Business Ethics: The 2008 Sanlu Milk Scandal

Business ethics: The 2008 Sanlu Milk Scandal

Introduction

The significance of business ethics in corporate governance seems to be increased with the corporate collapses and scandals, becoming an ethical company with high reputation might be the common goal for the global corporations. And why there are still so many companies would take great risks to sacrifice interests of public or even lives for personal gains. Are there any other ethical reasons besides the imperfect supervision system and poor monitoring? This article attend to rethink its causes from the perspective of business ethics, conducting an analysis on ethical issues triggered by Sanlu Milk scandal, a typical corporate scandal that shocked the world in 2008, through four ethical theories, egoism, stakeholder theory, utilitarianism as well as the theory of justice. Recommendations are present at the end, providing several basic ideas for solving these kinds of problems.

Background

Food safety has been in the epicenter of the global world, especially for Chinese government after the 2008 Milk Scandal, one of the largest food safety scandals in Chinese history, which almost ruined the whole dairy industry, even the whole food industry. On September 10, the melamine-tainted infant formula was found in Sanlu Group Inc. (Sanlu), the China’s largest infant formula producer, with more than 5000 times higher than the standard (BBC, 2010). The Chinese Health Minister indicated that there are more than 300,000 baby victims including around 50000 hospitalized and 11 deaths (The Central People’s Government of the People’s Republic of China[CPG], 2008). Melamine, a low poisonous chemical was used in plastic product which mainly leads to kidney stones and even acute renal failure especially among new born babies, was added to raw milk to artificially increase its protein levels as it is nitrogen-rich (National Health and Family Planning Commission of the People’s Republic of China [NHFPC], 2008). When calculate the fraudulent gains, a melamine-tainted milk supplier with three tons of milk supply each day would gain amount RMB 90,000 extra annually (Jia, Luan, Huang, Li, & Rozelle, 2014). 

The Sanlu milk powder scandal caused a nationwide dairy crisis in China finally. On September 12, 2008, the Sanlu company was ordered to stop production as well as sales all brands of its baby formula, recall and destroy all the products involving those remained unsold, and some of the top executives of the company were arrested (BBC, 2010). Fortunately, the China government has acted swiftly and is tackling this issue seriously. The Health Ministry announced that all the affected children would receive a free medical checkup, and the medical specialists were sent to hospitals around China to help treat all victims (NHFPC, 2008).

After September 2008, a nationwide inspection of infant formula conducted by the national government, tracking evidence of melamine including all domestic well-known dairy brands, like Yili, Mengniu and Guangming (Ford, 2008). In addition, the confidence collapsed after the eruption of this scandal and consumers refused to buy domestic milk powder. Unfortunately, this incident not only caused a devastating blow to the domestic dairy industry, but also affected the reputation of food exports, more than 25 countries and regions stopped importing dairy products from China immediately (Chen, Zhang, & Delaurentis, 2014).

According to the case content, there are several ethical theories connected with this hazard. Obviously, egoism might be regarded as the foremost reason for producers adding melamine to raw milk to increase its protein levels artificially. It is clear that the objective of the business is only generating profits as much as possible and the ethical senses are not clear within the company (Burrus & Mattern, 2010).

Furthermore, stakeholder theory cannot be ignored in this incident as the production chain involves different parties and implicated all its stakeholders (Miles, 2017), such as the milk peasants, manufacturers, ill babies and their families as well as the whole domestic dairy industry even the China’s exports.

When we consider from the stakeholders rather than just individual perspective, we need to consider the utilitarianism theory, which judges justified and “right” things whether it maximizes happiness for the majority of people. Evidently, the Sanlu corporation did not operate in a utilitarianism way. 

Besides, the Sanlu milk powder scandal also reflects the infringement of consumers’ moral rights. As John Rawls’s theory of justice (1971) mentioned that social and economic inequalities need to be settled, Sanlu company againsta fair dealing principle, hiding the ingredients contained in its products from consumers, which should be transparent and public. In the next section, the above four theories will be defined and explained briefly.

Explanation

In philosophy, egoism indicates that interests and desires stimulate actions and behaviors of human beings (Feinberg, 1998), as Burrus and Mattern (2010) appointed that people are often egoistic or self-interested in comparative judgments, which means that people are always psychological overvaluation the importance or activities by themselves. Egoist might believe that morality pursuit is equal to the pursuit of self-interest, and the ultimate aim is about self-welfare.

In 1984, Freeman conducted a seminal study showing that in addition to shareholders, a company could gain better results if they consider the demands of other related groups. Stakeholder theory is an amalgamation of narratives, explaining a framework of strategic management, corporate social responsibility and business ethics (Gilbert and Rasche，2008).