Professional Documents
Culture Documents
Name
Institute Affiliation
GIG UNIT 5 CRISIS MANAGEMENT IN BUSINESS 2
Q1.
The Sanlu Group, one of China’s largest power milk manufacture, and it New Zealand
based co-owner Fonterra entered into a crisis when it was discovered that their baby milk
formula had the dangerous chemical, melamine. During the crisis time, consumption of
melamine was suspected of contributing to more than 50,000 sick children and around four
that has white crystals rich in nitrogen and mostly utilized in various kinds of whiteboards,
dishware, countertops, adhesives, and plastic laminates. The discovery was attained when
Fonterra used melamine testing tools to determine the presence of the substance. However, the
Chinese government was kept in the dark for a month. It was also established that the
management at Sanlu Group was aware of the melamine allegation before the discovery but did
not take a corrective approach, which was an issue in the case (Crandall, Parnell, & Spillan,
2013, p.282). Sanlu Group attempted to support their actions by arguing that their products
Another issue in the case was how the crisis was managed between two large foreign
companies that had different governing regulations and business practices. When discovered, the
top management level at Fonterra prompted the issue recalls on the contaminated products, but
Sanlu Group was reluctant to respond to the crisis. According to Crandall et al. (2013, p. 283),
Sanlu highlighted several reasons for not considering the issue as a crisis including loss of jobs
from the scandal and the fact that the Chinese government issued an order that ensured
successful completion of the Olympics which begun six days after Fonterra notified Sanlu Group
about the issue. Fonterra encountered significant resistance from Sanlu that they were pushed to
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seek help from the Chinese and New Zealand embased to notify the government of China. The
outcome of the milk crisis has a significant impact on Sanlu as it resulted in the restriction of
Chinese made milk products in many countries, which contributed to Sanlu’s bankruptcy.
Q.2
Fonterra’s reputation in the world for quality products encountered risk when the
company entered into a joint venture with Sanlu due to the melamine milk scandal of 2008.
According to Morehouse, Freienstein, and Cardoso (2010), the melamine milk scandal affected
more than 300,000 consumers around the world, with around 50,000 hospitalization and six
deaths in China. However, it is unknown whether Fonterra was naïve or negligent when it
entered into a partnership with Sanlu. Yang, Huang, Zhang, Thomas, and Xiaofang (2009) point
out that Fonterra should have been cautious about their supply chain for all purposes and intents.
A question develops as to whether Fonterra could have done more to prevent the milk scandal.
Although the management was not aware of the mass effects until after nine months, Fonterra
did not succeed in persuading Sanlu to go public for two months. It is also interesting that a
global company such as Fonterra did not use other channels to learn about problems at Sanlu.
While the Chinese communist government controls official media, critical stories still come to
light through the smaller outlets and the internet. Besides, if Fonterra made it clear to Sanlu that
selling contaminated milk was not acceptable, why did Sanlu continue selling it?
Q.3
apology (rebuilding), and voluntary recall to prevent the crisis. During the explanation step,
Fonterra could deny their intention to harm and the inability to control the crisis to minimize
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their responsibility. This evasive step entails avoiding any connection to the milk scandal by
retreating and concealment. For example, Fonterra could refuse to release the records of
conversation with Sanlu. The explanation entails provocation, defeasibility, accidental, and good
intention. This defensive step entails admittance of the problem exists without taking
accountability through defining the situation or disassociation. After the test showed the formula,
Fonterra could declare it as an accident. During the justification stage, Fonterra could minimize
the perceived damage caused by the crisis. At the apology stage, Fonterra could highlight their
responsibilities of the crisis and ask for forgiveness from the stakeholders. During this step, the
company could accept responsibility without taking further action. For example, the company
directors on the Sanlu board could announce their attempts to full recall the products but failed.
Fonterra could also apologize as well as justify themselves for doing the right things during the
scandal. Finally, the company could seek a resolution by compensation and restructuring. After
initializing recall, the company could call the embassy for advice.
Q.4
Organizations such as Fonterra have a legal and ethical responsibility for controlling the
action of their suppliers on certain issues. In the context of legal responsibility, the court system
will use product liability to determine fault from a hazardous product that threatens the safety of
the consumers. According to Scheb and Scheb (2010), the concept of vicarious liability holds
companies responsible for the action of another organization when it comes to action they have
the right and duty to control. Interestingly, the culpability with specific independent suppliers
can have minimal liability to the company. A company that hires an independent sub-contractors
can be held responsible for the torts of the contractors. For instance, a party who contracts to
GIG UNIT 5 CRISIS MANAGEMENT IN BUSINESS 5
have hazardous dealing to be achieved can be held vicariously accountable for the contractors’
actions that are foreseeable in work to be achieved. Organizations can generate foreseeable
liability when they fail to address the concern areas that they could control during the production
process. The same applies to Fonterra, who had a vested interest in these areas to ensure the
Sanlu Group generates quality products. Fonterra has the ethical responsibility to ensure that they
Q.5
The media is the most effective tool for the public to know what is happing in the world.
As such, the process of trust and reputation rebuilding should seek to use the media in reaching
the public. If I were the Chief Ethics Officer, I would develop an information task team that will
help in the management of the crisis, ensure all the agencies respond in a credible, clear,
consistent way that supports transparency and manage the sharing of critical and sensitive
information to the public. The information task team will assess the crisis, establish facts, and
initialize delegation to respond to the crisis. Besides, the information task team will develop
factual responsive messages to be utilized by the official spokesperson as a script. The message
will demonstrate how Fonterra is handling the crisis and highlight the positive orientation if
possible. The message will also consider what is already known about the crisis and the media
interest.
Furthermore, the message will counter inaccurate information that would harm the
reputation of the company. I would then discuss the organizational learning concept where the
company’s response will be more effective during the next incident and how learning will help
prevent similar types of crises in the future. I would discuss the organizational learning that has
GIG UNIT 5 CRISIS MANAGEMENT IN BUSINESS 6
transpired at Fonterra since the crisis and how this has led to a full review of other areas of
operation to ensure that Fonterra maintains the highest quality control for all of the stakeholders
that we serve.
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References
Crandall, W, Parnell, J. & Spillan, J. (2013). Crisis management in the new strategy landscape.
Scheb, J.M. & Scheb II, J.M. (2010). An introduction to the American Legal System (2nd ed.).
World Health Organization. (2016). Questions and answers on melamine. Retrieved April 6,
Yang, R., Huang, W., Zhang, L., Thomas, M., Xiaofang, P. (2009). Milk adulteration with
melamine in China: crisis and response. Quality Assurance and Safety of Crops &