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BOGUS APPLE JUICE

PRESENTED BY —
AKSHITA CHAMARIA
AKRUTI PATHAK
ASHISH KUMAR GOYAL
SOURABH MITTAL
NEHA NATANI
ETHICS : THE KEYSTONE
Ethics is defined as the “discipline dealing with what is
good and what is bad, and right and wrong or with
moral duty and obligation”

Business ethics “is the application of general ethical


principles and standards to business behavior”.

There are three Domains of human action:


ØDomain of Codified Law (legal standard)
ØDomain of Free Choice (personal standard)
ØDomain of Ethics (social standard)
AMOUNT OF EXPLICIT
CONTROL CODIFIED

CHOICE
Ethics
LAW

FREE
HIGH LOW
DRIVERS OF UNETHICAL
BEHAVIOUR
Ø Overzealous pursuit of personal gain, wealth and
other selfish interest

Ø Heavy pressures on company to meet the


earning’s target

Ø Company culture that puts profitability ahead of


ethical behaviour
The case
BEECH-NUT
Ø2ND in Baby Food Industry behind Gerber
Ø15% Market Share
Ø1972, bought by Frank Nicholas and his
partners
ØFinancial Trouble
Ø1979, take over by Nestlé

1981, Lars Hoyvald joined as President


Aim “aggressively marketing top quality
product”
In June 1982, he found:
1. Strong evidence that Beech-Nut Apple Juice for
babies was made from concentrate that include NO
APPLE.
2. Since 1977 the company had been purchasing
low cost apple concentrate from Universal Juice
Company.
3. John Lavery the vice president in charge of
operation, brushed aside tests that showed the
presence of corn syrup
COMPANY ’ S DILEMMA

Ø To switch on the suppliers and

recall the product already


sold in the market
Ø To carry the business as it is,
continue selling their bogus
apple juice in the market.
Issues that Hoyvald took into consideration while
arriving to this decision:
1. His promise to nestle superior that he would
return a profit of $7 million for the year
2. The cost involved in switching the suppliers
which amounted as $4.25 million loss to the
company for the first year n $.75 million each year
3. The company’s position to take such decision
ØHoyvald decided to continue selling the bogus
apple juice
Ø Fear of that federal investigator might seize
the stock of apple juice
Ø Aggressive foreign sales campaign
Ø Managed to sell the bogus apple juice until
march 1983
Ø 1988 both Hoyvald and Lavery were
convicted on charges of consumer fraud
Ø Received a sentence of one year and one day
and fined $100000
ETHICAL
JUSTIFICATION
Ø New owners in 1972, Frank Nicholas and his
partners, Undercapitalized & Overloaded with Debt
Ø New owners in 1979, Nestlé, invested $60
million in capital improvements and marketing
Ø Supplier to be Universal Juice
ØSwitch to another supplier could well have tipped
the scales toward insolvency
ØJuice adulterated but NOT HARMFUL
Ø Recall not feasible
Ø Dumping product into foreign market justified
Ø Avoid negative publicity
Ø The corporate culture of nestle values and
praises above everything else competitive
aggressiveness
Ø The influence of corporate culture can explain
mitigate one's unethical behaviour
Ethics - against
beech - nut
Ø Baby Product
Ø Hoyvald’s claims of selling high quality product
Ø Lavery’s indifference to unpleasant discoveries
about the raw material
Ø Justification by the company
Ø Foreign Sales campaign in fear of TOTAL recall
Ø Lack of Value Based Decision Making
Ø Alternate ethical strategy
conclusion
Ø Hoyvald and Lavery tried and convicted
Ø Each sentenced for 1 year and 1 day
Ø Fined $ 100,000
Ø Company settled a suit bought by consumers for
$ 7.5 million
Ø Hoyvald’s Lawyer seeked proposal for his
client to give lectures in B-schools
Ø Proposal rejected
Ø Utilitarianism- theory given by Jeremy
Bentham and later discussed by John Stuart Mills
Ø Sum of total benefits accruing from that
action less the sum of cost from that action is
Maximum-choose that alternative
Ø Utilitarianism also maintains that an ethical
act produces the “greatest possible good for the
greatest number of people.”
Ø A decision which was acceptable by
Utilitarian standards- Stockholders, suppliers
were also stake holders
Ø Kantian ethics- (treated them as means)
Ø Deemed unjust by critics who argued that
Beech-Nut sacrificed consumers for the company’s
long-term economic viability.
Questions???