Reference no: EM131700452

Problem: Apple Juice or Sugar Water?

In the early 1980s Beech-Nut, a maker of baby foods, was in grave financial trouble as it strove to compete with Gerber Products, the market leader. Threatened with bankruptcy if it could not lower its operating costs, Beech-Nut entered an agreement with a low-cost supplier of apple juice concentrate. The agreement would save the company over $250,000 annually when every dollar counted. Soon one of Beech-Nut's food scientists became concerned about the quality of the concentrate. He believed it was not made from apples alone but contained large quantities of corn syrup and cane sugar. He brought this information to the attention of top managers at Beech-Nut, but they were obsessed with the need to keep costs down and chose to ignore his concerns. The company continued to produce and sell its product as pure apple juice.

Eventually investigators from the U.S. Food and Drug Administration (FDA) confronted Beech-Nut with evidence that the concentrate was adulterated. The top managers issued denials and quickly shipped the remaining stock of apple juice to the market before their inventory could be seized. The scientist who had questioned the purity of the apple juice had resigned from Beech-Nut, but he decided to blow the whistle on the company. He told the FDA that Beech-Nut's top management had known of the problem with the concentrate and had acted to maximize company profits rather than to inform customers about the additives in the apple juice. In 1987 the company pleaded guilty to charges that it had deliberately sold adulterated juice and was fined over $2 million. Its top managers were also found guilty and were sentenced to prison terms. The company's reputation was ruined, and it was eventually sold to Ralston Purina, now owned by Nestlé, which installed a new management team and a new ethical code of values to guide future business decisions.

Questions: 1. Why is it that an organization's values and norms can become too strong and lead to unethical behavior?

2. What steps can a company take to prevent this problem-to stop its values and norms from becoming so inwardly focused that managers and employees lose sight of their responsibility to their stakeholders?