Part 1: Summarize the Important Case Facts

Who are you in the case?

Doesn’t say. We can assume we are the police investigating the scandal.

What is the main problem? How did this problem happen?

More than 290,000 babies were affected by deliberate tainting of milk powder. We want to understand WHY this kind of corruption happens.

Questions

1. What factors motivate people to do unethical things for money?

2. Why do governments allow unethical behavior?

3. How do the people involved in unethical behavior justify their decisions?

4. What role does social media play in reducing corruption?

What are some key facts in the case?

Date: 2007

Sanlu is the second biggest dairy producer in the world and the #1 best selling milk brand in China.

Part 2: Analyze the Case and Find Solutions

Background Information

· 2008

· The scandal made China’s trading partners worried about the ethics of Chinese companies

· Sanlu’s milk powders are half the price of imported milk powders; popular for customers in China’s rural areas

· Market leader using the low cost strategy

· The scandal: In order to lower price, Sanlu added melamine, a chemical used in making plastic, to increase the protein in their milk powder. The government didn’t regulate this so it became common practice in the dairy industry.

International Attention

· The WHO got involved

· More than 290,000 victims; 4 people died, 51,900 sent to the hospital

· Some people think the Chinese government knew about this and remained silent because of the 2008 Olympics happening.

· This incident led to a big decrease in consumer confidence in China’s food products

· Peter Ben Embarek, WHO spokesperson, said that this is not an isolated case. Sanlu is just one of many companies in China who do this. It’s because the food monitoring organizations lack employees and money and equipment.

The Role of Sanlu

· Sanlu had lack of governance, transparency, and corporate social responsibility

· Late 2007: Sanlu found out their milk had problems in late 2007 when customers told them their babies had color change and crystals in their pee. But Sanlu didn’t do anything to improve their milk.

· August 2008: Confirmed that Sanlu’s milk was poisoned with melamine on purpose. Sanlu tried to conceal this information from the public. They paid Baidu RMB 3 million to remove any negative news about the company from the search engine.

The Role of the Government

· The government did many things to help Sanlu

o 1. They exempted Sanlu from national inspection à this allows companies to do their own quality inspection, which allows companies to basically not have quality inspections.

o 2. They silenced the media, not allowing them to warn people about Sanlu. The Propaganda Department said “All food safety issues…are off-limits” during the Olympics period. That means they care more about their image than the safety of their people.

o 3. They ignored early warning signs related to the scandal

· When Sanlu group told the municipal government about the melamine contamination, the municipal government didn’t tell the central government. The central government only found out later because foreign diplomats told them.

· Fonterra, A New Zealand partner to Sanlu asked them to recall their products. Sanlu didn’t cooperate. So Fonterra told the New Zealand government, and then the NZ government told the Chinese central government.

The Role of the Media

· Sanlu told the government on August 2, 2008 (6 days before the start of the Beijing Olympics)

· The news was released on Sep 10 (when the games was officially finished)

· Parents still posted their experiences on social media, but those posts didn’t show up on Baidu because Sanlu paid Baidu to hide negative news about them

Remedying the Situation

· After the incident was public, China’s health ministry said it will do a nationwide investigation

· Once the investigation started, Sanlu finally recalled over 8,300 tonnes of their milk off the market.

· On Sep 13, 2008, the government ordered Sanlu to stop all production of their milk in their factories.

· The government also told citizens to not drink Sanlu milk and contacted the WHO to inform other countries

New Policies and Regulations

· The Chinese government made new laws to subsidize dairy farmers so they don’t try to cut costs and cheat

· Made new laws about not being able to add any ingredients that are not approved by the health authorities

· New laws stating that any food safety concerns must be reported immediately to health authorities

Arrest and Apology

· 22 companies involved, and several top executives were arrested

· General manager of Sanlu, Tian Wenhua, was sentenced to life imprisonment and fined RMB25 million.

· Sanlu went bankrupt in December 2008

· Other milk companies apologized

Repeat Cases

· In 2010, 5 wineries were suspected of contaminating their wines with chemicals

· A June 2011 article said that “little has changed since the Chinese Milk Scandal of 2008”

· In Feb 2011, another milk contamination incident happened

· Other food scandals include toxic bean sprouts, pesticide-drenched beans, aluminum dumplings, and glow-in-the-dark pork

Part 3: Recommendation

Questions

1. What factors motivate people to do unethical things for money?

2. Why do governments allow unethical behavior?

3. How do the people involved in unethical behavior justify their decisions?

4. What role does social media play in reducing corruption?

Q1: What factors motivate people to do unethical things for money?

· Short-term focus (low LTO) and high IND -- only care about the immediate benefits without thinking about long-term harm

· The people were taught selfishness from a young age. They were never taught ethics.

· Peer pressure -- the whole industry does it

Q2: Why do governments allow unethical behavior?

· In this case, the government wanted to save face and protect their reputation during the Olympic Games.

· The government leaders were also selfish and didn’t think long-term. If they had admitted their mistake right away and focused on stopping the problem as fast as possible, people might not have such a bad idea of Chinese milk today.

Q3: How do the people involved in unethical behavior justify their decisions?

· Peer pressure

· There weren’t any laws saying I couldn’t

· I was trying to make the shareholders happy

· Ethical relativism

Q4: What role does social media play in reducing corruption?

Unlike mainstream media, social media is not filtered. Anyone can post on it and share their experiences.