Table of Content

| | |Page |
|Introduction | |2 |
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|Issues | |3 |
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|Methodology | |3 |
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|Finding |Responsible Party |4 |
| |Leadership Role |5 |
| |Image-Saving Tactics |7 |
| |Text Message Apology |7 |
| |Strategy to Prevent Corruption |8 |
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|Conclusion |Role of Institutional Environment In China |10 |
| |Regain Trust and Support |11 |
| |Effect on China’s Image |12 |
| |Western Perception Toward Asian Countries |12 |
| |Lesson Learn From Scandal |13 |
| | | |
|Bibliography | | |

INTRODUCTION

The case discusses the tainted milk scandal that was unearthed in China in 2008. The milk scandal became public in August 2008, after it was disclosed that the baby formula produced by the Chinese dairy products company, Sanlu Group was contaminated with melamine, which caused kidney failure of many children, resulting in death in some cases. Later, the investigation by the government revealed that the products of 21 other Chinese dairy firms were also contaminated with melamine.

As soon the crisis became public, the Chinese Health Ministry ordered the dairy firms to recall the contaminated products and to destroy the unsold and recalled products. The Chinese Health Ministry started testing dairy products across the country.
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Top executives of Sanlu were arrested. Government offficials who were found guilty were also sacked. China's dairy industry association announced that the affected children and their families would get compensation from the responsible dairy firms. To support the affected dairy farmers, the government also announced a subsidy.

New food safety draft laws, which set stricter food quality standards and demanded greater government responsibility, were reviewed on October 23, 2008. The case ends with a question on worthy of discussion as international businesses increasingly expand into emerging economies.

ISSUES

Action did by Sanlu by signing an advertising agreement on the condition that negative news related to the company was removed was an unethical reaction toward the crisis. They should serve the complaints and take the necessary step to highlight the situation to consumers, not to hide them. Little action to improve its product by practice of “private settlement” to appease consumers who publicly questioned the quality of its products was not enough and this kind of action can be considered giving bribe to the consumer not to disclose the problem. This is an unethical behavior. If the tainted milk did not cause any injury or deaths, I will respond differently. If its cause any injury or deaths either to young children or adults, I would respond the same action towards the company.

METHODOLOGY

The assignment was prepared using the material from secondary sources such as online journal, text book, articles and internet sources.
FINDING

Responsible Party

In my opinion, anyone who involve in the manufacturing of milk products were responsible of this situation.

a. Senior Management in Sanlu Group – because of their lack of response, lack of corporate governance, transparency and lack of social corporate responsibility, they responsible for producing the tainted milk.

b. Plant Managers and workers – They should immediately report to authority if they heard about the complaints. They can act as a whistleblower who spread the story of tainted milk to the public.

c. Dairy milk farmers – Their involvement on producing the tainted milk started when they dilute the milk by adding the water which was then sold to Sanlu for greater profit. This was an unethical behavior.

d. Chine government played a critical role in the development and proliferation of the incident. By providing Sanlu with the national exemption label, not taking immediate action to address the potential national epidemic and silencing the media, was an unethical behavior. Government should take their action seriously to resolve the tainted milk issues.
Leadership Role

Leader play an important role in their management of the incidents. They should ask themselves; are the incident involve human, were the incident causes dramatic systems change, were crisis will affect multiple systems; there is a need to manage conflicting goals, values and responsibilities. As a leader, they need to have multiple and flexible plans. They also must be able to influence others in a positive way, they can’t rely on title of position.

Leader should play their role before, during and after an incident happen. Leaders set the tone by their example and conduct. Leader must pay attention to the components of influence. Leaders can have a significant positive impact on the very human, emotionally charged climate.

Leader at Sanlu denying complaint by not taking the action on complaint received. They hide the incident by signing an advertising agreement of RMB3 million (US$474,000) on the condition that negative news related to the company was removed. On the other hand leaders at municipal government in Shijiazhuang neither do not take immediate action to contain the situation nor informed the central government. There was speculation regarding corruption and inefficiency in the local government.

Action by both leader either in Sanlu organization and municipal government break the trust of their community in managing the incidents. They manage the incident in negative ways. They do not have any plan to address the problem arise from the incident. They use an autocratic leadership approach to overcome the incident by not accept any opinion from others at the early stage of the incidents. They ignored the consumer rights by not take a step further to do immediate action.

Leader at Sanlu should act based on the A.C.T concept as follows:
a. Acknowledge to what has really happened, summarize to what has happened. They must present objective and credible information. They should deliver the information with sensitivity. This action can avoid or control rumors, reduce anxiety, and return a sense of control to impacted individuals.
b. Communicate competence and compassion. As a visible leadership they should communicates care and concern for those involved. They should provide information about common reactions to critical incidents and what can be done to exercise resiliency.
c. Transition by giving the information about coping – emphasize resiliency. Act as a practical assistance – determine basic and practical needs. They should make the linkage with collaborative services – transition individual to appropriate level of support and provide information (counseling center, community resources, written communication and web resources, telephonics support to continued personal assistance/intervention during incident).

In Sanlu incident, this is not happened.

Image-saving Tactics

During the Olympics period, Chinese government placed restriction on media coverage to protect its political image. One of the restriction points was written in the Propaganda Department said: “All food safety issues such as cancer-causing mineral water, are off-limits”. The action did by the government only effective in short period. For the long term, the action made the crisis more worsening. In era of high digital technology, the issues will spread out easily in the internet. Although the company has appointed Baidu.com to remove the negative news related to the company, community still can find early warnings related to the milk scandal posted by the public, professional and the media. The image-saving tactics was not an effective action for long term period. The government should admit at early stage of the crisis.

Text Message Apology

Action by the other companies to text the apologize message sent to millions of mobile phone subscribers also not an effective movement. If the cases reported involve a little number of injuries, its might be accepted by the communities. But the number of injury and death was big. Saying sorry was not good enough. These events accumulate and the wiggle room gets narrow and narrower. That’s why people are angry and cannot accept the apologize message.

Strategies to Prevent Corruption

Government Sector
a. Awareness program for integrity and competence public officials - The integrity and competence of public officials are fundamental prerequisites for a reliable and efficient public administration. The aim is to ensure integrity in the hiring and promoting of staff, provide adequate remuneration and set and implement clear rules of conduct for public officials.
b. Public management system – this measures taken aim at harmonizing and clarifying procedures and at reducing discretion. Where this is impossible or impractical, ways of controlling or varying the contacts between public officials and citizens are employed to prevent the corruption.
c. Transparent regulatory environment – A clear and unambiguous regulatory environment is the third key element for an effective, transparent and honest administration, since clear and verifiable rules and procedures lease less room for corrupt practices.

Business sector and fostering ethical business
a. Business regulation and supervision – requiring company to keep records that accurately and fairly reflect financial transactions in reasonable detail would prevent practices that are often associated with improper transaction. In this respect, government have enacted regulations governing corporate accounting, internal controls and straightforward requirements for disclosure of relevant information.
b. Fostering ethical business – business actors themselves have increasingly come to understand their vital interest and role in fighting and eradicating corruption. Bribery not only raises moral concerns, it also runs counter to the long term interest of business, because it increase costs and risks, undermine efficiency, lowers country credit rankings, and deters investors.

CONCLUSION

Role of Institutional Environment In China

The institutional environment in Chine can play the role in facilitation employees and corporate wrongdoings by using the four key factor preventing the corruption as follows:

a. Foster awareness among employees – when employees are using psychological tactics to justify inappropriate behaviours, awareness of the speciousness of those tactics reduces the likelihood of employees using them (Ivancevich, J.M., et al. 2003).

b. Use performance evaluations that go beyond numbers – from an ethics standpoint, evalutions based on numeric outcomes may significantly increase the likelihood of unethical activity abetted by rationalization and socialization tactics (Ashforth & Anand).

c. Nurture an ethical environment in the organization – companies should adopted codes of ethics. While adopting such codes is a positive development, it is not sufficient. Organization can sometimes use the presence of a code as a badge of morality. Thus, they may practice corrupt acts and believe (and convince others) that since they possess a code of ethics, they must be morally sound: good companies, after all, do good things.

d. Top management serves as ethical role models – Clearly, rationalization and socialization are facilitated if top management is perceived as being unethical. Rationalization tactics receive a tremendous boost if they are also being used by top management. It is not sufficient that top management be ethical, they should be seen to be ethical.

Regain Trust and Support

To regain trust and support, the new executive of dairy companies can take the steps as follows:
a. First rule in crisis management is to get the story out as quickly as possible and to be as transparent as possible in order to regain the public trust of whatever audience dealing with. People are willing to listen. Prove them that you care, that you’ve acknowledged what went wrong. Don’t hide anything. Just be out there. Tell them what’s going on, where you’re going to go and what you’re going to do.
b. Public relation campaign must be run to explain the changes that company had taken to avoid the crisis happened.
c. New executive must know how best to glean feedback to ensure customers are receiving what they really want, rather than what a business thinks they want. Customer comments are powerful, they bring your target audience to life, and specific feedback should be shared across the business rather than contained within a limited group of people.

Effect on China’s Image

Crises of quality control have a crucial impact on China’s role in the global economy. Since China’s export-driven rise rests on its position as a manufacturing hub, continuing reports of toxic products are particularly damaging, through their impact upon the made-in-China brand.

The milk scandal also tainted the image of ruling party. The scandal raises the core question of whether the ruling Communist Party is capable of creating a transparent, accountable regulatory structure within a one-party system. Time Magazine cited many analysts saying the party's need to maintain control of the economy and of information undermines the independence of any regulatory system (Jim Yardley & David Barboza, 2008).

Perception of Western toward Asian Countries

In my opinion, China milk scandal will not affect Western perception on Asian countries as a whole. The impact is likely to differ across the countries, depending on the strength and weaknesses of particular countries.

Lesson Learn From China Milk Scandal

The top leadership either in private sector or in government side needs to know communication procedures during the crisis. In most written material, we called it “crisis communication strategies”. There was only one spoke person handling the media conference either top government leader or top management in private companies. The purpose to have the crisis communication strategies is to mitigate the identified emergency, crisis, or controversial incident and protect the safety of the community by providing accurate information to all constituencies.

Food safety was the most important criteria to look into. It involved the majority of consumer in the country. Government as a licensing agencies must aware of the contaminated items in production of the food industry. Chinese President Hu Jintao said lessons must be learned from the toxic milk scandal that has embarrassed the nation, urging companies to ensure their products are safe, state media reported. (http://www.abc.net.au/news/2008-10-01/lessons-must-be-learned-from-china-milk-scandal-hu/528182)

Ethical business management and operation must be put first in the academic syllabus of business related academic program. Ethical behavior and corporate social responsibility can bring significant benefits to a business. For example, they may:
a. Attract customers to the firm’s products, thereby boosting sales and profits
b. Make employees want to stay with the business, reduce labour turnover and therefore increase productivity
c. Attract more employees wanting to work for the business, reduce recruitment costs and enable company to get most talented employees
d. Attract investors and keep the company’s share price high, thereby protecting the business from takeover

BIBLIOGRAPHY

Anand, V., et al. 2004. Business as usual: The Acceptance and Perpetuation of Corruption in Organizations. The Academy of Management Executive, 18(2): 39-53.

Ivancevich, J.M., et al. 2003. Deterring White Collar Crime. The Academy of Management Executive, 17(2): 114-127.

Jonathan Bernstein. 2013. The 10 Steps of Crisis Communications. Bernstein Crisis Management, Inc. (http://www.bernsteincrisismanagement.com/articles/10-steps-of-crisis-communications.html)

Jim Yardley & David Barboza (26 September 2008). "Despite Warnings, China's Regulators Failed to Stop Tainted Milk". The New York Times. Archived from the original on 9 May 2013. Retrieved 2 April 2010.

Shaw, Barry. 2009. Moral Issues in Business. Cengage Learning, 11th Ed.

Trevino, Nelson. 2014. Managing Business Ethics: Straight Talk About How To Do It Right. Wiley & Son, 6th. Ed.

Richard Welford. 2008. The China Milk Crisis: Lessons for CSR. CSR Asia. (http://www.csr-asia.com/weekly_news_detail.php?id=11501)

Francis Sun. 2009. Sanlu Group and The Tainted Milk Crisis. Ivey Management Services.

http://en.wikipedia.org/wiki/2008_Chinese_Milk_Scandal

“The Milk and Dairy Industry In China”, KPMG. (http://www.kpmg.com.hk/en/virtual_library/Consumer_markets/MilkAndDiary.pdf)