Journal of Business Strategy
THE NESTLE BOYCOTT: IMPLICATIONS FOR STRATEGIC BUSINESS PLANNING Rafael D. Pagan, Jr.

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To cite this document: Rafael D. Pagan, Jr., (1986),"THE NESTLE BOYCOTT: IMPLICATIONS FOR STRATEGIC BUSINESS PLANNING", Journal of Business Strategy, Vol. 6 Iss 4 pp. 12 - 18 Permanent link to this document: http://dx.doi.org/10.1108/eb039126 Downloaded on: 10 January 2015, At: 02:12 (PT) References: this document contains references to 0 other documents. To copy this document: permissions@emeraldinsight.com The fulltext of this document has been downloaded 1761 times since 2006*

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N. Craig Smith, (1987),"Consumer Boycotts and Consumer Sovereignty", European Journal of Marketing, Vol. 21 Iss 5 pp. 7-19 http://dx.doi.org/10.1108/EUM0000000004694 N. Craig Smith, (1989),"Consumer Boycotts", Management Decision, Vol. 27 Iss 6 pp. - http://dx.doi.org/10.1108/ EUM0000000000050 Edmund S. Muskie, Daniel J. Greenwald, (1986),"THE NESTLE INFANT FORMULA AUDIT COMMISSION AS A MODEL", Journal of Business Strategy, Vol. 6 Iss 4 pp. 19-23 http://dx.doi.org/10.1108/eb039127

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THE NESTLE BOYCOTT: IMPLICATIONS FOR STRATEGIC BUSINESS PLANNING
Rafael D. Pagan, Jr.
Infant formula manufacturers have faced a major international controversy concerning their products. Activists took issue with the way these manufacturers marketed infant formula in Third World countries. Because Nestle was one of the largest producers of infant formula, activists staged a worldwide boycott of all Nestle products. In years to come, the solution to the controversy will be seen as a landmark in the development of a more dynamic attitude by business toward the larger world around it.

Nestle, S.A., the Swiss-based but highly decentralized enterprise that is the world's largest developer and manufacturer of nutrition products, was the subject of what one journalist called "an intense battle, the fiercest and most emotional ever waged against a multinational company" for its marketing infant formula in poor countries. For seven years, there was an organized boycott against Nestle's products, which was at last resolved to the stated satisfaction of both sides and with expressions of mutual goodwill and trust. The story of the boycott's successful resolution should be of interest to all who bear responsibility for the continued vitality of their businesses.
Rafael D. Pagan, Jr., is President of the Nestle Coordination Center for Nutrition, Inc. and is Chairman of Pagan International in Washington, D.C.

The Controversy
The controversy began to brew when some public health activists believed there was a connection between bottlefeeding and infant health problems. The activists, who were joined by some prominent church groups, gave these reasons for the connection: • Infant formula does not provide the immunological properties that breast-milk does; • In the Third World, infant formula is often mixed with contaminated water; and • In the Third World, infant formula is often overdiluted since the families cannot afford to purchase enough of it. Activists maintained that aggressive marketing by infant formula companies increased the amount of bottlefeeding in these countries. But

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other studies showed that company marketing was an insignificant factor in mothers' decisions on whether to breastfeed or bottlefeed their infants. No serious allegation was made that the product itself was harmful.

Two Lessons
The Nestle boycott teaches two lessons. The first, which is ignored only at great peril, is that issues that can arise to threaten a company are as likely to be sociopolitical as financial, and that no company, especially a large visible company, is exempt from the possibility of some political crisis arising. Therefore, executives owe it to themselves and their firms to become as competent at managing political issues as they are at managing profit-and-loss issues. In today's world, public policy and profits are equally important to a company's survival. The second lesson is that if a company commits itself to acquiring sociopolitical competence, and instills that commitment in all ranks, it can become as dynamic and assertive in shaping its political environment as it is in shaping its financial and marketing environment.

years. But up to the boycott crisis, Nestle had no strategy to combat the social guerrilla war that suddenly was waged against it. The Nestle boycott should prove to the satisfaction of senior executives that no company is immune from sociopolitical conflict and that all should have strategic plans for public policy, as they do for profit.

The Rise of the Infant Formula Conflict: 1970-1981

New Ground
Nestle management broke new ground with an imaginative leap forward in public policy strategy. Nestle created a self-sufficient unit called the Nestle Coordination Center for Nutrition, Inc. (NCCN), which was based in Washington, D.C. This autonomous unit was, to this author's knowledge, the first of its kind and represented a major advancement in the development of a political strategy capability for business. NCCN was tailored to deal with the boycott crisis, and this author was hired to organize it and lead the effort. The formation of NCCN marked a change in crisis management strategy for Nestle. Previously, Nestle had favored a more passive strategy of Swiss ideology, which favored political neutrality, product integrity, noncontroversial nutrition products, and a low profile. It favored stable relations with employees, customers, and host communities. It earned a solid reputation for nutrition research and for cooperating with health care professionals in host countries. It chose not to own plantations and farms to avoid conflicts over land ownership. Instead, Nestle worked with local farmers and entrepreneurs to help develop modern economic infrastructures. This passive strategy worked for more than a hundred

The infant formula controversy began in December 1970, when a scientist at a U.N.-sponsored forum on nutrition claimed—totally inaccurately, as it turned out—that aggressive marketing of a Nestle infant formula product in poor countries was responsible for a sharp decline in breastfeeding there. Neither Nestle nor any of its competitors had any sociopolitical strategy capability other than monitoring legislatures—and Nestle, a Swiss company, lacked even that. Had Nestle had such a strategic capability, it would have included a distant early-warning information gathering function to monitor the issue as it passed from the initial forum to scholarly journals to church bulletins to political broadsheets and little magazines to the general news media. The company would have had at least two years to notice that the issue was growing, so that it could have prepared a strategy to resolve the issue early on. It would have been listening to criticism carefully and seeking discussions with the more thoughtful and respected critics—the opinionmakers—to explore ways to reassure them. Nestle instead irritated its critics by denying the legitimacy of their concerns and by treating an emotional, sociopolitical matter as one in which the company knew what was best and would do what was right. Indeed, the company unilaterally modified some marketing practices that no longer were appropriate—such as ending consumer advertising of infant formula in poor countries—but received no credit from its critics, who had not been consulted. Around 1973, the issue changed from an industry problem to a Nestle problem for several reasons. As the leader in infant nutrition research, Nestle had replied to critics on behalf of the industry. As the least politically experienced of the major companies, Nestle was more vulnerable—especially in the United States, where it did not manufacture infant formula and where its

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subsidiaries knew nothing about the issue. Finally, the more politically minded critics targeted Nestle precisely because it was the industry leader. Indeed, key leaders of the movement claimed they were urged by some of Nestle's competitors to concentrate on Nestle. When a small Swiss extremist anti-business activist group accused Nestle of "killing babies," the company sued for libel. This action gave the activists far more publicity than they otherwise would have received and, combined with Nestle's failure to establish a relationship with its more moderate critics, gave leadership in the conflict to the company's more confrontational critics, with disastrous effects on any prospects for a peaceful early solution. As one observer of political conflicts said at the time, both sides had now been bloodied, so the struggle would have to go on for a long time. On July 4, 1977, the boycott against Nestle began.

the international regulation of multinational business. Ten years after the infant formula issue was born, Nestle lacked credibility, was on the defensive reacting to others' initiatives, and had no strategy for resolving the conflict on acceptable terms that would allow it to competitively market infant formula.

How NCCN Resolved the Conflict
NCCN was formed in January 1981, and about three years later the boycott was suspended. How had Nestle accomplished this in such a short time? First, NCCN was composed of a lean staff. It had about five senior executives and three secretaries. Specialized consultants were used as needed, and specialized talents from Nestle itself were used, whenever available. A constant twoway line of communication was kept open between Nestle and NCCN, and NCCN had the full support and participation of senior management when the time came for personal meetings with church leaders. The first strategic decision was to stop the unproductive shouting match with Nestle's critics, and to listen. Listening served two purposes. One, it enabled NCCN to gather information about Nestle's critics and their objectives so appropriate strategies could be developed. And two, it allowed NCCN to earn the right to be listened to by critics, in turn. Stopping the shouting freed Nestle from having to defend fixed positions and allowed a new mobility in an effort during the early months of 1981 that enabled Nestle to contain the critics' initiatives. NCCN sent articulate, well-trained spokespersons, who were scientists well experienced in the nutrition problems in the Third World, to the field of the political battle. They met with the media, church groups, and public interest groups to answer publicly the accusations leveled against Nestle. NCCN also began a well-focused information gathering effort. In the early phase of determining goals and planning strategies, the new unit also listened to Nestle. NCCN's tasks were made infinitely easier—indeed, possible—by the fact that Nestle wanted to do the right thing and shared its critics' concern that infant formula be marketed responsibly to minimize the risk of misuse. Upon listening to the critics, NCCN soon discovered that while the critics were led by skillful political activists, the campaign against Nestle received its moral authority and most of its popu-

Nestle management broke new ground with an imaginative leap forward in public policy strategy.

Two years later, the primary scene of the conflict was by general consent handled at the World Health Organization (WHO) in Geneva, which began drafting a recommended code on marketing breast-milk substitutes. This code, which was passed in May 1981, recommended marketing standards for infant formula that countries could adopt if they chose. The code recommended that member states of WHO take all possible actions to halt the decline of breastfeeding, and it outlined a "minimum" level of requirements that member nations should impose on the marketing practices in infant formula code. The draft code was more to the critics' liking than to the industry's. That was because, unlike other industries with more foresight, infant formula manufacturers had not established a presence at any U.N. agency as nongovernment observers. The industry's critics, however, had long since done so, primarily through the International Organization of Consumers Unions and Health Action International. At the WHO, as elsewhere, the industry simply had not established any basis for constructive negotiations with the WHO staff, which already was inclined toward establishing a precedent for

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lar and financial support from religious groups and critics of conscience. The church-oriented critics were uncomfortable with profit-oriented multinational capitalism— especially as it bears upon the development process in less dynamic, more traditional societies. But these critics were willing to work with Nestle on behalf of the world's poor and to see if multinationals were as useful and as caring as Nestle claimed.

Establishing a Strategic Goal
On the basis of NCCN's analysis of the key critics' motives, NCCN established the strategic goal of resolving the boycott by a long process of dialogues and one-to-one discussions designed to achieve what one boycott leader called a win-win result. To achieve this goal, NCCN divided its campaign into four main phases. The first phase was containment of the critics' initiatives by listening to both sides as discussed above. The second phase was to explore relations with moderate church and civic groups to see whether NCCN could work cooperatively with any of them to satisfy their legitimate concerns. The third phase was a breakthrough that led to the erosion of support for the boycott by moderate critics and to discussions with activist leaders for the purpose of resolving the conflict. The fourth phase, which is being conducted at present, is aimed at the consolidation and the establishment of a stable corporate social environment and public policy implementation.

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Seminary, was a most respected, capable, ethical, and skillful administrator and negotiator. Moreover, the task force was part of a respected and moderate church—the largest Protestant body in the United States—that influenced Nestle's other critics of conscience. In May 1981, as NCCN and the Methodists were exploring a basis for dialogue, the World Health Assembly passed its international code. Nestle immediately issued a statement in Switzerland supporting the "aim and principle" of the code, and repeated its support a month later in testimony before a congressional hearing in Washington, D.C. At the hearings, other U.S. infant formula manufacturers were severely criticized for recommending to the Reagan Administration that the United States cast the sole vote against the code. Nestle's statement in Switzerland had been lost in the rush by activists to attack the U.S. position, but its testimony in Washington enabled Nestle to begin seizing the moral initiative from the confrontationists. (Nestle, of course, had confrontationists of its own who wanted total victory over the activists, but when they saw that NCCN's strategy was working, they cooperated with it loyally and effectively.)

The formation of NIFAC marked the beginning of the breakthrough stage.

Phase Two: Dialogue With the Churches
Phase two lasted from June 1981 to October 1982. But before this phase began, and before NCCN was established, the United Methodist Church had formed a task force to ascertain the facts about Nestle's practices and to recommend by October 1982 whether the Methodists should join the boycott, as many task force members were inclined to do. The Episcopal Church and other churches had appointed similar task forces, some with different goals in mind. In looking for a church group to explore discussions with, NCCN believed the Methodist task force was knowledgeable and able to devote the time to exploring the problem in depth. Its leader, Dr. Phillip Wogaman, then Dean of the Wesley

Some boycott supporters began to question openly the moral basis for supporting a boycott against a Swiss company that supported the code, rather than against other companies that opposed it. Many church people did not like the idea of being used for extraneous purposes by activists or of being viewed as clever, amoral, or radical political strategists. Nestle's testimony was the catalyst for sixteen months of intense political give-and-take with the Methodists, during which NCCN brought together the new Managing Director of Nestle and the new head of the National Council of Churches, who until his election had been on the Methodist task force. But dialogue alone was not enough. At NCCN's recommendation, Nestle—using NCCN as a conduit—gave the Methodists sensitive internal documents, which helped convince them of Nestle's concerns and its long-standing efforts to respond to changing conditions in the Third

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World. The Methodists did not betray any confidences, so NCCN was acting as a means for Nestle to grow in openness and political self-confidence. The Methodists now were making constructive input of their own. At their suggestion Nestle, in March 1982, issued detailed instructions requiring unilateral compliance with the code in Third World countries that as yet had no codes of their own. In October, as scheduled, the Methodist Task Force made its recommendation: that the church not join the boycott because it saw that Nestle was determined to resolve its critics' legitimate concerns; Nestle's commitment was supported by genuine caring; and it was in better compliance with the code than any of its competitors.
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Phase Three: Breakthrough and Resolution
Phase three lasted from May 1982 to October 1984. In May 1982, Nestle had created an independent Nestle Infant Formula Audit Commission (NIFAC), chaired by former Secretary of State Edmund Muskie, to ensure compliance with the company's instructions. This was the beginning of the breakthrough phase. The Commission was made up of an impartial outside group of social auditors—church leaders, scientists, and educators of undoubted integrity, independence, and expertise. Establishment of this Commission was a most important step in the process of creating the foundation of trust and credibility needed for Nestle to help resolve the conflict. This was a deep and bold—as well as very risky—thrust that created much disarray and confusion among the activist leadership. Had Nestle rejected the innovative idea of an audit commission as too risky, NCCN had other more conventional alternative paths toward achieving credibility. However, it was believed that such a Commission under Senator Muskie had the highest probability of success. Nestle now trusted NCCN—and itself—enough to take some risks and accepted the risks involved in an independent Commission, which included leaders of churches that were boycotting the company. The activists committed a serious faux pas by attacking the integrity of the Commission publicly and by trying to undermine the credibility of individual members. In November 1982, withdrawals from the boycott began. The Washington Post, the chief newspaper supporting the boycott, said in an editorial that

Nestle had overcome the newspaper's objections to its past practices and that it was time for the boycotters to move on to other issues. (NCCN had great success in establishing good relations with the once-hostile news media.) The NCCN strategy had called for painstaking and well-planned one-on-one meetings and continued dialogues with important publics, the media having a high priority among those. In January 1983, the major union supporting the boycott, the American Federation of Teachers, voted to withdraw. Later that month, Sister Regina Murphy, head of the International Nestle Boycott Committee, was so impressed by testimony that Nestle was yielding market share to competitors in Third World countries where it was complying with the code, while its competitors were not, that she asked whether her own organization was keeping the boycott going for its own sake. Actually, the boycott could have ended in 1983, had it not been necessary for the U.S. activists to gain authorization for a settlement from boycott groups in other countries (although it was primarily a U.S. boycott) and had it not been desirable, although time-consuming, to gain the help of the WHO and UNICEF staff in turning the code's deliberately ambiguous provisions into concrete instructions. With the Methodists and other church groups pressing for a settlement, a Statement of Understanding was agreed to in January 1983, after two weeks of intense final discussions sponsored by UNICEF with the boycott leaders who were willing to end the boycott then. The final ratification was announced in October.

Some Implications for the Future
More companies in the future will be called upon to answer for their actions on an international scale. For instance, the International Organization of Consumers Unions (IOCU) is planning a long-term strategy of developing support for national and international regulation. IOCU is placing special emphasis on those areas where what it calls "inappropriate technology" is being marketed or applied in the Third World, and where hazardous substances are involved. Among the industries singled out by IOCU are agricultural chemicals and other pesticides, pharmaceuticals, fast and processed foods, alcoholic beverages, tobacco, nuclear power, and the arms industry.

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IOCU is employing databanks to support Consumer Interpol and its extensive intelligence and monitoring network that exchanges information among national consumers unions on business activities. In addition, some of the more ideological Nestle boycott leaders have questioned the boycott settlement and have accused moderate churches of abandoning the people. This "people's movement," of which the IOCU is a main arm, is confronting businesses, supposedly on behalf of the people of the Third World. These "consumer" activists are in earnest and must be listened to. NCCN's information indicates that people remain extremely sensitive to environmental and consumer issues—especially those involving cultural clashes. Thus the ability to work politically has become essential for business, and during the past decade, business has begun to respond. Many businesses have created public policy committees and the position of a corporate ethicist on their boards of directors. Others have created full-time issue management staff functions. And even more companies have hired issue management consultants to give managers courses in public issue awareness. The ability of business to define its mission broadly and to plan and implement public policy strategies is currently growing and evolving. The highly specialized problem-solving unit, either an autonomous in-house subsidiary like NCCN or a consulting company with a capability in issue management or crisis management, is a major step in this necessary evolution. There are as yet, however, few public relations firms or think tanks that have a capability to develop comprehensive strategies of public policies for corporations, or that have been involved directly in defusing and solving a massive international assault against a multinational. But NCCN proved to be capable of growing and adapting to Nestle's needs as the strategy to resolve the boycott was developed and implemented. That capability has not gone unnoticed by companies that have recently requested NCCN's assistance in solving or defusing serious public policy problems. In retrospect, once Nestle seized the code as its central point of strategy and began an intensive dialogue process with the Methodists at NCCN's recommendation, there was absolutely little the activist ideologues could do to thwart the process of resolution of the conflict. The special crisis management unit was freer to move on Nestle's behalf than a regular legal,

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marketing, or public relations unit would have been. It was independent, flexible, and decisive enough to change tactics promptly as opportunities in the field warranted, while resolutely pursuing the overall strategic goal of ending the boycott on a win-win basis. NCCN relieved regular staff from having to deal with the crisis so that they could continue with their vital profit-oriented strategies. While remaining lean, NCCN was able to hire those specialists—legal, communication, political, artistic—as needed, for only as long as necessary. As a new, nontraditional function, NCCN felt free to seek out creative talent regardless of background. By working with Nestle's senior executives and by briefing management personnel in the field, both during the conflict and now that it's over, NCCN has helped a great and useful company to establish an ongoing public policy and issue management capability that gives it the ability to influence its political environment and the self-confidence to behave openly in the larger world around it. The single greatest obstacle to businesses learning to function well politically is not the malice of its foes but the timidity of its friends. Four plausible but self-defeating reasons for caution in political crises frequently arise: • Most powerful is the lawyers' belief that openness risks greater legal damages to shareholders and others. • Second is marketing executives' belief that openness risks revealing proprietary information to competitors. • Third is financial executives' belief that openness risks unnecessary expenses that arise from accepting responsibility for a mishap. • And fourth is the belief that business is so naive and innocent that it risks being betrayed or taken advantage of. Developing a spirit of openness, initiating interaction between moderate critics and the company, and the establishment of a public policy audit system were the most important contributions made by the formation of the NCCN. Developing a sociopolitical capability is still an evolving art and science. NCCN will be improved upon and superseded some day, but for now it is the state-of-the-art in helping business to plan its public policy strategies, and a form that is still growing and improving to meet changing demands on it.