Business Ethics: Ethical Threats (nestle Experience)

Business ethics is the study of moral and ethical principles or problems that could potentially arise in a business environment; it applies to all parts of a business. Business Ethics investigates business values, ethical and unethical practices carried out in a business. Unethical behaviour is not always what it seems; it is not only illegal activities that are considered unethical, unethical behaviour can be greed, dishonesty, manipulation, unnecessary waste, etc. Businesses should perform ethically, in good faith and their policies and procedures should comply with ethical standards.

Ethical threats are faced daily in businesses all over the world, some professions more than others. All members of the Consultative Committee of Accountancy Bodies or the CCAB are required to act ethically and professionally at all times. Accountants must act by the fundamental principles of Ethics which are Integrity-acting honestly and in good faith, Objectivity- not allowing any bias or conflicts of interest, Professional competence- keeping personal knowledge up to date, Confidentiality- do not disclose any professional information and Personal behaviour- act according to with regulations and laws. Accountants should make decisions based on these fundamental principles. (Accountants)

The main ethical threats which are faced by accountants today are self-interest, self-review, advocacy, familiarity, and intimidation. These threats if implemented can lead to unethical decisions and behavior. Each ethical threat has a safeguard to prevent it. Accountants may be faced with the threat of self-interest, which is that a conflict of interest or financial interest may affect your ethical principles; in the case of this, the appropriate safeguard is to create a firewall. Self-review, occurs when a judgement that has already made is re-evaluated by the individual who made the original judgement, the appropriate safeguard would to remove the individual and replace them with an independent source. Advocacy threat, when objectivity becomes compromised by promoting a position, the safeguard would be to create a firewall that will prevent this. Familiarity threat, when a close relationship causes decisions to be impaired due to sympathy etc. the safeguard in this situation would be rotation. The final threat is Intimidation, when objectivity is compromised due to pressure and or influence, the safeguard for this threat is to remove the individual from the situation. These five threats are the main threats that are faced by accountants in the business.

Ethical threats can present themselves in many different forms; an accountant must be able to identify such threats to prevent this threat from growing into a problem and take action once identified. Threats are usually easily counteracted with a safeguard and so the issue is avoided. If a threat is not tackled quickly it may have a big effect on the business. Threats should be identified and a safeguard should be put in place immediately.

In September 2017 it was announced that Volkswagen had installed software in their cars that allowed the car emissions to be lower when being tested for harmful emissions of nitrogen compounds. This affected cars which had be sold after the 1st of November 2008 and included Volkswagen, Audi, Skoda, and Seat brands. The scandal affected 11 million vehicles from these car brands. Once this scandal had been discovered it exposed that these vehicles when tested in ordinary driving conditions emitted 40 times the legal limit. After this scandal, Volkswagen stated that this has caused them to move quickly towards vehicles that are battery electronic.

This scandal came to light when an American engineer was researching emissions in Europe compared to emissions in the US. John German discovered that in the EU diesel cars have high NOx emissions compared to the US. This made Mr. German interested in what the US was doing right and Europe was doing wrong. During his research, he tested many different models of cars e.g. the Volkswagen Passat. Mr. German decided to take cars onto the road to simulate normal driving conditions. When Mr. German tested the Volkswagen he was shocked at how high the emissions on this car were and thought there was a problem with the machinery, but upon further investigation, it was discovered that these high emissions were in fact correct. (Kretchmer, 2015)

After Mr. German discovered this he finished his report and sent it to the Environmental protection agency (EPA) in May 2014 and also sent a courtesy copy to Volkswagen. When Volkswagen was sent these reports they failed to make any changes to fix this problem. In December 2014 Volkswagen issued software to fix some of the vehicle emission problems, but when the vehicles which were fixed were tested in May 2015 it was revealed that the emissions were still very high. Volkswagen tried to avoid blame by using many different explanations but they finally admitted to installing a device that allowed them to cheat the emissions of the car during testing.

During the course of the investigation into this issue, the methods which were used to deal with this were Mr German sending a courtesy letter to their company to identify his findings when investigating their cars. Volkswagen although given the chance to come clean and fix this issue instead they tried to hide the fact that they had this device which allowed them to cheat the emissions. Again when fixing this problem they announced that they have begun imputing new software into the cars to tackle this problem but when tested it was discovered that emissions were still too high. Volkswagen tried to avoid blame but eventually admitted to their wrongdoing. The Executive of Volkswagen had been arrested and the Engineer pleads guilty to fraud charges.

To prevent a similar scandal from occurring again there should be prison sentences instead of having to pay fines. This would cause a company to think about the implications of committing fraud and so this may cause it to be avoided. Regulations should be put in place which will see cars tested by an outside source to avoid bias. (financial times, 2017)

This case was unethical in many ways, Volkswagen created this software as it felt they couldn’t build a vehicle that could emit such a small amount of NOx in the time frame and budget which they had. With vehicles emitting such high amounts of NOx, a pollutant that is highly regulated, Volkswagen we unbothered by the effect that this could potentially have on the environment and all organisms. Emissions that are given off from the tailpipe can cause premature death, respiratory and cardiovascular illnesses etc. This careless act could have detrimental acts on human life because Volkswagen was unable to meet regulations. This act was ethically wrong as the company favored business over the environment. This business had no regard for the effects this decision could cause because they were more focused on making money and selling their vehicles. (GOODMAN, 2015)

Nestle is a large multinational food and beverage company which is known around the world for its products. In the 1970s Nestle came under fire when they launched a baby formula and claimed it was just as good as a mothers breast milk. This company pushed their breastfeeding formulas on mothers in less economically developed countries and targeted the poor. In less economically developed parts of the world such as Africa, water sanitation is a huge problem and so mothers didn’t have access to clean water. Many women were able to read in their native language but when nestle sent products to this part of the world the directions were written in a different language and so mothers were unaware that the water which they used for the formula needed to be sterilized by boiling it. This then puts children at risk. Nestle knowingly ignored this problem. If this baby milk was not properly sterilized it can cause infections due to the bacteria contained in the unsterilized water and could potentially be fatal to the child. (Andrei, 2015)

Nestle marketed this product as it was as good as breast milk, but this formula lacked many vital nutrients and antibodies which breast milk provides the child with. Nestle promoted this product in poor countries by giving free samples, misleading information, and promoting this product in hospitals. This is hugely unethical as mothers are being misled into believing this milk is just as good as breast milk and without knowing that without water sterilization this can put their baby at risk of many different illnesses. They targeted vulnerable mothers and make them believe that this is best for their children. According to the international baby food action network (IBFAN), nestle used unethical methods to promote to poor mothers. Nestle promoted this to areas where even if the directions were understood, the mothers mostly did not have appropriate facilities available.

Nestle had no concern for the health and wellbeing of the mother and children in these less economically developed countries, this caused a global boycott of all nestle products. They convinced mothers that this product was indispensable, created a need for this product where it was not needed, and gave free samples to get mothers hooked on this product. Many cities’s made campaigns against the company such as New York City’s “The Baby Killer” campaign. The boycott of nestle caused nestle to remove some of their marketing strategies, they stopped claiming that the baby formula was a ‘Natural Start’ in October 2014 although they so still claim that the formula ‘protects’ babies. This boycott caused many different baby milk food companies to change their marketing techniques and so was ruled as a success. (Krasny, 2012)

To avoid another scandal like nestle, the international code of marketing breastmilk substitutes was created in 1981 by the World Health Assembly to ensure infants are getting safe and adequate nutrition from these products. This code states that companies cannot give free samples of their product to mothers, information must be true and not be misleading and they cannot promote their product in hospitals, etc. (HSE)

References

1. Accountants, C. (n.d.). Chartered Accountants Ireland. Retrieved 2019, from CCAB: https://www.charteredaccountants.ie/about-us/who-we-work-with/CCABCCAB-I
2. Andrei, M. (2015). Why Nestle is one of the most hated companies in the world. Retrieved from ZME Science: https://www.zmescience.com/science/nestle-company-pollution-children/
3. financial times. (2017). The next Volkswagen scandal can be avoided. Retrieved from Financial Times: https://www.ft.com/content/852cff74-d814-11e6-944b-e7eb37a6aa8e
4. GOODMAN, L. M. (2015). Why Volkswagen Cheated. Retrieved from NewsWeek: https://www.newsweek.com/2015/12/25/why-volkswagen-cheated-404891.html
5. HSE. (n.d.). WHO Code of Marketing of Breast milk. Retrieved from https://www.hse.ie/file-library/the-who-code-of-marketing-of-breast-milk-substitutes.pdf
6. Krasny, J. (2012). Every Parent Should Know The Scandalous History Of Infant Formula. Retrieved from Business Insider: https://www.businessinsider.com/nestles-infant-formula-scandal-2012-6?r=US&IR=T
7. Kretchmer, H. (2015). The man who discovered the Volkswagen emissions scandal. Retrieved from BBC: https://www.bbc.com/news/business-34519184