Nestle is originally a Swiss multinational food and drink company. It is the world’s biggest food company, measured by the revenues and other aspects. The company ranked 33 among the 2000 largest global public companies in the list by Forbes (Nestle.com 2017). The relationship between Nestle and India goes back to 1912, when it started to export its products to India. After independence, the Government of India took the initiatives to build a strong economic relationship with Nestle.
It has its headquarter in Gurgaon, Haryana, and has its presence all over the India. For more than a century, Nestle has contributed in the Indian economy through better life, employment opportunities and business opportunities for the farmers (Mitra 2016). The company produces and supplies international quality food products under international brand names, such as, Maggi, Nescafe, Milkibar, Milkmaid, Kit Kat, Nestea. It has launched some specific products for the Indian markets, such as, Nestle Dahi, Nestle Jeera Raita etc. As the company has achieved huge success in India, it has also faced some severe controversies, such as, in the case of Maggi and MSG.
The following report focuses on some different aspects of the company, such as, their board structure, public scandals and its implications in terms of corporate ethics, their relationships with the stakeholders, relevance of the guidelines by the OECD corporate governance principle and the application of the Carroll’s philanthropic model in the context of the chosen company. The purpose of the report is to highlight and discuss about the strategic management of Nestle India and its corporate governance, ethics and corporate social responsibility.
Board structure
Board structure of a company is generally concerned with the issues related to the operation and freedom of working of the board committees, diversity regarding the company experience, functional backgrounds of the members and the top management. The board is a group of people, holding the higher positions in the company and responsible for taking decisions on behalf of the company. Their main purpose is to maintain the corporate governance, ethics, corporate social responsibility, and looking after the stakeholders interests. In majority of firms, there is a two-tier corporate hierarchy. The board of directors or governors is on the first tier and they are elected by the shareholders. The upper management is on the second tier and elected by the board of directors (Blake 2016).
In Nestle India, there are three committees, namely, Board of Directors, comprising of five people, Adult committee, and Risk Management Committee, both consisting of three members. After the Maggi ban in 2015, Nestle changed its business strategy and its MD Etienne Benet stepped down. He was replaced by Suresh Narayanan, who was the Chairman and CEO of the company’s segment in Philippines. Narayanan has spent almost 320cr INR to pulp out the existing stock of Maggi from the market and changed other strategies to fight back the ban (Nestle.com 2017).
Controversy: Maggi ban in India
In the year 2015, Nestle faced a huge downslump in its 103 years old business in India. One of its products, Maggi Two-Minute instant noodles faced a severe breakdown when it was banned by the Food Safety and Standards Authority of India (FSSAI). Nestle was told to withdraw the product from the market. 38000 tonnes of Maggi noodles were simply withdrawn and destroyed and the sales of the other Maggi labeled products, i.e. ketchup, jams, beverages were affected too. The market share went down to zero from 80% in just a few days (Mitra 2016).
It all started with a routine check by a FSSAI inspector, Sanjay Singh, in Uttar Pradesh, who wanted to check the claim of No Added MSD by Nestle India. He sent the sample to the state laboratory for testing, which brought out positive results. For double checking, he sent another few samples to the Central Food Laboratory in Kolkata in 2014 June. In 2015 June, the results came out as positive once again, with 17.2ppm (Parts per mllion) lead. This amount is more than 1000 times than what Nestle had claimed initially. The company was sent letters but they did not clarify. The national newspapers started writing about it, but Nestle maintained its claim that it does not add MSG in Maggi. Finally, on June 5, 2015, FSSAI ordered Nestle to recall all the products from the market and put a ban on it. This had shaken up the entire business operation of the company, as well as its brand image was demolished (Livemint.com 2016).
This was an issue of violating the corporate ethics. The company claimed something, which they did not maintain. Nestle added Mono Sodium Glutamate (MSG) in Maggi that is harmful for human health. Along with that, the amount of lead is also 1000 times more than what was claimed by the company. Both of the elements are quite higher than the safety limits. This is a violation of ethics. Business ethics refer to the moral principles guiding the business behavior. The ethical acting refers to the way of distinguishing the choice between right and wrong and then taking the right decision. The moral dilemmas are answered by using the ethical theories in the business practice, and by choosing the right way over the wrong. When a company does not follow this practice, then it is said that the company has adopted unethical practices, mainly due to profit maximization.
In the context of Maggi scandal, the theory of consequentialism can be applied. It is a class of normative ethics, which says that the consequences of the action of a person or an organization are the ultimate basis for any type of judgment of right and wrong of that action. Hence, from this theory it can be derived that an act is a morally right one if it delivers a positive outcome or consequence. The end justifies the means in this theory. In case of Maggi, the company claimed in their advertisement and packaging that it does not use Mono Sodium Glutamate (MSG) in Maggi. MSG is a harmful component for human health. It should not be used in food. Along with that, the led component was found to be 1000 times higher than what Nestle had claimed to be using (Desai 2016).
It was another unethical practice by the company. Hence, along with consequentialism, the virtue ethics was also violated by Nestle. For profit making, the company has adopted dishonesty. More usage of lead makes the product tastier, which increases its sales. Thus, even if it claims to not using the harmful products, the lab test results said something else. Profit maximization by the compromisation with the consumer’s health cannot be an ethical act. Thus, Nestle has violated the business ethics of virtue and the theory of consequentialism is the most relevant theory of ethics that can justify the Maggi scandal of Nestle India (Saluja and Mahajan 2017).
Stakeholders of Nestle India
A stakeholder is the person, group of people or an organization, which has the concern or interest in a business or company. The stakeholders can affect or can be affected by the actions, decisions, policies and objectives of the organization (Nazir and Malhotra 2016). The creditors, employees, directors, owners or shareholders, suppliers, investors, government, and the social community are examples of stakeholders of a company. The stakeholders can be external or internal. The external stakeholders are those, who do not work in the organization, but are somehow affected by the actions of the company and the outcomes of the actions.
Creditors, suppliers and public groups are the external stakeholders. The internal stakeholders are those who are directly involved with the company through employment, investment or ownership. Investors are the most common type of internal stakeholders, who are majorly affected by the outcomes of a business (Andriof et al. 2017). Hence, if a company achieves great success or failure, the investors are hit most. At the same time, the external stakeholders are also affected by the outcomes of a business sometimes. If a business activity generates negative externality, then well being of the external stakeholders are affected (Sakunia and Jha 2016).
In case of Nestle India, there are many stakeholder groups. The company believes in engaging with their stakeholders for new ideas for business and their improvements. The stakeholder groups of Nestle are Academia, Communities, Consumers and general public, Customers, Employees and the representatives, Governments, Industry and trade associations, intergovernmental organizations, NGOs, Reporting agencies, shareholders and financial communities and suppliers, i.e. farmers and small holders (Weiss 2014). In India, when the Maggi got banned, the Consumers and general public, Customers, Employees and the representatives, and shareholders and financial communities were majorly affected. The profit and market share of the brand had declined significantly. The customers and consumers are affected for the health factor. All these led to a huge fall in the company’s business (Livemint.com 2016).
OECD Principles of Corporate Governance
The OECD principles for corporate governance ensure the basics of business ethics and corporate governance in an organization. It encourages for protecting the rights of the shareholders, which includes equitable treatment of all the shareholders (Siems and Alvarez-Macotela 2014). It also promotes the recognition of the rights of stakeholders, encouragement of the active co-operation between the stakeholders and the company; ensures that the timely and precise disclosure is done on all types of material matters concerning the company’s business, and encourages the effective management monitoring by the board of the organization and accountability of the board to the organization and to the shareholders and stakeholders (Tricker and Tricker 2015). Hence, OECD promotes a general rule for corporate ethics and governance.
In the context of Maggi controversy, it can be said that Nestle did not follow these rules in case of Maggi in India. For more than a century, the company has been operating in India and in other nations. The international guidelines have been followed mostly and Nestle has been able to capture the market leader status. However, in India, to capture the market and maximize profit, Nestle indulged in unethical practices. It did not follow all the rules for corporate governance framed by OECD. The company did not follow the timely and accurate disclosure of the matters regarding the business. It kept on claiming no added MSG and least amount of lead in the product, while it silently increased those components to increase the taste at a lower cost for profit making. This broke the virtue of honesty, and customers lost faith on the company, which resulted in huge loss (Sinha, Sinha and Gupta 2015).
It did not protect the rights of the shareholders. The board of Nestle India was also ignorant about the effective monitoring of the management. When the news of MSG and lead in Maggi broke out, the company still tried to deny the facts and wanted to settle the issue outside. This violated the rights of the stakeholders as well as the shareholders (Soni and Harnawale 2015). It did not justify the board’s accountability to the consumers and to the shareholders. Hence, the company faced a huge loss due to violation of the OECD principles for corporate governance.
Carroll’s Philanthropic Model
Carroll’s Philanthropic Model is also known as the Pyramid of Corporate Social Responsibility. The model presents the CSR structure in a pyramidal form with four different responsibilities from top to bottom. These tiers help the businesses to understand the different types of obligations of the businesses to the society (Leipziger 2017). The lower most layer comprises of ‘Economic responsibilities’, which says the business to be productive in a profitable manner. This is the foundation of any business. Upon that, there is ‘Legal responsibilities’, which says to obey the laws of the society. Third top layer is the ‘Ethical responsibilities’, which is concerned about the ethical obligation of choosing between right and wrong, and avoiding the harmful acts for the society and environment. The top most layer is the ‘Philanthropic responsibilities’ that encourages to be a good corporate citizen (Carroll 2016). Overall, the model encourages the businesses to produce and make profit but in a legal and ethical manner, i.e. not making any harm to others for being profitable.
In the context of the Maggi scandal of Nestle India, it can be said that, Nestle did not follow the pyramidal model by Carroll. It followed the economic responsibilities but it did not follow the legal, ethical and philanthropic responsibilities. The company did not follow the legal rules for food safety. It did not abide by the rules for ethical business practices by hiding as well as denying the facts of added harmful MSG and lead in the product and this in turn made them not to follow the philanthropic responsibilities (Turker 2016). Thus, it can be said Nestle India did not follow the Carroll’s philanthropic model in its business operations of Maggi.
Conclusion
Nestle India is one of the biggest companies in the nation. For more than a century the company operated lawfully and has been successful in making a good brand image of itself. However, in 2015, a major controversy hit the company in India. One of the major products of Nestle, Maggi was banned due to findings of high amount of MSG and lead in the product. Although the company claimed that it did not add those in the Maggi, the reports found otherwise. This hit the company in a major way as it lost 80% of the market share. The board structure was changed and it was found that Nestle was not following the OECD principles of corporate governance and Carroll’s CSR pyramid model in their business. The stakeholders were affected majorly and the company faced a huge loss sue to unethical practices.
References
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