requirements of the Categorical Imperative. First, the action must be possible to be made universal. Next, the action must treat human beings with respect and dignity; and third, it must stem from and respect the autonomy of rational beings and be accepted by rational beings. When applying the Kantian ethical theory to the case of Caffeine-Alcohol drinks, there are many components to consider. All the components however are proven immoral based on Kantian ethics. First, the Four Loko drinks produced by Phusion Projects of Chicago are extremely unhealthy. Two colleges in the US have banned Four Loko due to the rise of alcohol intoxication on campus, according to the case. This drink is a toxic combination of caffeine and malt liquor. Four Loko is dangerous to consume because it has a fruity taste instead of tasting like alcohol. Consumption of this drink does not pass any of the requirements of the Categorical Imperative. Universally, humans will not consume this beverage. This action, because of the blatant disregard for health, does not treat humans with dignity or respect, nor does it respect the autonomy of rational beings. Another component to this case that proves to be immoral by Kant is the marketing tactic used by the producers of Caffeine-Alcohol drinks. The producers of the beverages Four Loko and Joose decided to have brightly colored labeling and “fruity” flavors that appeal to a young demographic. These companies have been accused of marketing to underage drinkers and even children. Marketing harmful and illegal substances to minors is in no way congruent to Kant’s ethical theory. This action cannot be made universal, it does not treat humans with respect nor does it respect human beings as autonomous. This action does not comply with the requirements of the Categorical Imperative; therefore it is immoral, according to Kant. Based on the evaluation of these two actions, the case of Caffeine-Alcohol drinks is found to be irrational and overall bad. According to the Kantian ethical theory, the production, sale and consumption of Caffeine-Alcohol drinks is detrimental to society and, regardless of the consequences, the moral conclusion is immorality.

Ethical Review- Machiavellian View Nicolai Machiavelli asked two questions in his book “The Prince”. The first was what do people strive for, or the “good”. His answer to this is power, as that is the ultimate goal of everyone. He did not “expect the work of founding a principality or any great enterprise to be undertaken from purely unselfish motives rather, the impetus stems from the desire for power and success, fame, and glory that power can achieve” (Cavico, 2009) The second question was what acts will product the “good” or power. These acts or “virtuous” means to the end can be either good or bad based on traditional thinking. Machiavelli believed to understand the means used one must understand human nature. Machiavelli had a very pessimistic view of human nature. He believed people were “predominately egoistic and selfish, treacherous, envious, fearful and cowardly, passionate and irrational, short-sighted, gullible, and stupid.” (Cavico, 2009) In essence, human nature was nothing but bad public relations in his view. In order to control human nature it is necessary for a strong leader to manage the people so that they don’t destroy themselves. Under Machiavellian view, the traditionally good person cannot survive, in the belief that others will make decisions not deemed as good. This means that you will never succeed if you do not put your own self-interest ahead of what is good for society as a whole. Machiavelli rejects the constant adherence to traditional justice and morality. Machiavelli had his own beliefs on how a founder or a ruler needed to act in order to achieve the power. He taught use of astute, sharp, cold-blooded calculation of self-interest. A strong person would also risk whatever was needed to promote one’s power to gain more power. It was acceptable in his view to break a promise if it was against one’s self-interest. A good leader would also manage others to serve his or hers own advantage. They would also appear more virtuous than one’s rival. All of these virtues would allow a leader to grow and gain more power. Each decision is evaluated to see if it a “means to get to the end”. If an action does help get closer to the end result, it is rejected. If it does assist in the overall process, regardless of the fact that it may violate traditional ethical value, the action is a good choice or virtuous. The end result of Machiavellian theory is success. This is the only acceptable standard in his theory. Anything less is considered failure. One must also exercise caution in what actions are used in the public eye verses one private life, as they have very different moral implications. Phusion Projects, the maker of the Four Loco alcoholic drink, has proven to be virtuous when you review their actions using Machiavellian Ethics. The company as a whole has chosen to operate in the alcohol industry, focusing on alcoholic energy drinks, which is considered an industry hot topic for both legal and moral issues. When they first came to market, they made some very shrewd marketing decisions, that allowed them to grow quickly, but also exposed them to both FDA and FTC issues. While they may have had to change their course of action, they choose actions on their own terms and have been able to continue to grow their brand where others in their market, have not.

Decision to Enter in the Alcohol Industry Phusion Projects decided to enter the alcoholic energy drink market in 2005. The alcohol industry as a whole has faced many ethical and moral roadblocks. Many believe that alcohol is abused and can cause people to turn violent and make poor decisions regarding their health. Additionally, there are many laws regarding proper use of alcohol and restrictions while under the influence of it, specifically, around operation of vehicles. The alcoholic energy drink niche was considered even more dangerous. Industry studies showed that the combination of both made this more dangerous because it allows people to think they can consume more than they can handle due to the stimulant, caffeine, providing a false sense of awareness. This causes this specific type of drink to be considered very bad. While this choice was against traditional ethical conventions, it was both legal and acceptable by Machiavellian standards because they have been able to successfully sell product and make a profit.
Product Design and Marketing Phusion Projects launched their first product in 2005. They utilized a very shrewd and questionable product development scheme to become successful. The target market for the product is those ages 21 to 24 years old. The novice drinking crowd is attracted by things they grew up with and the Four Loko product is based on fruit flavors with very colorful marketing design on both the product itself and the marketing materials. This approach was considered risky and was questioned by lawmakers and administrators. These flavors also masked the flavor of the alcohol and allowed the inexperienced drinker to experiment with the beverage. The other major issue that came into play is that since these products looked like existing energy drinks, parents were unaware of the contents of the cans and were purchasing the product for the kids without knowing what they were. Additionally, due to the higher alcohol content and large can size, in some case one can was equivalent to four beers worth of alcohol. These choices were considered poor by most in a traditional ethical view, but also helped reach the companies ultimate goal of success. Because of the small startup funds they also had to use nontraditional marketing to get the word out about the product. They did utilize a “Grass Roots” program and focused on college students and soon made inroads into the college campuses all of the Midwest. They also relied on the unapproved social media to help get the word out regardless if the message was good or bad, following the policy that any publicity is good publicity. The Four Loko product garnered the “unofficial slogan says Charles Schelle at The Ball State Daily News, is “horny, hyper, and happy.” http://theweek.com/article/index/209434/the-rise-and-fall-of-four-loko. Additionally, many unofficial websites were setup on the web showing people drinking the product and having a “good” time or blacking out and not remembering what happened. The company was aware of the alternative forms being used and allowed to them to continue. Phusion Projects could have made a statement separating themselves from these sites and sending a cease and desist notice. It was also suggested that they could combat these sites with their own social media sites but decided to act during this time. The sales were growing and the makers of the product decided that the growth of the business was good. This choice was an interesting one for two reasons. The product did gain a lot of publicity both good and bad, but as more people in authority denounced the product, the target audience took the product more as they tend to oppose what responsible adults tell them. The choice per did help grow the product and was a virtuous one per Machiavellian theory.
Alcoholic Energy Drink regulation changes Phusion Projects came under fire with government regulators, states’ attorneys, and most college administrators in 2009. A number of incidents where young adults had died were directly tied to the Four Loko product. The drink was being accused around colleges for immoral behavior such as rape and blackouts. Colleges decided to ban the product from campuses also. During these events Phusion Projects choose to do very little other than dispute the charges and figure out ways to sell more products. This again was not pursuant to normal ethical values, also proved to be a poor choice under Machiavellian ethics as it ended up bringing the attention the government to eventually review the regulations that governed the product. The CDC published a fact sheet in response to governmental pressure stating “Caffeinated Alcoholic Beverages (CABs) are premixed beverages that combine alcohol, caffeine, and other stimulants. They may be malt- or distilled-spirits-based and usually have higher alcohol content than beer (i.e., 5%–12% on average for CABs and 4%–5% for beer). The caffeine content in these beverages is usually not reported.” http://www.cdc.gov/alcohol/fact-sheets/cab.htm. This came in conjunction with the FDA issuing a warning letter in 2009 stating that “The FDA noted that it is unaware of the basis upon which manufacturers may have concluded that the use of caffeine in alcoholic beverages is generally recognized as safe (GRAS) or prior sanctioned” http://www.fda.gov/Food/FoodIngredientsPackaging/ucm233591.htm The FTC also got involved and sent out letters in conjunction with the FDA “ Citing incidents “suggesting that alcohol containing added caffeine presents unusual risks to health and safety,” the FTC letters warned that marketing of such beverages may constitute an unfair or deceptive practice that violates the FTC Act” http://www.ftc.gov/opa/2010/11/alcohol.shtm . These changes in regulations made distribution of the product illegal. Additionally, it could open them up to legal issues, so they had to act quickly. The company had to reformulate the product to remove the caffeine and other stimulants. They also had to redesign the packaging to meet the regulations regarding warning labels. Phusion Projects did not deviate from the “Kid friendly” flavors which is what they have been able to market to the “Novice” drinker market. The company also decided to stick with the bright and colorful product designs also. These two actions were deemed bad by many, but it was a good decision for the company as they are still in business and doing over 144 million a year in sales.
Overall moral conclusions for Machiavellian views In my overview review of how Phusion Projects decided to operate with the Alcoholic Energy Drink market and handled the overall issues with the FDA/FTC were virtuous pursuant to Machiavellian ethics. The company was able to grow into an industry leader within their marketing niche and be able to reinvent itself and grow after some major regulatory hurdles. While most of the decisions were frowned upon due to being contradictory to normal ethical choice, the success of the company validated the decisions made. The decision also to delay the change in formulation until the FDA pushed the issue, may be viewed as defiant and socially irresponsible as a corporation, but at that time they had product that was made that needed to be sold in order to continue operations going forward. The company has also taken a defensive stance that they have always followed the law and made wise ethical decisions even though they pushed the limits of what it meant to the company’s advantage. While this does philosophy does not agree with many people, it is marketing view that has allowed the company to identify themselves with their target market and continue to grow market share. Of the 4 major companies that all faced the same issue, only 3 are still around now. Overall their actions were justified and the end result as they are considered a successful company, and thus virtuous per Machiavellian ethics.

Social Responsibility Phusion Projects has been an interesting study in social responsibility. In their early days, while they were compliant to all laws and took the company line of underage drink and responsibility was bad, and did promote it as such, they also allowed a non-sanctioned social media presence to go “viral” throughout their target audience. This tactic did help the alcoholic energy drink trend grow and good for their business and similar manufactures, but novice drinkers did get hurt not understanding what they could handle and not handle. If they were being proactive they would have made a change before both the FDA an FTC forcing them to change the product. Today, corporate behavior must not only ensure returns to shareholders, wages to employees, and products and services to customers, it must also respond to societal and environmental concerns (Corporate Social Responsibility, 2001). Cavico and Mujtaba (2009) say that social responsibility, “may be defined as taking an active party in the social causes and civic life of one’s community and society” (p. 163). Social Responsibility is neither legal nor moral but a business may be obligated to work towards betterment for society as a whole. The words “accountability” and “responsibility,” of course, imply some sort of an obligation on the part of business to deal with social problems (Cavico and Mujtaba, 2009). It would be easy for a business to only concern itself with profits but what about the quality of life, or the environment, or society as a whole, or abuse of substance as well as criminal activity. A business should not only want to maximize its profits but also maximize its morality in the community. A corporation, as well as a person, can have a non-moral duty, the failure to perform, which is not a moral wrong; yet one can be held accountable for failure to perform a social obligation (Cavico and Mujtaba, 2009). Any business should want what is best for the community; and the wellbeing of its citizens should be their number one concern. Phusion Projects must take into account that Four Loko drinks are destroying our youths and be willing to do whatever it takes to ratify the problem at hand. And one of the major concerns that the public has, is the effect that simultaneous consumption of alcohol and caffeine have on the body. Then, Phusion Projects should do everything within its power to safe guard the public by informing the public of the dangers as well as the side effects that comes from drinking Four Loko. Some other concerns consist of injuries that come from drinking Four Loko, being taken advantage of sexually while under the influence of Four Loko, driving while intoxicated, and binge drinking. Businesses should be concern with any product that they produce that may have a negative effect on the public’s health as well as the public’s wellbeing. Therefore, it is the company’s responsibility to protect the welfare of the public at any cost. Phusion Projects should not justify its means by stating “its products are abused or are consumed by underage drinkers” and “consumers, especially college students, may be adding “hard” liquors to the beverage”. Even if this statement is true it still does not clear Phusion Project of its responsibility to the public. There is a saying that goes “am I my brothers/sisters keeper” and the answer should be yes I am where Phusion Project is concern. “Health advocates, government regulatory agencies, law enforcement agencies, and college administrators are now condemning the beverage which they declare is a beverage for binge-drinkers”. In response to the concern that the community has as a whole should encourage Phusion Projects to take measures to ensure that safety is their upmost concern. Phusion Projects should feel obligated to inform the public of the down size to drinking Four Loko energy drinks. I would recommend that Phusion Project stop manipulating the public and be truthful by stating the facts of their products. “Maximize its positive impact and minimize its negative impact on society”. In overcoming the hurdles of social responsibility, all partners and sectors need to be committed to adhere to a coherent social strategy in the interest of society as a whole (Corporate Social Responsibility, 2001). The heart of social responsibility entails preserving a good relationship with consumers as well as with all the parties involved in the business of the company. As social responsibility in business operations is becoming an expectation of the workplace, society is taking note to the differences in “merely” doing no moral harm to doing socially “good” based on the definition of “social responsibility”. Even though “business gain an improved public image by being socially responsible” it is imperative for business to remain ethical in every aspect of the word. In conclusion, Phusion Projects has much more proactive stand to being socially responsible since it launched its products. Phusion Projects has reformulated Four Loko and all of it products as of November 2010 to remove caffeine, guarana and taurine. They have implemented some responsible drinking resources on their website. They have gone “above and beyond federal and state labeling requirements with multiple labels on all Four Loko products that prominently show that the beverage contains alcohol.” http://phusionprojects.com/responsibility.html they have imprinted labels and marketing materials clearly stating the message: “If you’re 21 or older and choose to drink, please drink responsibly. If you’re under 21, respect the law and don’t drink.” http://phusionprojects.com/responsibility.html Phusion Projects has grown and have become more responsible with time. Even though being socially responsible is not mandated for any business, it is important that business realize that in order for them to continue to grow they must take on being socially responsible. Conclusion Phusion Projects beverages have been highly controversial and an interesting case study within the field of business ethics. Legally, Phusion Projects is compliant with the regulations set forth by the FDA. This was and will continue to be in the best interest of the company, after having to make adjustments to the product line due to legal issues. Ethically, this company was proven to be immoral by the two most commonly known ethical theories. Based on Utilitarian ethics, the case of Caffeine-Alcohol drinks is found to be immoral. Similarly, Kantian ethics found the products to also be immoral. However, after a detailed dive into the Machiavellian ethical theory, the companies producing these beverages are found to be moral based on these specific guidelines. Lastly, Phusion Projects has become more socially responsible over time. This is largely attributed to government mandate; however, we believe that the company is growing to appreciate the positive consequences of being socially responsible in business today.

References

Cavico, J. F., & Mujtaba, G. B. (2009). Business Ethics. The Moral Foundation of Effective Leadership, Management, and Entrepreneurship. Pearson Custom Publishing. New York

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Engle, M. K. (2010, Nov 17). Notice of Potentially Illegal Marketing of Caffeinated Alcohol Products. retrieved from http://www.ftc.gov/os/closings/warnings/phusionletter.pdf

Federal Trade Commission. (2010, Nov 17). FTC Sends Warning Letters to Marketers of Caffeinated Alcohol Drinks. Retrieved from http://www.ftc.gov/opa/2010/11/alcohol.shtmhttp://www.ftc.gov/opa/2010/11/alcohol.shtm

Givens, J. M. (2010, Nov 17). Phusion Projects Inc. 11/17/10. Retrieved from http://www.fda.gov/ICECI/EnforcementActions/WarningLetters/2010/ucm234023.htm

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Mujtaba, F. C. (2008). Business Ethics- The foundation of Effective Leadership, Management and Entrepreneurship. Ft Lauderdale Fl: Custom Publishing.

OECD (2001), Corporate Social Responsibility: Partners for Progress, OECD Publishing.

Sauer, A. (2010, 10 28). www.brandchannel.com. Retrieved 05 12, 2012, from Four Loko Declines to Own Its Marketing Strategy: http://www.brandchannel.com/home/post/2010/10/28/Four-Loko-Declines-To-Own-Its-Excellent-Marketing-Strategy.aspx

U.S. Food and Drug Administration. (2010, Nov 17). Caffeinated Alcoholic Beverages. Retrieved from http://www.fda.gov/food/foodingredientspackaging/ucm190366.htm