Nestle's Social Irresponsibility in Developing Nations
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Case Details:
Case Code : BECG032
Case Length : 12 Pages
Period : 1998 - 2003
Pub. Date : 2003
Teaching Note : Available
Organization : Nestle
Industry : Confectionaries
Countries : South Africa
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Please note:
This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.
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"As a responsible food company, I don't like to have an image that I am unethically behaving."
- JPeter Brabeck, CEO of Nestlé in 2003.1
Ethiopian Controversy
In late 2002, Oxfam,2 a relief group based in London, revealed that Nestlé SA (Nestlé), one of the largest manufacturers of food products in the world, was claiming compensation of $6 million from Ethiopia, one of the poorest countries in the world.
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Nestlé was making this claim because, in 1975, the then communist government of Ethiopia had nationalized a company called the Ethiopian Livestock Development Company (ELDC), without paying compensation for nationalization. The ELDC was at the time, a subsidiary of a German group called Schweisfurth.
Nestle had acquired the Group in 1986. The claim was widely reported in the
media and Nestlé came up for severe criticism from all quarters. People were
shocked that one of the most successful companies in the world (profits in 2002
- $5.72 billion) would stoop so low as to demand compensation from a poor, needy
country (per capita income in 2002 - $100).
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In addition, the nationalization had been undertaken by a previous government, and there seemed little reason for Nestle to rake up an old issue and demand such a huge sum. The compensation claim seemed to show that the company lacked a sense of social responsibility. Several relief agencies world over, called for a boycott of Nestlé's products.
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The Ethiopian government offered Nestlé the highest amount it said it could afford in settlement - $ 1.5 million, but Nestlé persisted in demanding the full compensation. Nestlé's obdurate stance generated a lot of negative publicity, which analysts felt, probably cost the company more than the compensation it had sought. In a rearguard action, Nestlé announced that it would reinvest the entire amount it received as compensation in Ethiopia. Peter Brabeck (Brabeck), Nestlé's chief executive said, "We do think it's important for the long-term welfare of the people of Africa that their governments demonstrate a capacity to comply with international law, but we are not interested in taking money from the country of Ethiopia when it is in such a desperate state of human need."3 |
Nestle's Social Irresponsibility in Developing Nations
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