Prior to his academic career, he was a business executive in UK, USA, India, Spain, Germany in marketing, manufacturing, human resource management and general management. His last post was Global Vice President BP Solar International. 2. MODULE OVERVIEW The course is about the strategic, managerial and governance dimensions of the relationship Business-Society. Expectations on responsibility and accountability of firms in the local and global context have risen substantially in the last 15 years.
It is closely associated with the idea of ‘sustainability’: the interdependence between a business and its economic, political, social and ecological environment. It is about how that interdependency can be managed to enhance business performance. The case for including a core component on the role of business in society in MBA and executive training programmes is based on a changing context which is making the management of that interdependency a greater concern for individual businesses and all their stakeholders.
The course includes economic, ecological, social, ethical, political and governance dimensions. Extensive use is made of practical case studies (see case readings for each session below). In analysing cases and issues involving all these dimensions, students will be encouraged to take a diversity of approaches: normative (e. g. ethical and stakeholder values and principles), instrumental (e. g. issue and risk management, stakeholder impact and power analysis) and a control approach (e. g. accounting, regulation and governance). 3. MODULE OBJECTIVES
To get students to think critically about Business Strategy and Governance: the role of business and any individual company in society and to develop knowledge and skills which will enable them to act and manage within their future work environment with due regard to wider political, social, cultural and environmental context of business. 4. MODULE OUTLINE The course starts with exploring how a wide arry of issues complicate business strategies and how decision making around these issues is fraught with confusion on external and internal accountability, legitimacy and cultural constraints.
Accountability issues are explored and dominant strategic approaches are analysed: stakeholder management and partnerships. The implications for business strategy and global governance are explored and finally, ethical dilemma’s are considered. A selection of case studies from the following list will be worked through: 25 Executive Education Case studies ISSUES MANAGEMENT Decision making Mc Donalds Legitimacy Monsanto Culture-structure Shell
ACCOUNTABILITY Accountability vs responsibility Hooker Chemicals Organisational assurance Exxon Valdez Risk management BP Columbia STAKEHOLDER MANAGEMENT Stakeholder analysis Euroco Communications Johnson ;amp; Johnson Strategic management Novartis
STRATEGIC PARTNERSHIPS Stakeholders Hiberdrola NGO’s Unilever-Oxfam Governments IBM in China BUSINESS STRATEGY Supply chain management Illy Brand Management Betapharm International reach Novo Nordisk
GLOBAL GOVERNANCE Public Policy Microsoft Co-regulation Shell Nigeria Industry sector governance Nike BUSINESS ETHICAL DILEMMA’S Market access Google in China Investment remuneration Merck Business in conflict areas Unocol
PERSONAL ETHICAL DILEMMA’S Insureres for Ltd Liability The harassing client Complications in Capriota Something’s rotten in Hondo 5. TEACHING METHOD: THE HARVARD CASE STUDY AND GROUNDED THEORY METHOD: The teaching method is highly interactive. There are few straight ‘right’ or ‘wrong’ answers when it comes this Field in management research so it is important that students question and debate them, with each other as well as with the tutor and build theory from these (grounded theory)
Students will be asked prepare individually the day before, work on cases in groups for short periods of time and then feedback their findings during whole class discussion. There will be periods of ‘lecture’ by the tutor, but always open to student question and debate. STUDENTS ARE REQUIRED TO BRING THEIR LAPTOPS TO ALL THE COURSE SESSIONS 6. ASSESSMENT The assessment leading to the final grade will be made up of three parts: Individual class contribution ………………………………. …… Group work ………….. ………………………………. …………….
Individual after course assignment ……………………………… More than 50% will be based on the group work and class presentations * Students will individually be assessed for the quality of their contribution to case studies and class discussions. * Groups will be assessed by the performance of the individual presenters and each member of the group will get the same grade, regardless of who makes the presentation. * Students will be given a written, individual assignment of their choice at the end of the course. This assignment needs to be returned to the rofessor within an agreed amount of time (as foreseen by the school’s regulations) 7. BIBLIOGRAPHY, READINGS ;amp; CASES Textbook: Mainstreaming Corporate Responsibility, by Craig Smith and Gilbert Lenssen with articles and cases. 3 additional articles by Simon Zadek, Ian Davis and Michael Porter. A number of additional cases which follow. ADDITIONAL CASES McDonalds History (from David Baron, ‘Business and its environment’) At the beginning of the 1990s, the McDonald’s Corporation had over 11,000 restaurants (8,500 in the United States), serving over 22 million customers a day.
Because of its success in its market environment, McDonald’s was a focal point for a variety of nonmarket issues. Two of the most important derived from growing concerns about health and the environment. McDonald’s was one of the country’s largest solid-waste polluters. Also, McDonald’s menu items were being attacked by health and nutrition activists. McDonald’s nonmarket issue agenda was both immediate and serious. McDonald’s faced criticism for its use of styrofoam in coffee cups and sandwich containers because some of the plastic was foamed with CFCs.
CFCs were being replaced in the foaming process, but McDonald’s, which used 50,000 tons of foam packaging each year, remained under attack because of the solid waste problem and the dwindling availability of landfill space. It was under pressure to use plastic and paper containers that could be recycled. McDonald’s had initiated a recycling project for the polystyrene used in styrofoam packaging, but environmental interest and activist groups had attacked the recycling plans because they wanted Polystyrene to be eliminated entirely.
McDonald’s had begun to experiment with on-site incineration, but that experiment had been criticized by the Environmental Defence Fund (EDF), an environmental interest group. McDonald’s was also under pressure for the volume of paper it used and the timber cut as a consequence. It had begun using recycled paper for its napkins and its Happy Meal boxes, and its 1989 annual report was printed on recycled paper. The company also took out full-page advertisements pledging to purchase $100 million of recycled materials.
McDonald’s environmental strategy changed when the head of EDF invited its president to a meeting to discuss waste disposal and environmental protection issues. McDonald’s decided to enter into a working arrangement with EDF to study how the use of packaging materials could be reduced and recycled materials increased. (See extract from Malcolm McIntosh et al below. ) In spite of its efforts, criticism and pressure continued. Ralph Nader said, “Grassroots environmental groups aren’t convinced that McDonald’s is serious about creating a better environment. On the nutrition front McDonald’s and other fast-food chains had been criticized for the nutritional content of their food. For several years McDonald’s had made available in its restaurants a 56-page booklet providing nutritional information on its menu items. Under continuing pressure, it decided to provide nutritional information on its tray liners and on 3-foot-by-3-foot “Did You Know” displays in its restaurants. The tray liners used in the mornings and afternoons correspond to the food available at those times.
McDonald’s also was criticized on the grounds that its food was actually harmful to the health of its customers. Criticism centred on the fat and cholesterol content. McDonald’s promoted its McNuggets by emphasizing that, ‘they’re low in calories, they’re 100% tender, delicious, chicken thigh and breast meat cooked in 100% cholesterol-free vegetable oil. ” Philip Sokolof, a Nebraska businessman, however, took out full-page advertisements in major newspapers charging McDonald’s with the “Poisoning of America” because of the fat content of content of its hamburgers.
McDonald’s said the advertisements were inaccurate and that it used only lean beef. A spokesperson for the Centre for Science in the Public Interest, one of the groups in the Ralph Nader network, commented: “To me, the important part is that the general thrust of the ad was correct. Many of the foods served by McDonald’s are loaded with saturated fat and cholesterol. ” McDonald’s and other fast-food companies also faced criticism by minority groups because of the company’s emphasis on sales in inner city areas.
Inner city residents tend to be more frequent customers of fast-food restaurants than residents of other areas and they tend to spend more per visit. In response, fast-food companies had been increasing their advertising targeted to inner city residents. McDonald’s “‘as one of the top advertisers on the two television programs most watched by African-Americans during the first half of 1990. Some critics argued that McDonald’s and other fast-food companies were targeting minorities and endangering their health because of the fat, salt, and cholesterol in their menu items.
From Malcolm McIntosh et al, ‘Corporate Citizenship’ In mid-1989 McDonald’s Vice-President, Shelby Yastrow appeared opposite Fred Krupp, Executive Director of the New York-based Environmental Defence Fund (EDF), in a cable television program. Krupp and Yastrow decided to work together, to the relief of McDonald’s, who had previously found it difficult to find a partner willing to work with them apart from the World Wide Fund for Nature (WWF – USA) with whom they had produced a leaflet on rainforest issues.
The EDF was founded in 1967 on a grant from a Rachel Carson memorial fund. In 1984 it appointed Fred Krupp, a Harvard lawyer, as Executive Director who improved ED F’s technical and scientific capabilities, turning it into an expert group, and moved it towards “third-wave environmentalism” where it embraced market-base solutions to business problems. As Krupp said at the time: “We’re not ideologues in environmental issues . . .
I think environmentalists would become more powerful, more forceful and achieve greater results if we deployed more tools in our tool kit. We should continue to aggressively lobby, aggressively litigate, aggressively criticize corporate malfeasance and promote stricter regulation. We also should be able to problem-solve with corporations. ” The guidelines for The Waste Reduction Task Force was that: * it should evaluate the company’s materials use and solid-waste stream and develop a policy * no money would change hands either side could terminate the project if it was unhappy * both sides would continue their current activities and EDF reserved its right to criticize McDonald’s; McDonald’s requested that EDF’s task-force members work in a restaurant for one day each; the task force should not look at any other issues, such as global warming, rainforest destruction and food consumption. The Task Force subsequently arrived at a policy which was endorsed by the company. The company should: * take a “total lifecycle” approach to managing solid waste * reduce waste and volume of packaging make maximum use of reusable and recyclable materials where possible * conserve and protect natural resources through increased efficiency and conservation * encourage environmental values and practices in local communities by providing educational materials * ensure accountability procedures * maintain productive, on-going dialogue with all stakeholders. Since the policy agreement, McDonald’s has made substantial savings in waste and uses significant amounts of recycled material, all of which are monitored by the EDF.
There are those who have criticized the partnership, arguing that it merely provided excellent PR for McDonald’s and prostituted the EDF One thing that is clear, this partnership has set a standard for other agreements around the world and is a model for organizations in all sectors. As an endnote, it is worth commenting that despite the fact that McDonald’s says it dictates environmental policy to its subsidiaries, the plastic clam shell is still used in more than 25 per cent of McDonald’s restaurants round the world. The fact is that the clam shell keeps the burgers hotter longer.
Some Recent Website articles www. mcspotlight. org McDonald’s make a lot of people angry for a lot of different reasons. NUTRITION Nutritionists, for example, argue that the type of high fat, low fibre diet promoted by McDonald’s is linked to serious diseases such as cancer, heart disease, obesity and diabetes. The sort of diseases that are now responsible for nearly three-quarters of premature deaths in the western world. McDonald’s respond that the scientific evidence is not conclusive and that their food can be a valuable part of a balanced diet.
Some people say McDonald’s are entitled to sell junk food in exactly the same way that chocolate or cream cake manufacturers do: if people want to buy it that’s their decision. But should McDonald’s be allowed to advertise their products as nutritious? Why do they sponsor sports events when they sell unhealthy products? And what on earth are they doing opening restaurants in hospitals? ENVIRONMENT Conservationists have often focussed on McDonald’s as an industry leader promoting business practices detrimental to the environment.
And yet the company spends a fortune promoting itself as environmentally friendly. What’s the story? One of the most well-known and sensitive questions about McDonald’s is: are they responsible for the destruction of tropical forests to make way for cattle ranching? McDonald’s say no. Many people say yes. So McDonald’s sue them. Not so many people say yes anymore, but does this mean McDonald’s aren’t responsible? They annually produce over a million tons of packaging, used for just a few minutes before being discarded. What nvironmental effect does the production and disposal of all this have? Is their record on recycling and recycled products as green as they make out? Are they responsible for litter on the streets, or is that the fault of the customer who drops it? Can any multinational company operating on McDonald’s scale not contribute to global warming, ozone destruction, depletion of mineral resources and the destruction of natural habitats? ADVERTISING McDonald’s spend over two billion dollars each year on advertising: the Golden Arches are now more recognised than the Christian Cross.
Using collectable toys, television adverts, promotional schemes in schools and figures such as Ronald McDonald the company bombards their main target group: children. Many parents object strongly to the influence this has over their own children. McDonald’s argue that their advertising is no worse than anyone else’s and that they adhere to all the advertising codes in each country. But others argue it still amounts to cynical exploitation of children – some consumer organisations are calling for a ban on advertising to children. Why do McDonald’s sponsor so many school events and learning programmes?
Are their Children’s Charities genuine philanthropy or is there a more explicit publicity and profit motive? EMPLOYMENT The Corporation has pioneered a global, highly standardised and fast production-line system, geared to maximum turnover of products and profits. McDonald’s now employ more than a million mostly young people around the world: some say a million people who might otherwise be out of work, others however consider that they are in fact a net destroyer of jobs by using low wages and the huge size of their business to undercut local food outlets and thereby force them out of business.
Is McDonald’s a great job opportunity or are they taking advantage of high unemployment to exploit the most vulnerable people in society, working them very hard for very little money? Complaints from employees range from discrimination and lack of rights, to understaffing, few breaks and illegal hours, to poor safety conditions and kitchens flooded with sewage, and the sale of food that has been dropped on the floor. This type of low-paid work has even been termed ‘McJobs’. Trade Unionists don’t like McDonald’s either. The company is notorious for the vehemence with which they try to crush any unionisation attempt.
They argue that all their workers are happy and that any problems can be worked out directly without the need for interference from a third party, but are they in fact just desperate to prevent any efforts by the workers to improve wages and conditions? ANIMALS Vegetarians and animal welfare campaigners aren’t too keen on McDonald’s – for obvious reasons. As the world’s largest user of beef they are responsible for the slaughter of hundreds of thousands of cows per year. In Europe alone they use half a million chickens every week, all from windowless factory farms.
All such animals suffer great cruelty during their unnatural, painful and short lives, many being kept inside with no access to fresh air and sunshine, and no freedom of movement – how can such cruelty be measured? Is it acceptable for the food industry to exploit animals at all? Again, McDonald’s argue that they stick to the letter of the law and if there are any problems it is a matter for government. They also claim to be concerned with animal welfare. EXPANSION In 1996 McDonald’s opened in India for the first time: a country where the majority of the population is vegetarian and the cow is sacred.
Just one example of the inexorable spread of western multinationals into every corner of the globe. A spread which is creating a globalised system in which wealth is drained out of local economies into the hands of a very few, very rich elite. Can people challenge the undermining of long-lived and stable cultures, and regional diversity? Self-sufficient and sustainable farming is replaced by cash crops and agribusiness under control of multinationals – but how are people fighting back? FREE SPEECH So, it seems as though lots of people are opposed to the way McDonald’s go about their business.
So there is a big global debate going on about them right? Wrong. McDonald’s know full well how important their public image is and how damaging it would be to them if any of the allegations started becoming well-known amongst their customers. So they use their financial clout to influence the media, and legal powers to intimidate people into not speaking out, directly threatening free speech. The list of media organisations who have been sued in the past is daunting, and the number of publications suppressed or pulped is frightening.
But what are the lessons of the successful and ever-growing anti-McDonald’s campaign for those also determined to challenge those institutions which currently dominate society? CAPITALISM Nobody is arguing that the huge and growing global environmental and social crisis is entirely the fault of one high-profile burger chain, or even just the whole food industry. McDonald’s are of course simply a particularly arrogant, shiny and self-important example of a system which values profits at the expense of anything else. Even if McDonald’s were to close down tomorrow someone else would simply slip straight into their position.
There is a much more fundamental problem than Big Macs and French Fries: capitalism. But what about anti-capitalist beliefs like socialism and anarchism? Is it possible to create a world run by ordinary people themselves, without multinationals and governments – a world based on sharing, freedom and respect for all life? The UK arm of McDonald’s is planning a campaign to have the dictionary definition of a McJob changed. The Oxford English Dictionary says it is: “An unstimulating, low-paid job with few prospects, esp. one created by the expansion of the service sector. But Lorraine Homer from McDonald’s said the firm felt the definition was “out of date and inaccurate”. The fast food chain is planning a public petition to try to get the definition changed. The word McJob was first used in the US in the 1980s and was popularised by Douglas Coupland’s 1991 book Generation X. It first appeared in the online version of the Oxford English Dictionary in March 2001. McDonald’s tried to improve the image of its employment opportunities last year with the slogan: “McProspects – over half of our executive team started in our restaurants.
Not bad for a McJob. ” Greenpeace 25 July 2006 In an historic deal that has impacts far beyond the golden arches and into the global agricultural market, McDonald’s is now the leading company in the campaign to halt deforestation for the expansion of soya farming in the Amazon. Thanks to enormous pressure from the thousands of emails and letters sent to their European headquarters by you, our supporters, McDonald’s has agreed to stop selling chicken fed on soya grown in newly deforested areas of the Amazon rainforest.
In recent years, the seemingly unstoppable expansion of soya farming in the Amazon had become one of the main threats to the world’s largest rainforest. The soya wasn’t being used to feed the world. Instead it was used to feed farm animals destined for fast food and supermarket chains across Europe. In April we launched our campaign exposing the food retailer’s role in rainforest destruction. Our report, Eating Up the Amazon, detailed how McDonald’s and other companies were implicated in deforestation, land-grabbing, slavery and violence. Since then there has been a sea change in attitude among the food industry towards the problem.
The result is that McDonald’s and other big food retailers, including Marks ;amp; Spencer, Waitrose, ASDA and Sainbury’s, are working with us to develop a zero deforestation plan. The plan will also help bring an end to the land-grabbing and social injustice that is rife in the Amazon. By committing to the plan, the companies’ massive buying power has created a huge demand for soya that hasn’t been grown in the ashes of the rainforest. This put pressure on the ‘big five’ soya traders – Cargill, ADM, Bunge, Dreyfus and Amaggi – to come to the negotiating table with the future of large areas of the Amazon rainforest at stake.
In response to the pressure, the soya traders committed to a limited two year moratorium of buying soya from deforested areas. The two-year time frame of the soya traders moratorium risks being no more than a token gesture, unless the traders deliver real change to protect the Amazon. “We do hold the view that multinationals are responsible for much of the environmental degradation blighting our planet. But when business is ready to seriously tackle a crisis, we are ready join forces. Greenpeace is demanding that the moratorium stays until proper procedures for legality and governance are in place and until there is an agreement with the Brazilian Government and key stakeholders on long term protection for the Amazon rainforest. A working group will be established, made up of soya traders, producers, NGOs, and government to put in place an action plan. “When we were first alerted to this issue by Greenpeace,” said Karen van Bergen, vice president of McDonald’s Europe, “we immediately reached out to our suppliers, other NGOs and other companies to resolve this issue nd take action. We are determined to do the right thing together with our suppliers and the Brazilian government, to protect the Amazon from further destruction. “The two-year time frame set for the initiative is, we hope, indicative of the sense of urgency with which the soya traders wish to implement the governance programme and all of its conditions. We expect that should some of the measures take longer than the stated two years to implement, the moratorium would remain in existence until all commitments have been fulfilled. ” There are some companies, however, who refuse to play ball.
KFC have point-blank refused to discuss their role in Amazon destruction and so we need to show them how isolated they’re becoming. UK Channel 4 TV News 9 Sept 2007 Buildings such as hospitals and theatres will be powered by rubbish from McDonald’s restaurants in a new pilot scheme. Eleven fast-food restaurants in Sheffield, Rotherham and Barnsley, South Yorkshire, will take part in the initiative, which will turn waste into electricity and heating for 130 buildings in the area. The scheme will save each restaurant from sending 100 tonnes of refuse to landfill each year and could be rolled out across the country if successful.
The restaurants will become the first in the UK to send no waste to landfill. Instead, any rubbish will be collected, treated at a state-of-the-art energy recovery facility and converted into electricity and heat. Buildings in Sheffield to benefit from the new recycled energy include Ponds Forge International Sports Centre, Park Hill flats, the Lyceum Theatre, Millennium Galleries, Weston Park Hospital and Sheffield City Hall. The 11 restaurants will also trial a range of environmentally-friendly technologies and processes, including solar panels, wind power, energy-efficient lighting and a recycling scheme for cardboard.
Steve Easterbrook, president and chief executive officer of McDonald’s UK, said: “At the moment, it is difficult for companies like McDonald’s to recycle waste. Many recycling contractors refuse to take our waste because we cannot remove food from it completely. As a result, we have to send it to landfill. “This trial is an exciting opportunity to look at an alternative method of disposal with real benefits for the environmental and local community. ” David Pratt, carbon management account manager at the
Carbon Trust, which is working with McDonald’s to evaluate the projects, added: “We look forward to assessing the CO2 savings of this initiative on McDonald’s carbon footprint. “We welcome the steps that McDonald’s are taking to reduce their emissions as part of UK business efforts to fight climate change. ” The three top issues identified by McDonald’s Stakeholder Group (see 2006 Worldwide Corporate Responsibility) 1. What are we doing to help address current trends in obesity 2. How are we using our purchasing power to influence the upstream supply chain 3.
How are we addressing the System’s impact on climate change| | Discussion Questions * What social and environmental issues are involved in producing and selling hamburgers? * * * * * How should McDonalds manage these issues? 1. COMING OUT OF THEIR SHELL: BRENT SPAR (By Alan Neale, from ‘Greener Marketing’, Charter & Polonsky eds. ) Shell UK’s 1995 attempt to dump Brent Spar, a redundant North Sea oil installation, in the Atlantic Ocean detonated a storm of protest that the company had not foreseen, despite its reputation for scenario planning.
After battling at sea and in the media with Greenpeace protesters, and suffering in the marketplace, the company backed down and began to explore possibilities for recovery and re-use. This change of heart marked a turning point, not just in Shell’s relationship with its stakeholders, but more generally in business attitudes to corporate greening. Historical Background Shell is a multinational grouping of companies, based in the Netherlands and the UK, and the second largest of the oil majors.
In the early post-war period, the Shell Group of companies concentrated more on downstream activities (the marketing of crude oil and oil products) than on upstream operations (exploration and production). This changed with the OPEC-induced oil price rises of the 1970s, when the group embraced new exploration on a massive scale to reduce its dependence on Middle East supplies over which it had no control. Rapid development of the Brent Field to the east of Shetland, a joint venture with Esso, was one outcome of this strategic shift upstream.
Brent Spar was installed by Shell in 1976 to bring oil ashore from the Brent Field in a way that respected the harsh climatic conditions of the North Sea. The Spar was a huge floating tank, chained to concrete blocks on the sea floor; in which crude oil was stored prior to loading onto shuttle tankers for transfer ashore. Ironically, in view of subsequent events, environmental considerations featured prominently in its design: Esso had favoured a cheaper solution involving a permanently moored tanker, but Shell UK, the operating partner, chose a giant buoy, partly because this involved less risk of marine pollution. Cradle-to-grave’ issues were ignored, however. The main concern in the 1970s was to bring the oil ashore quickly, and, as was common at the time, no attention was given to integrating plans for end-of-life disposal into the design process even though the understanding in international law was that redundant structures would be taken ashore for dismantling. It was only when Brent Spar was decommissioned in 1991 that the technical problems of disposal were addressed.
There were worries that, if the Spar were turned on its side to bring it onshore (reversing the sequence employed during its construction) the tank walls could rupture, risking massive inshore pollution, and the company decided to investigate alternatives. Stage 1: Compliance (1991-95) The process Shell UK employed to generate and evaluate alternatives followed UK government guidelines scrupulously, and the company assumed, erroneously, that this would ensure public acceptance.
The narrowness of the decision-making reflected an organisational culture within the Shell Group that emphasised responsibility, while discouraging involvement with external stakeholders. Operating companies within the Shell Group traditionally enjoyed considerable autonomy in taking their own decisions, providing these reflected Group business principles. The Statement of General Business Principles, first issued in 1976, recognised, uniquely for a large multinational corporation at that time, four ‘inseparable’ areas of responsibility – not just to shareholders, but to employees, customers and society as well.
Health, safety and environmental issues were directly addressed, but the main emphasis was on Shell companies complying with the regulations of the countries in which they operated, rather than striving to achieve or exceed global best practice. Although consensus-seeking within Shell management was encouraged, there was a split between the engineers who dominated upstream operations and the marketing personnel who concentrated on downstream sales. The prevailing organisational culture did not encourage openness with outsiders. o opportunities to find new partners to explore innovative solutions to environmental problems were missed. Aloofness often came across as insensitivity, particularly in relation to concerns expressed by environmental or human rights groups. The decommissioning of Brent Spar provided a graphic illustration of the drawbacks of the traditional Shell approach. Shell UK spent three years studying different disposal options, the aim being to determine the ‘Best Practicable Environmental Option’ (BPEO), to comply with UK regulatory requirements.
Under BPEO, alternative options have to be assessed, and financial considerations are supposed not to override environmental impacts, but ‘practicable’ is often interpreted as lowest cost, provided minimum environmental standards are adhered to. This applies especially to North Sea oil, where the same UK government department, the UDI (Department of Trade and Industry), is responsible both for promoting the industry and for egulating it, and where the Treasury has a vested interest in the lowest-cost solution (because decommissioning costs are tax-deductible). In Shell UK’s BPEO studies for Brent Spar, six viable options were identified, but only two – horizontal dismantling for onshore disposal and deep sea dumping – were considered in detail. A re-use option had been rejected on the grounds that ‘no alternative users or buyers were found’ although this was hardly surprising given the secrecy surrounding the process.
The studies suggested that, environmentally, their two main options were evenly balanced: deep-sea dumping would involve negligible impact as pollutants would disperse over a wide area and, while onshore disposal might result in lower pollution if it went as planned, this technically more complex operation would risk accidental spillage into a vulnerable inshore marine environment. The deciding factor was financial with onshore disposal costs estimated at four times those of deep-sea dumping. Shell UK convinced themselves and the UK government that they had struck the right balance between environmental safety and financial considerations. nd did not feel a need to test this against outside opinion beyond the minimum consultation recommended by UK law and the formal notification of other European governments required in international law. The arrogance of assuming that ‘we know best’ was to be Shell’s downfall. The proposed dump site in the Atlantic Ocean to the west of Lewis (one of the Western Isles of Scotland) was chosen without consulting the scientists who were most familiar with its marine environment, and there was no peer review of the assumptions about dispersal of contaminants after dumping.
No attempt was made to explore with engineering contractors innovative ways of reducing the risks and costs of bringing the Spar onshore and the secrecy surrounding the process closed off possibilities for recycling or re-use. Many of Britain’s neighbours had a long-standing cultural antipathy to dumping in or near the North Sea, and they had little sympathy for the primacy of financial calculations in the UK government’s BPEO procedure, yet little was done, either by Shell or the UK government, to address these concerns.
Nor was much attention given to Greenpeace’s long-standing involvement in campaigns against pollution in the North Sea, and its capacity to generate unfavourable publicity for the company. Stage 2: Confrontation (1995) It was Greenpeace’s intervention in 1995 that turned the fate of Brent Spar into an international cause celebre. The organisation had been actively campaigning against ocean dumping for most of the period since1978.
Its actions had been instrumental in halting the dumping of radioactive and industrial wastes at sea, and it was particularly concerned that Shell’s Brent Spar disposal would be used as a precedent to reassert the legitimacy of dumping at sea, not just for oil installations but for other industrial wastes as well. Along-side this long-term concern, there were short-term reasons for Greenpeace’s interest in Brent Spar. Early in 1995, when the UK government was announcing its intention to support dumping at sea, Greenpeace was looking for a visual focus to back its lobbying of a ministerial conference on the North Sea to be held in June1995.
Brent Spar was to provide that focus. In April 1995, Greenpeace activists occupied Brent Spar. They mounted a massive media campaign, inviting reporters on board and providing television companies with anti-Shell video footage which regularly appeared on news programmes throughout Europe. Brent Spar, which had remained unnoticed for 9 years, suddenly appeared, day after day, on millions of television screens throughout the continent, as a symbol of business disrespect for the marine environment. Shell UK never seemed to know what had hit them, or how to respond.
The company evicted the protesters and began towing the Spar to its dump site, yet protesters in inflatables and helicopters continually interfered with the operation and eventually re-boarded the Spar, providing more David-versus-Goliath images for Greenpeace to feed to European television audiences at Shell’s expense. Away from the North Sea, the Greenpeace message was clear: companies should not use the sea as a dump site, and should take responsibility for their own waste. Shell spokespeople, in contrast, seemed remote and soulless.
They kept repeating to the media that they had satisfied legal requirements to determine the BPEO, without realising that this was a concept that had little meaning for most of their audience, particularly outside the UK. A related spin was that Shell managers were rational scientists, carefully weighing a range of environmental, safety and financial considerations before making a decision, unlike their opponents, whose judgement, it was suggested, was clouded by an emotional attachment to the marine environment.
At times, lack of awareness of the contested nature of the scientific evidence and limited sensitivity to issues of principle turned into openly expressed contempt for public perceptions and feelings – John Wybrew, Shell UK’s then Director of Public Affairs, going so far as to suggest that ‘people confronted with the campaign became emotionally disturbed’ Despite the lesson the oil industry was supposed to have learned-after the Exxon Valdez oil spill of 1989 that corporate complacency in the face of public concern can be fatal to a company’s reputation, Shell managers continued to insist that they had made the right decision.
Communication was a one-way process, and no attempt was made to understand the social values that underpinned the doubts shared by many of its stakeholders, let alone respond constructively to them. Opinion polls showed that few people in Germany, the Netherlands or Scandinavia supported the Shell case. Many motorists in these countries boycotted Shell products, with the encouragement of Greenpeace, Green parties and church groups; Shell sales in Germany fell by 20%.
At the governmental level, only Norway supported the UK in opposing calls at the June meeting of North Sea environment ministers for a halt to sea dumping of oil installations, and additional pressure was put on the UK government to change its policy at the following week’s G7 summit. Some business partners such as Novo Nordisk, the Danish pharmaceuticals company and a co-signatory of the Business Charter for Sustainable Development, publicly challenged Shell to justify its decision-making over Brent Spar.
Dissident shareholders added to the opposition and eventually managed to muster sufficient support to put critical resolutions, calling for more rigorous external monitoring of environmental performance, to the 1997 Annual General Meeting. Underlying all these actions was a feeling that Shell and the UK government were taking the easy option with Brent Spar, for short-term financial reasons, and riding roughshod over public opinion.
The about-turn, when it came, followed intense pressure from European partners within the Shell Group Deutsche Shell in particular had been extremely critical of Shell UK’s failure to communicate the reasoning behind its decision to dump Brent Spar, and had stressed the adverse market consequences of that failure. After intensive discussions within the Group on 20 June 1995 only hours before Brent Spar was due to be scuttled, Shell UK announced that it was abandoning the dumping operation.
HOW MONSANTO’S MIND WAS CHANGED John Vidal The Guardian, Saturday, October 9, 1999 In spring the US giant was sure its GM technology was unbeatable. Then one man convinced the organisation that the game was up. On July 14 a group of powerful Americans met secretly at the Willard hotel near the White House to listen to an English academic who had spent much of his life working in developing countries with peasant farmers. The nine members of the Monsanto board of directors have serious political clout.
Apart from Robert Shapiro, the visionary head of the $12 billion a year corporation, and senior bankers and Harvard academics, it includes Mickey Kantor, former head of the US commerce department, and the former heads of the US social security department and the US environmental protection agency. They were there to meet Gordon Conway, the president of the Rockefeller Foundation in New York, whose remit is to help the world’s disadvantaged.
Mr Shapiro, who vows he is working for the world’s poor with GM foods, had invited Professor Conway, formerly vice chancellor of Sussex University, to address the board as part of the corporation’s commitment to consult more widely following the GM furore in Europe sparked by the so-called Terminator gene. Because Rockefeller had put more than $100 million into public research into GM crops, Prof Conway was thought to be an ally; he was expected to make a friendly, gentlemanly speech, perhaps with some mild advice, that would go no further than the four walls of the Willard.
But privately, Prof Conway, along with increasing sections of the US intellectual community, deplored the corporation’s style and global strategy. Meltdown of confidence In Europe it had alienated millions, he believed, and was threatening a trade war and long term damage to the prospects of the poor. The corporation with a reputation for arrogance and secrecy was seen to be responsible for a meltdown of confidence in science and big business and a backlash against US agriculture.
Moreover, Monsanto’s effective ownership of Terminator technology would allow the corporation, the second biggest agribusiness in the world, to develop plants that bore sterile seeds – a move that had angered farmers in the developing world. Prof Conway had given Monsanto little warning, even when he had visited the company’s St Louis HQ a few weeks earlier. But at the Willard he went straight for Monsanto’s guts. For more than an hour; the professor lectured the board: change tack, or bring the wrath of the scientific, political, and global community down on them. “Admit that you do not have all the answers,” he said. Commit yourselves to prompt, full, and honest sharing of data. This is not the time for a new PR offensive but for a new relationship based on honesty, full disclosure, and a very uncertain shared future. ” Prof Conway argued that the possible adverse consequences for billions of developing world farmers outweighed any social benefits in protecting the Terminator technology. What the Terminator gene did, he said, was effectively kill the process that let farmers sow their own seeds, and subsistence farmers were too poor to buy new seed. The possible consequences were terrible dialogue” that would air all sides of the issues.
Terse statement The board were shocked. But they did not suspect that Prof Conway had warned the press about what he intended to say. Within hours Rockefeller had issued seven challenges to Monsanto. “It was like a boil had been lanced, a milestone,” said one person who was party to the talks. “Someone in authority had for the first time held this monolithic corporation up to public accountability. ” Monsanto was furious, and issued a terse statement: “The meeting was frank and productive. We will continue to reach out to people like Prof Conway to discuss the challenges and opportunities of biotechnology applications in agriculture. The Conway meeting was seminal. He urged a global public consultation. Until then, about the only genuine “reaching out” the company had done was to its lawyers, publicists, lobbyists, and friends in governments. In short, he told them, Monsanto was socially irresponsible and the public was alienated. It had dismissed the social and ethical critiques of environment, church, and consumers groups, and in July was hoping to ride out the storm. Mr Shapiro was confident: for the six months of 1999, the company earned $476 million, Up 5% on 1998, and its income had grown 28%.
In particular, it had no intention of backing down on Terminator. Its only retreat was to admit it had misunderstood European sensibilities and been “naive” in trying to win fast approval. Until the spring Monsanto had broad support in the US. Wall Street and the White House still favoured the company, whose shares were priced at $47 each, and analysts were saying it was primed for success. Mr Shapiro could tell shareholders that the flooding of the US market with GM crops had been the most “successful launch of any technology ever, including the plough”.
He anticipated a 300% expansion in the two years to a staggering 183 million acres. Nor was Europe a problem: “Eventually, scientific proof should win over reluctant and skeptical consumers,” he said. But, since the spring, little had gone right. In April a manufacturer of veggie burgers stopped using GM soybeans. The Wall Street Journal then reported that the GM controversy was “beginning to be felt in the US”. Some farmers started to avoid GM crops, and the powerful US grain industry was saying it had nearly stopped shipping to Europe – a $200 million market.
By the summer, the first GM crops were being destroyed by US activists, and the press had begun to widely report global disillusionment. Europe was deteriorating even further, with supermarkets disavowing GM products and activists digging up crops. Meanwhile, the Clinton administration was reportedly “dreading starting a trade war over GM because public sentiment is so strongly against”. And in poor countries, Terminator was becoming a political issue. India and Zimbabwe had effectively banned the use of the technology, and the world’s largest group of agricultural research organisations had condemned it.
By May observers noted a definite cooling by Dan Glickman, the US agriculture secretary, who was warning of “profound consequences” if the GM situation did not improve. For the first time, he encouraged US firms to voluntarily label products. Monsanto was reportedly furious. Told to keep quiet Mr Glickman then upped the stakes, warning GM could hurt small farmers. He reportedly said that Mr Shapiro should keep quiet “because every time he opens his mouth, US agriculture loses millions more bushels of agriculture exports”. By the summer, US corn exports to the EU were reported to have dropped 96% in a year.
To Monsanto’s horror, farmers were beginning to choose traditional seeds rather than risk the new. One giant processor announced it would pay extra for traditional soybeans. Within weeks, Monsanto was further exposed: the British AstraZeneca GM company said it would not commercialise its own Terminator-type technology. By August Mr Shapiro was on the ropes. Mr Glickman said he would investigate whether the US agriculture department was too close to companies like Monsanto, and the message was picked up on Wall Street. Deutsche, the largest European bank, had in May recommended institutional investors to ell Monsanto shares -within days the price had dropped; when Deutsche repeated the advice in September, other analysts joined in. Monsanto stock had lost 35% of its value in a year, while Wall Street as a whole went up 30%. The Conway message finally got through. After heated debate in the company, Monsanto’s president, Hendrik Verfaillie, went 10 days ago to the US senate to say that it “would now act to meet concerns”. He then travelled secretly to Britain to talk to the Soil Association and others, promising to help farmers with traditional cross-breeding.
On Monday, Mr Shapiro wrote to Prof Conway to say the company would no longer pursue research into the Terminator technology. On Tuesday he was due in Britain at the Greenpeace business conference but pulled out. But his interactive video link showed how much Mr Shapiro had changed. Instead of a beam and a twinkle, the screen showed a pale and drawn man: “We forgot to listen”, he said. “We have irritated and antagonised more people than we have persuaded. Our confidence in biotechnology has been widely seen as arrogance and condescension. ” He promised wide consultation and to listen carefully.
The questions remain, but, said Prof Conway, “it’s a start”. Monsanto: Winning the Ground War How the company turned the tide in the battle over genetically modified crops by Brian Hindo, Business Week December 6, 2007 When Hugh Grant took the top job at Monsanto (MON) in May, 2003, the company’s nickname in some quarters was “Mutanto. ” A growing chorus of critics warned that Monsanto’s genetically modified plant seeds would wipe out the monarch butterfly, give people virulent new allergies, and reduce the planet’s agricultural diversity.
Author Jeremy Rifkin predicted that genetically modified organisms (GMOs) would turn out to be “the single greatest failure in the history of capitalism. ” Paul McCartney urged the world to “say no to GMO. ” Prince Charles wrote an editorial arguing that genetic engineering takes “mankind into realms that belong to God and to God alone. ” During the 12 months preceding Grant’s elevation, Monsanto’s stock price fell nearly 50% to $8 a share. In 2002, the prior fiscal year, the company lost $1. 7 billion. “We were pretty financially fragile,” recalls Grant, 49, who speaks with the lilt of his native Scotland.
Fewer than five years later, Monsanto is thriving. The St. Louis company’s net income leaped 44% last year, to $993 million, on $8. 5 billion in revenue. Monsanto shares, which closed at $104. 81 on Dec. 5, have risen more than 1,000% during Grant’s tenure. At 58. 6, the company’s price-to-earnings ratio is about two points higher than Google’s (GOOG). These numbers reflect a broader story: that Monsanto has quietly turned the tide in the war over genetically modified foods. While a vocal band of opponents is still protesting biotech crops, a growing multitude of farmers around the world is planting them.
The reason is no mystery: Monsanto seeds contain genes that kill bugs and tolerate weed-killing pesticides. So they are much easier and cheaper to grow than traditional seeds. More than half the crops grown in the U. S. , including nearly all the soybeans and 70% of the corn, are genetically modified. Just five years ago, China, India, and Brazil planted virtually no genetically engineered crops. Now Brazil can barely build roads fast enough to get all of its biotech soybeans from the fertile interior Mato Grosso state out to ports. Farmers in China and India, meanwhile, planted more than 17 million acres of biotech crops last year.
These three countries are now three of the six largest GMO-planting nations in the world, as measured by area planted. At a time when organic food is more popular than ever, about 7% of the world’s entire farmland acreage is now planted with genetically modified crops—the ultimate anti-organic food. “When you’re more than 1 billion acres planted,” says Grant, “I think the conversation moves from what if’ to what is. ‘” The battle over genetically modified food is being won not in scientific journals but on the ground. Global demand for food and fuel have made farmers ever eager to squeeze more yield from an acre of dirt.
And the undeniable fact is that during the 12 years since the first biotech seeds were planted, the most dire predictions of Monsanto’s opponents have so far failed to come true. That’s prompted some swaggering at company headquarters. In interviews with BusinessWeek, Monsanto executives variously described the safety objections of adversaries as “scare tactics,” “Chicken Little theatrics, “mischief,” and “misinformation. ” Managers at the company display a near-religious conviction about the GMO cause. In the days when fear of so-called Frankenfoods was at its peak, Grant and his team made a risky decision to stand firm.
They insisted on holding research and development spending to 10% of sales. Grant also made a crucial strategic decision to pare down the products Monsanto sold. No longer would Monsanto sell seeds for produce destined directly for the dinner plate. Instead Grant focused exclusively on seeds for agribusiness, ones that produced such goods as animal feed, ethanol, and corn syrup. That has helped deflate the opposition. But if the fears of GMO opponents ever do come true, Monsanto will take a far bigger fall than any of its more diversified rivals.
Today, Monsanto gets 60% of its revenue from biotech seeds, in contrast to about 20% at Syngenta, for example, and less than 10% at diverse chemicals company Dow (DOW). The company’s confident leaders are essentially making an enormous unhedged bet on their technology. While Monsanto executives don’t believe they are gambling, there are still plenty of doubters. In August, Kroger (KR) became the latest U. S. grocery chain to stop selling milk with a GMO bovine growth hormone that increases production, which Monsanto first started selling in 1994. All summer, activists in France trampled fields of biotech crops.
Hostility toward GMO foods continues to be widespread in Africa and parts of Asia and Western Europe. This type of persistent opposition is one reason why the investment research firm Innovest Strategic Value Advisors, which gives companies a type of credit rating based on their strategic risk profile, assigns Monsanto a “CCC” grade—its lowest possible mark. “Monsanto is basically saying that its products are very well regulated and therefore safe,” says Heather Langsner, director of research for Innovest. “It’s a lot more murky than that. ” INAUSPICIOUS BEGINNINGS
On Wall Street, however, such skeptics are hard to find. Monsanto is minting money, its business vision is clear, and shares are on a tear. But that was far from the case in 2000, when the latest chapter in the 106-year-old company’s history began. That’s the year Monsanto, then a large chemicals conglomerate with a relatively small agriculture division, was bought by Pharmacia ;amp; Upjohn. During the acquisition, some analysts valued the biotech business at less than zero. Pharmacia certainly did not have much interest in the future of genetically modified seeds.
It snatched up Monsanto for the drug compound that would eventually become Celebrex. In 2002, Pharmacia spun off Monsanto as an independent company focused totally on agriculture. But the move came at the height of the GMO debate and at a time when farmers in Latin America, a key market, were having one of their worst years ever. Moreover, Roundup, Monsanto’s chemical herbicide and at the time the source of 65% of its sales, had just come off patent. By the end of 2002, total sales had dropped 14%, and operating income fell by half. Then-CEO Hendrik A. Verfaillie was shown the door in December.
Verfaillie’s successor, Grant, came up through Monsanto’s ranks as a salesman. In contrast to previous CEOs, who had been more aloof, say analysts and Monsanto managers, he presented a friendlier face to the outside world. While chief operating officer, Grant was the go-to company spokesman for a 2000 PBS Frontline special titled “Harvest of Fear,” which described the debate about GMOs. When Grant took the helm, there was bad news in every direction. Despite billions of dollars of investment over two decades, Monsanto’s genetically engineered seed business still hadn’t earned a penny.
All of these challenges seemed particularly daunting to the newly independent company because “no parent [was] going to bail you out,” recalls Carl Casale, executive vice-president for strategy and operations. There was “no other division you could rely on. ” To create a sense of urgency, Grant relocated the members of the leadership team, who had been scattered across the company’s campus, to the same floor of the “A” building as his office. They all reported directly to Grant, who was by then the president, CEO, and chairman of the board. And Grant turned the group’s traditional 8 a. . Monday meeting from a casual session into an intense three-hour operational review. Managers came away from each meeting with a to-do list in hand. Grant says that his goal at the time was “building a team that was completely, no-kidding accountable. ” He also ditched the traditional annual strategic planning meeting—”death by PowerPoints,” Grant says—and replace it with offsite, half-day strategy reviews every six weeks. At these sessions, over a period of months, Grant and Co. implemented a new strategy for Monsanto. Grant’s plan revolved around three big decisions.
The first was to cut costs aggressively in the herbicide business. The second was to maintain Monsanto’s overall investment in biotechnology. And the third—the most important one, in retrospect—was to focus that investment largely on just four commodity crops: corn, soybeans, cotton, and canola. All of these crops are harvested mostly for industrial uses, going from the farmer to a processing plant where they become animal feed or biodiesel fuel. The consumer never directly encounters them at the store. Diners, in fact, would spit out Monsanto corn, which, unlike sweet corn, is inedible off the cob.
Grant’s decision caught many of Monsanto’s scientists off guard: Several research programs aimed at producing things people eat were axed over the course of the year, among them biotech wheat, an extra-durable tomato, blight-resistant potatoes, and bananas bred with an innate defense against virus. He acknowledges the pain: “The science was brilliant,” Grant says. “The technology we had in wheat was probably amongst our best. ” Now, Monsanto GMOs still enter the human food supply, but only indirectly, in the form of processed grain products such as cornstarch, corn syrup, or cooking oil.
In fact, in the U. S. , about 60% to 70% of all “formulated foods”—processed food with more than one ingredient—contain GMOs, according to the Grocery Manufacturers Assn. That means, essentially, if you see it in a box or a can at a U. S. grocery store, there’s a strong likelihood that it has at least a small quantity of biotech ingredients. The lone table-ready GMO food Monsanto sells is virus-resistant squash, a product it inherited in 2005 with its acquisition of vegetable seed company Seminis.
The company says it has no plans at the moment to make more GMO veggies. In recounting this chapter of the company’s history, Monsanto executives emphasize that they were investing in the part of the market they thought would grow; they deny bowing to activist pressure. But managers were clearly mindful of consumer fears. In a speech at Washington University in St. Louis just a week before his December, 2002, departure, Verfaillie acknowledged that the company had underestimated the effectiveness of the opposition groups like Greenpeace.
David Stark, who directs global industry partnerships for Monsanto, recalls that some food industry executives wouldn’t schedule a meeting with him. “They didn’t even want to be seen talking with me,” he says. “I felt like I was contagious. ” Last year, by contrast, Stark spoke at a food conference in Britain, an anti-GMO bastion. “Four or five years ago, I probably would not have been invited,” says Stark. So Monsanto basically became a business-to-business technology company, producing raw materials to supply the industrial food giants. This move is one of the key reasons consumer opposition to biotech seeds has died down.
It’s much easier, after all, to get the average grocery shopper riled up about a mutant tomato than an herbicide-tolerant soybean he’ll never see. The GMO debate “is clearly not as high up on the radar screen,” says Gregory Jaffe, a lawyer at the Center for Science in the Public Interest, an advocacy group that has been critical of Monsanto. “There haven’t been a lot of new things to fight. ” Some activists, in fact, consider Monsanto’s retreat from consumer biotech a significant victory. SOFTENING ITS STANCE Even if ordinary food buyers lost interest in the issue, of course, Monsanto’s critics did not forget about it.
But the company has tried to soften the opposition by taking a less defensive stance toward critics. Where the company had once protected its internal research papers like state secrets, it began publishing some of them in refereed scientific journals. “What you see with Hugh, I think, is a more conciliatory tone toward the opponents of GMOs,” says Robert Koort, a Goldman Sachs (GS) analyst who has followed Monsanto since the late 1990s. “It wasn’t so much, The science is right, and we’re going to just shove it through. ‘” Grant’s stance took shape, he says, when he was still COO.
An executive from Royal Dutch Shell spoke to a handful of Monsanto executives about his experience on the receiving end of heated criticism from Greenpeace over the fate of a decommissioned offshore oil rig. Shell ended up following Greenpeace’s advice about how to deconstruct the rig. The Shell executive “talked about societal shift,” says Grant. The message was clear: “Trust me’ doesn’t work anymore. ” The change hasn’t gone unnoticed. At academic conferences in the early ’90s, “Anyone who talked about risks would get really hostile questions… from industry people,” says Allison A.
Snow, a botanist at Ohio State University who has sparred with other biotech companies over her research, which shows that transgenic plants can spread in the wild and end up promoting the growth of stronger weeds. These days, she says, Monsanto and other companies in the industry are much “more respectful and interested in what we are doing. ” These types of conciliatory words were once rarely uttered by company critics. Over the years, Monsanto has been involved in a series of controversies that have given it a hard-nosed reputation. In 2005, for instance, the Justice Dept. ined the company $1. 5 million for bribing an Indonesian official (the company says the bribes were contrary to corporate policy). The company has a long history of suing farmers for unauthorized use of its seeds, a strategy that has prompted adversaries to label it a corporate bully. But the initial wave of seeds has not yet created any immunological or ecological disasters, and that has assuaged some skeptics. Margaret Mellon, of the Union of Concerned Scientists, like many of her peers, has come to the conclusion that currently available GMO seeds are probably safe to eat.
But she points out that researchers often spot risks for potential allergies and for environmental contamination. She argues that seeds must receive more rigorous testing. “There are many things about the technology that are reassuring,” says Mellon. “[But] we don’t really have a good way of testing whether there are going to be human allergies. ” PRODUCTIVITY PERSUADES As the debate quiets down, demand for genetically modified crops has exploded. The economic emergence of China and India lifted income levels for billions, who, like their wealthier middle-class counterparts in the West, are now eating meat several times a day.
That has driven a surge in demand for animal feed. Although Monsanto seeds cost several dollars more per bag than conventional ones, farmers buy them because they are much easier to cultivate. Monsanto’s latest corn seed, for instance, has three special genetic traits: pesticide to kill the European corn borer, a caterpillar that eats through the top of a stalk; pesticide to kill the rootworm, a beetle that eats the roots of a cornstalk; and resistance to Roundup weed killer. A farmer spends, on average, up to $36 more per acre for Monsanto’s three-trait corn seed.
But the company says he can save twice that on chemical insecticides and herbicide. These types of productivity improvements are a big reason farmers in Brazil seem to have fallen in love with Monsanto soybeans. It’s quite a reversal: During President Luiz Inacio Lula da Silva’s 2002 run for office, his agriculture policy adviser told reporters, “We want to establish a reputation as GM-free. We get premium prices that our competitors—the U. S. and Argentina—don’t because they plant GM. ” At the time, however, biotech soy seeds were already being spirited across the border from Argentina into southern Brazil.
Usage exploded, and the government, which had no policy on GMO seeds, had no choice but to legalize them because the country was going to lose its biotech-free status in any event. “The amount of [GM] crops being planted was so big that they couldn’t stop GM’s expansion,” says Marcelo Duarte, the executive director of Aprosoja, a soy growers’ association in Mato Grosso. “It wasn’t really even a choice. ” Monsanto said that it was upset about the smuggling, which it considers piracy. But the company also began taking legislators on “fact-finding trips” to learn more about GMO products, says David Fleischer, a professor in Brasilia.
By 2005, Brazil’s legislature opened the country to GMO adoption. Monsanto has remained an effective lobbyist in Brazil. This February, Greenpeace fought a proposal that would allow new GM technologies to be approved by a simple majority of Brazil’s biotech advisory board, rather than two-thirds. After a long battle to be heard by high-ranking officials, activists won an audience with the powerful Casa Civil, or Executive Office. Gabriela Vuolo, who heads Greenpeace’s GMO campaign in Brazil, says Greenpeacers “almost literally” crossed in the hallway with Monsanto reps who, minutes before, had their own meeting with the same officials.
Vuolo says the meeting was marred by the sensation that the pro-GM camp “got there first,” and that they seemed to have swayed Executive Office officials in favor of easing restrictions on GM. The new Biosecurity Law passed with President Lula’s approval the next month. Today, Monsanto executives consider universal adoption of GMO seeds simply a matter of time. Even in hostile climes like Germany, France, and Portugal, Monsanto seeds have started to be planted after a moratorium on GMO plantings was lifted by the EU in 2004.
As for the organic movement, it is “not going to replace how the vast majority of food and produce is grown,” says Monsanto strategist Casale. “Quite frankly, it can’t. There are not enough cities to tear down to bring the extra land into production that we would need to farm with those practices to feed this country and this planet. ” Today, more than 90% of the genetically modified seeds in the world are sold either by Monsanto or by competitors that license Monsanto genes in their own seeds. And Monsanto has no intention of giving up its lead.
Around the world, 3,000 company research scientists are coming out with the next generation of genetically modified seeds. Much of the fruits of their labor was on display at the annual Farm Progress Show, held in August in Decatur, Ill. Squared off by a barbed-wire fence, Monsanto showed off what it auspiciously called its “Golden Acre”—a panoply of experimental crops, from soybeans that produce omega-3 fatty acids to drought-tolerant corn. It was the company’s research pipeline in plant form. In a speech during the show, chief technologist Robb Fraley described the coming “step change in yield. In 1970, the average corn harvest yielded 70 bushels an acre. In 2006 the average yield was 150 bushels an acre. And by 2030, Fraley predicts, yields will push 300 bushels an acre. Monsanto is now working on a super-seed that will have eight specific biological traits baked into it, set to hit the market in 2010. Although the debate over genetically modified foods still has plenty of years to run, Grant is confident this little grain will be his best weapon in it. “Once farmers see this stuff,” he says, “they don’t want to go back. ” Discussion and Questions
In both the Shell and Monsanto cases the balance of scientific and government judgement was on the side of the companies. Dumping relatively benign structures in deep sea is, at worst, environmentally neutral and GM technology is probably important long term for solving world food shortages. Yet both companies were forced to alter course by new pressures they had not encountered in such strength before. Neither company had understood the need to communicate with a wider public who were much more inclined to believe campaigning NGOs and media scare stories than companies and official government scientists.
Questions: * Were the companies right to change their plans? * What lessons can be learnt from these cases for future company behaviour? * Are NGOs right to exploit public emotions and fears against scientific evidence? 1. MISSION & POLICY STATEMENTS JOHNSON & JOHNSON’S CREDO We believe our first responsibility is to the doctors, nurses and patients, to mothers and fathers and all others who use our products and service. In meeting their needs everything we do must be of high quality. We must constantly strive to reduce our costs in order to maintain reasonable prices.
Customers’ orders must be serviced promptly and accurately. Our suppliers and distributors must have an opportunity to make a fair profit. We are responsible to our employees, the men and women who work with us throughout the world. Everyone must be considered as an individual. We must respect their dignity and recognize their merit They must have a sense of security in their jobs. Compensation must be fair and adequate, and working conditions clean, orderly and safe. We must be mindful of ways to help our employees fulfil their family responsibilities.
Employees must feel free to make suggestions and complaints. There must be equal opportunity for employment, development and advancement for those qualified. We must provide competent management, and their actions must be just and ethical. We are responsible to the communities in which we live and work and to the world community as well. We must be good citizens – support good works and charities and bear our fair share of taxes. We must encourage civic improvements and better health and education.
We must maintain in good order the property we are privileged to use, protecting the environment and natural resources. Our final responsibility is to our stockholders. Business must make a sound profit. We must experiment with new ideas. Research must be carried on, innovative programs development and mistakes paid for. New equipment must be purchased, new facilities provided and new products launched. Reserves must be created to provide for adverse times. When we operate according to these principles, the stockholders should realize a fair return.
NOVARTIS MISSION STATEMENTPurpose We want to discover, develop and successfully market innovative products to cure diseases, to ease suffering, and to enhance the quality of life. We also want to provide a shareholder return that reflects outstanding performance and to adequately reward those who invest ideas and work in our company. Aspirations We want to be recognized for having a positive impact on people’s lives with our products, meeting needs and even surpassing external expectations. We strive to create sustainable earnings growth, ranking in the top quartile of the industry and securing long-term business success.
We want to build a reputation for an exciting workplace in which people can realize their professional ambitions. We strive for a motivating environment where creativity and effectiveness are encouraged and where cutting-edge technologies are applied. In addition, we want to contribute to society through our economic contribution, through the positive environmental and social benefits of our products, and through open dialogue with our stakeholders| Policy on Corporate Citizenship| | Novartis wants to be known for being a responsible corporate citizen.
We do everything we can to operate in a manner that is sustainable: economically, socially, and environmentally – in the best interest of long-term success for our enterprise. The Novartis core values are based on the fundamental rights of every individual, such as the protection of privacy, freedom of opinion and expression, freedom of association, nondiscrimination, and the right to be heard. • We seek to promote and protect the rights defined in the Universal Declaration of Human Rights of the United Nations within our sphere of influence. We do not tolerate human rights abuses within our own business operations.
Our associates are key to our success. We base our human resources policies and practices on fairness, openness, and mutual respect. • We pay competitive and fair wages, which clearly exceed what is needed to cover basic living needs. We want our associates to have time for family, social activities, and leisure. • We strive to provide our associates with a stimulating and challenging working environment and with opportunities for personal and professional development, while expecting from them a high level of performance and commitment to the success of Novartis. We recognize and respect the cultural differences found in the worldwide marketplace. We strive to build and sustain diversity by attracting, developing, promoting, and retaining the best people from all cultures. • We do not tolerate forced labor or other forms of exploitational labor. We support programs to abolish child labor in a manner consistent with the basic interests of the child. • We believe in constructive dialogue between employer and employees and support the principle of freedom of association. We want to be a leader in Health, Safety and Environmental Protection (HSE). The health and safety of our employees, neighbors, customers, consumers, and all others affected by our business activities, as well as protection of the environment, have priority in all our activities. • We strive to make efficient use of natural resources and minimize the environmental impacts of our activities and our products over their life cycle. We assess HSE implications to ensure that the benefits of new products, processes, and technologies outweigh remaining risks. We periodically review such assessments in light of new concerns or evidence. We take a precautionary approach in the innovation and development of new products and technologies. To this end, we follow a step-by-step approach, we engage in scientific peer review and consider benefits and risks of innovation in a scientific and transparent manner. We care about the expectations and concerns of our stakeholders. • We recognize the interest of our shareholders, employees, customers, neighbors, the authorities, and the public at large in our societal behaviour, and the health, safety, and environmental impacts of our business.
We provide relevant information and actively listen to stakeholders. In assessing controversial products, processes and technologies, we seek dialog with all stakeholders. • Improving the health and standard of living of all people is a shared responsibility between the private sector, the public sector, and other stakeholders. Novartis actively supports efforts towards the improvement of access to treatment. We integrate the principles of Corporate Citizenship into our business strategies. We manage the implementation process actively, consistently and effectively. Our Business Sectors establish proper structures and allocate sufficient resources in order to live up to this policy. • We measure progress and verify compliance with this Policy, related Guidelines and regulatory requirements through internal and external audits and management reviews. • We give priority to business partners, suppliers, and contractors who share our societal and environmental values, and we support their efforts to promote these values through their business activities. We foster awareness of and commitment to this Policy among our employees; to this end, we provide appropriate information and training to develop their skills. • All employees shall comply with this Policy, related Guidelines, and regulations applicable to their area of operational responsibility. | Key Challenges Our primary role is to discover, develop, and successfully market innovative products to cure diseases, to ease suffering, and to enhance the quality of life.
At the same time, we see a need for industry and society to come to terms on three broad issues: to ensure that humanity continues to benefit from pharmaceutical innovation; to define an equitable way for sharing the economic burden of pharmaceutical development, among the various segments of society; and ensure that research, development and application of pharmaceuticals are conducted in harmony with society’s ethical and cultural standards. It is clear that not everyone shares the benefits offered by the pharmaceutical industry today.
Affordability and patent protection are two of many topics related to access to health, not only in developing countries where human need is the greatest, but also in the developed world for needy patients who lack adequate insurance coverage. Other key challenges include the issues of marketing practices, animals used in research and development, and accountability for our suppliers and contractors. (Source www. novartis. com) EUROCO CHEMICALS PLANT A problem-solving exercise in international corporate citizenship by Chris Marsden Introduction This is a simulation exercise.
The company names are fictitious, as is the host country. However all the issues raised are based on real events. Scenario You work for EUROCO. Your company won the contract to build and operate a new billion dollar chemicals plant in Morala, an Asian country with potential similar to that of other South Asian economies such as Thailand, Korea and Taiwan. EUROCO is a European Union based conglomerate with considerable interests in the oil and chemicals sector. It has ambitions to move outside Europe into global markets. Its headquarters are in Bonn, Germany.
EUROCO has a decentralised organisational structure with a management style that has led to an organisational culture that gives its operational units as much devolved responsibility as possible. There are a number of semi-independent operational units in Italy, Germany and France; these units are finally accountable to HQ in Bonn, but they have their own management structures and decision-making powers. This means each operational unit has its own marketing strategy, personnel strategy and purchasing strategy based on EUROCO’s overall mission statement and strategic objectives.
EUROCO has a 30% equity stake in the new chemicals plant in Morala. The other partners in the joint venture are: 1. MORPETCO (50%), the Morala state petroleum company. This company is still subject to government influence but has increasing management autonomy in preparation for privatisation. MORPETCO will be the new plant’s principal supplier. 2. CANCO (20%), a Canadian-based international oil and chemical company. It has formed a close relationship with EUROCO and has been a key source of capital. The new plant is sited on a narrow coastal plain in Kole, an undeveloped, mainly forested province of Morala.
The plant is on the northern edge of Kole’s main town. The government has given considerable tax incentives to locate there. The local people have generally low living standards. There is very limited social infrastructure, the local populace is poorly educated and there are few amenities such as hospitals. Underemployment is high. Both the local and national government look upon the plant as a major source of local employment both directly and through spin-off service industries such as hotels for visiting business people and clients. An initial payback investment appraisal suggested recouping set-up costs within five years.
The plant is now operational, is meeting its year 1 revenue targets and seems likely to recover its set-up costs slightly ahead of schedule. EUROCO has a well-established, small office in Morala’s capital city, which is some distance away from the new plant. This office is the base for the Company’s chief representative and also serves as a sales and business development office for various other EUROCO activities. Although currently modest in size compared with the new chemicals plant, these other activities are expected to grow as the Moralan economy develops.
Relations between the office and the management of the new plant, while amicable, are difficult on account of the distance, the perceived degree of difference between the two operations and their different reporting lines. Employees Although the new plant has become the major employer in the area, skill shortages have limited its ability to recruit locally. During the construction phase there was considerable demand for unskilled work but the technical and managerial expertise needed for operating the plant has required the use of expatriates and well qualified people from the more developed parts of Morala.
This has disappointed the local community. Lack of funds hampers local education provision. Teachers complain they lack the equipment needed to teach science-based subjects. They also claim that their brightest students are prevented from going into higher education because the province is too small to have its own university and local people cannot afford to travel. Adult literacy levels are well below the national average. Employees not local to the region generally live in company accommodation. They have not integrated much with the local community and this is a potential source of tension.
These employees have also complained that life in their non-working hours is dull. Community investment To establish its long term commitment to Morala, and in particular Kole province, EUROCO paid $300,000 towards re-equipping emergency facilities at the local hospital. It also made a substantial donation to a well respected charity providing homes for street children. The charity’s main patron is the wife of the President of Morala but its focus is around the capital city, where most of the street children are, and not within Kole. EUROCO has just received a request from the charity for a second donation.
Environment There have been increasing complaints from the local community that the plant is polluting the river system and local environment. Although exaggerated, there is some truth in the allegations. While you are confident that the plant is fundamentally safe, emissions into the air and into the local water supply do not meet European standards. When the plant was being built, only modest consideration was given to the environmental impact, partly because the Moralan government and consequently MORPETCO are largely indifferent to environmental issues.
Local conditions would make it very expensive to stem emissions pollution completely but various preventative and clean-up measures could improve matters substantially. Two Non-Governmental Organisations (NGOs) have criticised EUROCO over its environmental record. One NGO is a radical group with a history of conflict with multinational companies. It has successfully led a number of exposes of bad practices but shuns dialogue with major companies as its sees all such issues as clear cut and is basically anti-business; particularly, oil and chemical businesses.
The second group is less radical, well respected for accuracy, but less good than the other NGO at capturing the headlines. It has a history of dialogue and working in partnership with companies. Human Rights Your plant is threatened by a small left-wing insurgent movement based in Kole and which originally campaigned to create regional independence on Marxist lines. However, in recent years it has aligned itself closely with smuggling and illegal timber operations. While the plant was being built, local support for the insurgents waned but has grown recently in response to the lack of local job opportunities.
The insurgents are also exploiting fears about chemical pollution. A prominent NGO has accused you of funding the Moralan army’s anti-insurgent operations, which allegedly have involved various unsavoury practices e. g. destroying villages and torturing rebel suspects. The NGO’s allegations against the army are largely untrue. Allegations that your company is involved are unfounded, but have received much publicity, particularly in Europe and America. However, it is true that EUROCO is dependent on the army for security and pays the Moralan government for the army’s services.
The immediate problem EUROCO’s senior executive team has come under immediate pressure from two more direct sources: 1. CANCO has warned that it may have to reconsider its association with EUROCO if adverse environmental and human rights publicity continues. CANCO faces considerable domestic pressure from consumers and leading opinion formers in Canada. 2. EUROCO Petroleum is itself in the process of expanding its retail business, especially in Germany and Scandinavia and is concerned about the possibility of consumer boycotts over environmental and human rights issues. Task Analyse the stakeholders involved and the issues with which they are most concerned * Consider 1. The communications strategy with each stakeholder 2. The priority actions for the company 7. INSURERS FOR LIMITED LIABILITY (Extract from Sensitive Chaos, Alistair C. Ping) John Dory, as General Manager Operations for Insurers for Limited Liability (ILL), had just attended a secret meeting called by the Managing Director, where a plan was presented for lopping fifteen per cent off the work force. At the meeting, Bill Chain, the head of Human Resources, provided each of the General Managers with a list of executives who were to be culled.
The plan was that the targeted individuals would be invited to an internal conference room in one week’s time. Once there they would be told of their fate, assigned an outplacement firm, and then, unceremoniously escorted from the building. As John left the meeting he felt his chest tighten with anxiety, making his breathing laboured. It had been only six months since the last downsizing had occurred and he had not enjoyed the task. Arriving back at his office, John took the time to examine the list properly. As he scanned down the second column, Karl Martin’s name appeared.
He had known Karl since he joined the firm ten years earlier, they had become quite close. Karl was almost twenty years his junior and he had acted as a kind of mentor, helping the young man with his career. He knew that Karl’s wife Elizabeth was pregnant with their first child and that they had been searching for a house to buy. Without thinking, John picked up the phone and dialled Karl’s number. ‘Hello Karl, it’s John here. ’ ‘John! I’m so glad you called, great news’, we’ve finally found the house of our dreams.
It goes to auction on Saturday and we’re sure to get it. Elizabeth is over the moon, why don’t you come over after work and help us celebrate? ‘ John’s heart sank, ‘Oh … I .. okay, that would be great, I’ll see you later. ‘ John put down the phone and wondered what to do, he was under strict orders not to tell anyone about the retrenchments before the designated day. The last thing the Managing Director wanted was disgruntled executives walking out of the building with confidential client documents that the opposition would be glad to receive. Background
The company had been losing money for the past eighteen months due to new competition from an overseas firm, Professional International Limited Liability (PILL). Some executives within the firm felt that some of the strategic decisions taken by the Managing Director in response to the new competition had been poor. This was the second downsizing in six months and there was no indication that it would be the last. Morale in the organisation was at an all-time low. John had been approached by a headhunting firm to join the new competitors, the offer had included the ability to bring a team of executives with him.
Karl Martin’s performance had been slipping for the past three months, due mainly, John assumed, to the impending arrival of his first child and the time he was spending looking for a house to buy. Question: What should John do? Rational management decision-making: A six step model 1. Gather all the facts and understand the context 2. Identify the ethical issues, conflicts and dilemmas 3. List the options 4. Eliminate the totally unacceptable 5. Evaluate the impact of each remaining option (including values upheld or violated) 6. Make the decision THE HARASSING CLIENT (By Prof. James C.
Gaa, McMaster University) Base 10 Equipment, Inc. , manufacturers of outdoor recreational equipment. has been audited for years by the public accounting firm of Dunlop and Dunlop (D&D). Until last year, the engagement has been handled by John Harris, one of the senior partners. Last year. the engagement was taken over by Dave Jamison, when he became a partner of the firm. Shortly after a meeting with the audit staff to plan this year’s audit of Base 10, Larry Herman, who was a senior on last year’s audit, knocked on Dave’s door. “Dave, do you have a minute? I need to talk with you.
It’s an important matter relating to the Base 10 Audit. I haven’t mentioned it to anyone else before, but now that I’m a manager on the engagement. I have to tell you about some things that have been happening. ” Dave responded. “You’ve certainly got my attention. Since this is the first time I’ve been responsible for planning the audit, I can use any information you have. ” Larry went on. “Having worked on the Base 10 audit yourself, you know that Chuck O’Hara, their controller, has always been pretty boorish – telling dirty jokes, making inappropriate comments about his bookkeeping staff – and about our own staff too.
Well, even though it made all of us uncomfortable we’ve always let it go, because it wasn’t worth causing a problem with an important member of our client’s management. ” “Yes, I do remember how embarrassed Chuck could make some of the girls feel. ” Dave replied. “Well,” Larry continued, “last year, O’Hara decided to focus his attention on one of our junior auditors. She tried to ignore it, but he just kept at it. None of us liked it, but we didn’t really know what to do about it” “But just last week, this junior told me that a lot more has been going on than we knew.
On the next-to-last day of our field work, O’Hara followed her into the records storage room, grabbed her, and told her that he wanted to ‘spend the evening’ with her the next night. She told me that she escaped to the door, and told him – as diplomatically as she could – that she wasn’t interested, and that any such relationship would be unprofessional. The next day, he kept coming around, acting very friendly – touching her arm, putting his hand on her shoulder, that kind of thing. I remember seeing him doing this myself. Late in the afternoon, he finally got her alone and asked her again if she would spend the evening with him.
She again made it clear that she was not interested. ” “She told me that she didn’t say anything about this to anyone until now, because she felt a lot of pressure to be part of the ‘team,’ and didn’t want to be perceived as a crybaby or as someone who might harm client relations. Anyway, she thought that she had handled it successfully on her own. But in the last month or so, she has had several messages from O’Hara on her answering machine, asking her to call him. She hasn’t called him, of course, but now that the Base 10 audit is coming up again, she’s very apprehensive about what might happen this year. Dave thought for a moment. Gee,” he said, “this is a really sensitive matter. Base 10 is one of the office’s biggest clients, and everyone who has worked with him knows that Chuck is pretty insensitive about other people’s feelings. It’s really serious, of course. but at the same time, we don’t want to blow it up out of proportion. I think I should talk this over with John Harris. He has a lot of experience with Base 10. The next day, Dave called Larry into his office. “Got a minute? Good. I’ll make it brief. I talked with John this morning about the Base 10 audit. Of course, he agrees with us that Chuck O’Hara’s behaviour is unacceptable.
He said his crude joking has been going on for years, and that he’s unlikely to stop any time soon. He even remembers some years ago seeing Chuck pinch some of the bookkeepers, but he’s never heard about anything going beyond this more-or-less harmless stuff. Anyway, John feels and I agree with him – that the best thing to do is to take this particular person off the audit. By the way, what’s her name? I forgot to ask you yesterday. ” Larry replied, “1 didn’t tell you her name, at her request. She wants something done about O’Hara. She feels that he is the problem, not her, and that if it wasn’t her, someone else would be in her position now.
Also, she doesn’t want to be dragged into it personally, because she’s afraid it might harm her career at D;amp;D. I tried to convince her that she’s mistaken about that, but I haven’t succeeded yet. ” Larry heard Dave talking to himself. “It’s got to be Jenny Barnes. She’s the one. We’ll take her off the audit. Yeah, it’s got to be her. She’s an absolute knockout. No one else on the staff comes close to her looks. ” “Dave,” Larry interrupted, “she doesn’t want to be taken off the audit, and she doesn’t want to be seen as a complainer. She just thinks that you or I should do something about O’Hara.
He’s the problem, not her. Look, she’s got great potential in the firm. We don’t want to lose her over this, but she’s pretty upset right now. She could bring a sex discrimination lawsuit if she perceives that her status in the firm is going to be hurt. ” “She doesn’t sound very loyal to D;amp;D. But I’ll overlook that for the moment. As for a lawsuit, we don’t need to take that sexual harassment stuff seriously. Besides, it’s just her opinion that this may be harassment. We’ve got to get her off the audit, and then the whole thing will blow over. John Harris says that we can’t get Chuck mad at us.
He’s heard some gossip that Base 10’s V-P Finance thinks they pay us too much for their audit, and might be thinking of putting the engagement up for bid. We can’t afford to make waves right now. So, tell me who she is – is it Jenny Barnes? – and we’ll take her off the audit. You can explain it to her, or I will if you want me to. I can calm her down myself- once she’s off the audit, I’ll know who she is anyway. In fact, now that I think about it, I’m probably the only one connected to the Base 10 audit who doesn’t know about it already. ” Larry quickly responded, “I can’t tell you whether it is Jenny Barnes.
Look, it’s possible to handle this without people knowing about it, and without harming the junior. You and I, and I guess John Harris, are the only ones who know about it right now. You should talk with Chuck O’Hara, and make it clear that we can’t tolerate any more of this behaviour. We can’t afford to lose one of our best young staff members. ” “I can’t do that. Tell her that she’s off the Base 10 audit, starting now. If she doesn’t like it, she can quit” Questions 1. What are the ethical issues? 2. What should Larry do? COMPLICATIONS IN CAPRIOTA (Extract from David Baron, Business and its environment) Maria’s Pizzeria, Inc. operates a chain of franchised restaurants in the South Central and Midwestern states. The restaurants are known for their unique soft crust, special seasonings and generous toppings. Maria’s had grown rapidly since its founding in 1968, but by the late 1990s its growth had begun to slacken as the U. S. market became saturated with fast-food restaurants. To generate growth, Maria’s decided to investigate the desirability of opening restaurants in other countries. In 2001 it sent one its experienced managers, George Pringle, to open a restaurant in Capriota as a means of learning about operating in a foreign country.
If the Capriota restaurant were successful, Maria’s intended to open a series of restaurants there and in other countries. Maria’s policy was to stress the quality and uniformity’ of its pizza. To accomplish this, Maria’s supplied its restaurants with its own cheeses and toppings from its food processing plant in Montgomery, Alabama. Mana’s also used the same utensils, plates, and glasses in all its restaurants, shipping them from Montgomery to its restaurants, including the one in Capriota.
The restaurant in Capriota was quite successful and attracted a considerable clientele, particularly among teenagers and young adults. However, Pringle experienced a number of complications that he had not encountered in the United States. He found that it was difficult to get Maria’s food and other supplies into Capriota. Low-level customs officials, both those specializing in agricultural products and those specializing in nonagricultural products, routinely delayed the shipments and demanded payments before they would sign the required customs documents.
Occasionally, a higher-level customs official would demand payment as well. These payments were not so large that the restaurant was unprofitable, but they were a nuisance and a source of concern. After discussions with a German business executive and friend who had operated in Capriota for a number of years, Pringle decided to engage the services of a local expediter who also handled customs matters for the German company. Maria’s paid the expediter a monthly fee, and shipments arrived with few delays.
Maria’s also had difficulty with the local health inspector, who had visited the restaurant and demanded a payment in exchange for his certification. In addition, Maria’s had problems with its taxes. Pringle’s German friend recommended that Maria’s hire a local licensed accountant to handle its taxes, but because Pringle thought the tax system was relatively straightforward, he decided to have his assistant prepare the forms. A month after the forms were filed, Maria’s received a letter from the local tax authority stating that twice as much was due in taxes as had been reported.
The manager was shocked and asked his friend for advice. His friend said that the letter was an invitation to “negotiate” the tax bill with the local tax officer. He said that local tax authorities frequently attempted to obtain a payment from small companies that did not have political connections, and they were almost always successful. Most small firms hired a licensed accountant to negotiate with the tax authorities to resolve this problem, he explained. It was understood that the licensed accountant would pay a “fee” to the tax authority and that the size of the fee would affect the final tax bill.
This was an institutionalized process in Capriota, and the licensed accountant’s fee was tax deductible. The German friend also indicated that if Maria’s planned to expand in Capriota it would be wise to begin to make campaign contributions to the ruling party. This pattern of complications had also affected Pringle personally. When his wife had visited in April, the immigration officials at the airport had inexplicably failed to stamp her passport. Pringle noticed this. He called the U. S. onsulate to find out what had to be done so that his wife would not have difficulty leaving the country when she had to return to the United States. The embassy official indicated that she would have to go to the immigration office, explain the problem, and attempt to persuade them to give her an exit permit. In confidence, the embassy official explained that this process could involve two or three days of waiting. He explained that it would be faster and surer to hire a local lawyer who, for a moderate fee, would be able to take care of the matter in a few hours.
Maria’s was pleased with the success of its restaurant in Capriota, and it believed that the profit potential of a series of restaurants was considerable. Pringle was troubled by the payments that had to be made to government officials, however. Payments such as those to local health officials were not unheard of in the United States, but in Capriota they seemed to be pervasive. Indeed, his German friend had recommended that if Maria’s wanted to open a chain in Capriota, it would be well advised to engage the services of the law firm of the speaker of the lower house of the national assembly.
Pringle wondered whether it might be better to withdraw from Capriota and avoid the complications. Preparation Questions: 1. Which principles should Pringle use in reasoning about the complications he experienced in Capriota? 2. Should Maria’s develop a general policy for governing its operations in other countries? What should be the components of such a policy? 3. Are the complications in Capriota sufficiently pervasive that Maria’s should leave the country? Something’s Rotten in Hondo Extact from Carroll ;amp; Buchholtz, Business and Society.
George Mackee thought of himself as bright, energetic, and with lots of potential. ‘So why is this happening to me? ’ he thought. George, with his wife Mary and his two children, had moved to Hondo, Texas, from El Paso four years earlier and was now the manager of the Ardnak Plastics plant in Hondo, a small plant that manufactured plastic parts for small equipment. The plant employed several hundred workers, which was a substantial portion of the population of Hondo. Ardnak Plastics Inc. had several other small plants the size of Hondo’s.
George had a good relationship with Bill, his boss, in Austin, Texas. One of the problems George’s plant had was that the smokestack emissions were consistently above EPA guidelines. Several months ago, George got a call from Bill, stating that EPA had contacted him about the problem and fines would be levied. George admitted the situation was a continual problem, but because headquarters would not invest in new smokestack scrubbers, he didn’t know what to do. Bill replied by saying that margins were at their limits