The field of Business Ethics relies on a relatively small core of well-known cases of corporate behavior to illustrate the themes of the subject. Near the top of this list of familiar names (e.g., the Ford Pinto, Tylenol, and Bhopal) is Nestle´ S.A., the Swiss food conglomerate. Of all the business histories examined by students of ethics, Nestle´’s saga of controversy is perhaps one of most intriguing.
In the late 1960s, Nestle´ was criticized by social activists for its marketing of powdered milk formula for infants in less developed countries. The case became a cause ce´le`bre as Nestle´ became the victim of a well-organized boycott campaign.
The conflict has become a popular case study in the business school curriculum because it demonstrates the need that companies have to constantly preserve and enhance their legitimacy in the public eye. The discussion of legitimacy leads quite naturally into a discussion of issue management, and the consequences of mismanaging a public issue (Post 1985 p. 127).
Although Nestle´ was the subject of the boycott, the infant formula controversy may have initially been seen more as a dispute over generic bad practices within the infant formula industry rather than as a focused attack on one particular firm, a perspective that Nestle´ itself may have wanted to engineer. The original publication that stimulated the boycott refers to an industry-wide pattern of marketing of infant formula. (Muller 1974) To begin with Nestle´ was illustrative of an overall malaise, and it is conceivable that if it had not been the industry market leader then social activists might have initially focused their attacks on an alternative firm in the industry. Nestle´ was ‘‘the unwilling representative of the entire formula industry’’ (Frederick et al. 1992, p. 563).
C. Boyd (&)
Department of Management and Marketing, Edwards School of Business, University of Saskatchewan, 25 Campus Drive,
Saskatoon, SK S7N 5A7, Canada e-mail: boyd@edwards.usask.ca
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J Bus Ethics (2012) 106:283–293
DOI 10.1007/s10551-011-0995-6 Author's personal copyThe Nestle´ boycott evolved to be essentially impersonal, therefore. It came to be directed at Nestle as an evil collective corporate entity rather than at specific named managers as particular villains within Nestle´, individually responsible for Nestle´’s corporate actions.
Even if there had been individual identifiable villains within Nestle´’s senior management it was considered unlikely that their unethical behavior would continue after the boycott because of the need for pragmatism:
The corporate culture at Nestle´ has been profoundly affected by ten years of conflict and a seven year product boycott. Employee turnover and morale is known to have been affected, and management attention to the boycott has cost the company dearly in terms of other business needs and decisions. One factor that encouraged the company to act to end the boycott is that Nestle´’s new senior management has wanted to turn from this issue to other, more pressing business problems (Post 1985, p. 124).
This article explores the ethical conduct of Nestle´ and some of the firm’s senior managers in those years following the infant formula controversy. A priori, Nestle´ would be expected to seek and achieve a reputation of good conduct in the aftermath of the controversy, if only to avoid the glare of further adverse publicity.
Unfortunately, the history of Nestle´’s direct and indirect involvement in some major business scandals in the 1980s, as revealed below, suggests that some senior managers of the firm were irredeemably unethical. Nestle´’s role in these further scandals leaves little doubt as to the historical origins of the infant formula scandal—Nestle´ had a continually defective culture at the most senior level of management. This article attempts to extend our knowledge of the
Nestle´ infant formula controversy by naming specific unethical individuals within Nestle´. Their influence on
Nestle´’s overall behavior has been previously overlooked, as if there were no one who had been behind the steering wheel causing Nestle´ to behave the way in which it did.
The article opens with a brief review of the infant formula controversy, and then describes the recruitment of
Ernest Saunders to Nestle´. He was put in charge of negotiating the end of the Nestle´ consumer boycott. He became head of a division of Nestle´ that then acquired the US baby food firm, Beech-Nut Nutrition. This firm was subsequently fined for selling fake apple juice for babies, and its senior executives sentenced to jail.
The article describes how Ernest Saunders left Nestle´ to become head of the UK brewing firm Guinness, appointing his friend Arthur Fu¨rer, the Chairman and Managing
Director of Nestle´, to be a director of Guinness. Another director he appointed was Tom Ward, a US legal consultant to Nestle´ who had worked with Saunders and
Fu¨rer on the baby-milk case, and who had also been BeechNut’s attorney.
After engineering a takeover of one Scotch whisky firm,
Saunders later consulted with Ward and Fu¨rer over the possibility of Guinness taking over the giant UK firm of
Distillers Ltd, the major player in the Scotch whisky industry. The takeover, which involved a share swap, eventually succeeded and was the largest ever takeover in
British business history at that time. However, as a result of subsequent revelations by Ivan Boesky, the convicted insider trader, Saunders was later jailed for stock manipulation in the Guinness takeover of Distillers. Ward was prosecuted for theft.
A major participant in the Guinness stock manipulation scheme was Bank Leu, a Swiss bank coincidentally chaired by Arthur Fu¨rer. The article further relates how Dennis
Levine, the disgraced insider trader from Drexel Burnham
Lambert, came to route all his illegal trades through Bank
Leu.
This set of scandals involves many of the most infamous episodes in the history of business in the 1980s, some of which ended with major criminal trials and the imprisonment of eminent business figures. At the core are three individuals from Nestle´ who were involved in negotiating the end of the Nestle´ boycott. The article concludes with an analysis of the possible causes of the clustering of this constellation of business scandals around the Nestle´ Fu¨rer–
Ward–Saunders nexus. A Venn diagram showing the relationships between these scandals is shown in Fig. 1.
The final section of this article examines a tangential phenomenon illustrated in the diagram, the predation of firms which themselves had suffered from scandals. Thus, the article describes further links to the Thalidomide tragedy, the Bhopal disaster, and the Perrier product recall.
Ernest Saunders and the Infant Formula Controversy
Nestle´, the Swiss food conglomerate, was subject to consumer boycotts in the 1970s because of its marketing of powdered milk formula for infants in less developed countries. Free samples were distributed at maternity units, and by sales representatives dressed as quasi-medical personnel. The criticism was that third-world mothers were being persuaded that infant formula was better for their babies than breast milk. Once a mother switches to powdered milk and stops breast feeding her baby, her production of milk ceases, and the supplier has a locked-in customer. (For fuller descriptions of the infant formula controversy, see Murray 1981; Bucholz et al. 1985; Post
1985; Mokhiber 1988; Kuhn and Shriver 1991; Frederick et al. 1992; Sethi 1994.)