Sanlu Group Case Analysis
PROBLEM ANALYSIS
Starting with just 32 cows and 170 milk goats pooled by 18 farmers in Shijiazhuang, the Sanlu Group began its journey as a small dairy producer. The CEO of the company, Tian Wenhua steered the company through milk shortages and tough economic times. To meet rising demands for milk, she implemented a system that allowed villagers to supply Sanlu with the bulk of their raw milk supply. The demand grew at such a rapid pace that Sanlu could barely keep up and so began sacrificing quality for quantity. Complaints of Melamine tainted baby milk from Sanlu began circulating in late 2007 and in August of 2008 when the board met to discuss the issue, the decision was made to cover up the scandal. As a result, two managers were sentenced to death and four executives received prison sentences.
The root of the issue stemmed from China’s government breaking from ancient Chinese values set into motion by Confucius’ teachings. Confucius taught righteousness over personal gain but once the Chinese Communist Party took power in 1949 that message changed the value system. The new message was self-sacrifice for collective interests. The value system further deteriorated when the capitalist, Deng Xiaoping, took over the CCP and encouraged materialistic approach to economic development. This caused the affluent members of society in urban areas to become richer while poor farmers in rural areas remained poor. Business people from the city would go to rural areas to sell fake drugs and in retaliation farmers sold the city poisoned vegetables, hormone-fed fish and contaminated milk. Ultimately, this perversion of morals led up to the corruption found in China’s business environment and set in motion the bankruptcy of Sanlu which totaled 161 million dollars in net debt.
CRITICAL ETHICAL ISSUES The individual ethical issue most prominent occurred with the farmers and the individuals who made up the supply chain for collecting raw milk to process at milk stations.
Starting with just 32 cows and 170 milk goats pooled by 18 farmers in Shijiazhuang, the Sanlu Group began its journey as a small dairy producer. The CEO of the company, Tian Wenhua steered the company through milk shortages and tough economic times. To meet rising demands for milk, she implemented a system that allowed villagers to supply Sanlu with the bulk of their raw milk supply. The demand grew at such a rapid pace that Sanlu could barely keep up and so began sacrificing quality for quantity. Complaints of Melamine tainted baby milk from Sanlu began circulating in late 2007 and in August of 2008 when the board met to discuss the issue, the decision was made to cover up the scandal. As a result, two managers were sentenced to death and four executives received prison sentences.
The root of the issue stemmed from China’s government breaking from ancient Chinese values set into motion by Confucius’ teachings. Confucius taught righteousness over personal gain but once the Chinese Communist Party took power in 1949 that message changed the value system. The new message was self-sacrifice for collective interests. The value system further deteriorated when the capitalist, Deng Xiaoping, took over the CCP and encouraged materialistic approach to economic development. This caused the affluent members of society in urban areas to become richer while poor farmers in rural areas remained poor. Business people from the city would go to rural areas to sell fake drugs and in retaliation farmers sold the city poisoned vegetables, hormone-fed fish and contaminated milk. Ultimately, this perversion of morals led up to the corruption found in China’s business environment and set in motion the bankruptcy of Sanlu which totaled 161 million dollars in net debt.
CRITICAL ETHICAL ISSUES The individual ethical issue most prominent occurred with the farmers and the individuals who made up the supply chain for collecting raw milk to process at milk stations.