"In looking for people to hire, you look for three qualities: integrity, intelligence, and energy. And if they don't have the first, the other two will kill you." Warren Buffet, Chairperson of Berkshire Hathway
The story of Blue Bell Creameries, once a beloved American ice cream brand, took a dark turn in 2015 when the company recalled all its products following the discovery of listeria contamination. This decision came after the Centers for Disease Control and Prevention (CDC), regulator in the US determined that five adults in Kansas were infected with listeria from Blue Bell products, leading to the tragic deaths of three individuals. Source info here.
At the time, Paul Kruse, then President and CEO of Blue Bell, publicly apologized and stated that recalling the products was the right thing to do to ensure consumer safety and restore confidence in the brand.
Initially, the CEO’s response appeared to be responsible and a commendable action, suggesting that the highest levels of management were taking the issue seriously. Customers could reasonably believe that the company was prioritizing their safety over profits.
However, the true story behind the scenes was quite different, revealing a severe lack of corporate governance and ethical behavior. We will also look at how stakeholder theory can help organizations improve their corporate governance practices.
WHAT EXACTLY HAPPENED?
"Ethics is knowing the difference between what you have a right to do and what is right to do." John C. Maxwell, Author
In 2020, the CEO was charged with conspiracy to cover up the listeria outbreak, a revelation that shocked many and tarnished the company’s reputation further. The charges brought against the CEO highlighted a series of unethical decisions and actions taken to hide the severity of the contamination.
Reportedly the CEO’s unethical behavior began with instructing a company employee to stop testing for listeria, despite lab reports indicating positive results. This deliberate ignorance of safety protocols was a blatant disregard for public health. Moreover, reportedly the CEO further misled federal regulators by not following through with the promised recall of contaminated products.
Instead, he directed employees to downplay the situation, attributing issues to unspecified problems with manufacturing equipment rather than the deadly listeria contamination.
Reports further indicate that in February 2015, the CEO took his decision further by rejecting the release of a draft report that identified listeria contamination in the company’s products.
The report recommended the withdrawal of these products and warned customers about potential health risks. Kruse dismissed these necessary precautions as unnecessary, showing a complete disregard for consumer safety and ethical business practices. Source info here.
IMPACT ON BLUE BELL CREAMERIES
"A good reputation is more valuable than money."- Publilius Syrus, Latin writer
The fallout from Kruse’s actions was significant. Blue Bell Creameries faced substantial fines and legal repercussions for their mishandling of the outbreak. The company was forced to pay $17.25 million in fines for shipping contaminated products, one of the largest-ever criminal penalties in a food safety case. This financial blow was compounded by the loss of consumer trust and brand reputation, which had been built over decades. Source info here.
Moreover, the company’s unethical practices led to job losses for many of its employees. The extensive recall and subsequent shutdown of production facilities had a ripple effect on the workforce, with many losing their livelihoods as a result. The impact on the community was profound, as Blue Bell had been a significant employer in several regions.
IMPACT OF CORPORATE GOVERNANCE: ETHICAL BEHAVIOUR
"Corporate governance should be looked upon as an enabler rather than a regulator. It’s the backbone of a company’s ethical standards."- Shiv Nadar, Indian Industrialist
The Blue Bell case underscores the critical importance of ethical behavior and corporate governance. Organizations must prioritize people over their business interests to maintain trust and integrity. When companies choose profits over ethics, they not only risk legal and financial repercussions but also endanger lives and erode public trust.
Why Ethical Behaviour is important?
Ethical behavior in business involves making decisions that are not only legally compliant but also morally sound. It requires transparency, accountability, and a commitment to the well-being of all stakeholders, including customers, employees, and the broader community. When ethical principles are sidelined, as in the case of Blue Bell, the consequences can be devastating.
For organizations, prioritizing ethical behavior means establishing robust corporate governance structures that ensure accountability at all levels of management. It involves creating a culture where safety and integrity are paramount, and where employees feel empowered to speak up about potential issues without fear of retaliation.
Had such a culture been there at Blue Bell Creameries, the employees would have opposed the CEO. It also means being transparent with regulators, customers, and the public, especially in times of crisis.
STAKEHOLDER THEORY
Companies need to adopt principles of Stakeholder theory in every aspect of their operations to ensure that such behavior is not followed by anybody in the organization.
Now coming to the Stakeholder theory which indeed broadens the scope of corporate responsibility beyond just shareholders to encompass all parties affected by a company's actions or decisions.
This approach emphasizes that businesses should consider the interests of not only shareholders but also employees, customers, suppliers, and the community at large.
Why Stakeholder theory could have saved Blue Bell Creameries?
Had Blue Bell Creameries followed the principles of Stakeholder theory then such fraudulent behavior by the then CEO or any employee of the organization may not have happened as they would have considered the consequences of their decisions and its subsequent impact.
By adopting principles of Stakeholder theory, companies can foster more ethical behavior and sustainable practices, as they are accountable to a broader range of stakeholders. This framework encourages decision-making that considers fairness, responsibility, and ethical standards, thereby promoting long-term value creation and societal benefit.
Organizations across the world need to make their employees aware about the Stakeholder theory.
CONCLUSION
The Blue Bell scandal serves as a cautionary tale for businesses worldwide. It highlights the dire consequences of unethical behavior and the critical need for corporate leaders to uphold the highest standards of integrity. By prioritizing people over profits and maintaining rigorous ethical standards, companies can not only avoid the pitfalls experienced by Blue Bell but also build a sustainable and trusted brand that stands the test of time.
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