Revision Gig Unit 5 Crisis Management in Business

Question 1.

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

fatalities. World Health Organization (2016) describes Melamine as an organic-based chemical

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

passed quality tests.

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
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.

Question.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 & 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?

Question.3

Fonterra can take measures such as explanation, justification (diminishing approach),

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

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 & 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

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

are producing safe products and practicing ethical business dealings.

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, reliable

way that encourages transparency while sharing information to the public. The team will assess

the crisis, generate facts, and establish delegation to respond to the crisis. Besides, they will

develop factual responsive messages to be utilized by the spokesperson as a guide. 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 erroneous information that would harm the

reputation of the company.

 References

Crandall, W, Parnell, J. & Spillan, J. (2013). Crisis management in the new strategy landscape.

Thousand Oaks, CA: Sage Publications.

Scheb, J.M. & Scheb II, J.M. (2010). An introduction to the American Legal System (2nd ed.).

New York, N.Y.: Aspen Publishers.

World Health Organization. (2016). Questions and answers on melamine. Retrieved April 6,

2018, from http://www.who.int/csr/media/faq/QAmelamine/en/

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 &

Foods,1(2) 111-116. doi: 10.1111/j.1757-837X.2009.00018.x.