Real-World Examples of Bad Business Ethics

Reputation is a company’s biggest asset so you would think companies would avoid engaging in shady business practices. However, many large corporate find their reputations and credibility destroyed due to practices that are harmful and illegal.

McDonald’s

Very often, a company’s relationship with its stakeholders defines its ethical values. McDonald’s, despite its global success, remains the target of a vitriolic public backlash owing to what many perceive as bad business ethics in its relationships with employees and other stakeholders.

This bad business ethics example by McDonald’s is what is known as the “McDonald’s Legislation” in popular parlance. In 1972, Ray Kroc, the company’s founder made a rare donation of $250,000 to Nixon’s reelection campaign and in return got a favorable legislation that allowed companies such as McDonald’s to pay teenage employees 20 percent less than federal minimum wages. Most observers consider this a typical case of corporate influence on lawmakers to enact legislation that serve their selfish ends and harm society.

McDonald’s also doesn’t allow employees to unionize, and in one instance where workers at St. Hubert Quebec did form a union, the company closed down the unit promptly.

The McLibel case ranks as McDonald’s most disastrous cases of bad business ethics and spawned tons of negative publicity. Between 1986 and 1990, activists of London Greenpeace distributed pamphlets with the title “What’s Wrong with McDonald’s? Everything They Don’t Want You to Know” and the wordings “McDollars, McGreedy, McCancer, McMurder, McProfits, McGarbage,” alleging that McDonald’s promoted Third World poverty, sold unhealthy food, exploited workers and children, tortured animals, and destroyed the Amazon rain forest. McDonald’s sued the group for libel. The court, however, held McDonald’s guilty of exploiting children through advertising tactics, serving dangerously unhealthy food, paying workers low wages, indulging in union busting activities worldwide, and ignoring animal cruelty perpetrated by its suppliers.

Nestle

The World Health Organization found children in developing countries who fed on Nestle’s infant-formula had mortality rates five to ten times greater than that of breast-fed children. The problem was Nestle’s sinister campaign of appointing uniformed nurses to distribute the baby formula to poor mothers for free, long enough for lactating mother’s milk to dry up. The mother and child now became entirely dependent on Nestle’s infant formula, and since most of them could not afford the formula, they gave their children an insufficient quantity of the formula. The formula also required clean water, which most mothers could not access.

Nestle again made the news when they sued the country of Ethiopia, one of the world’s poorest countries, for six million dollars during the time when it was in the midst of the worst drought in 20 years. Nestle wanted compensation for its stake in the Ethiopian Livestock Development Company (Eldico), which it obtained through an investment in Schweisfurth, a German company. Ethiopia had nationalized Eldico and sold it for a profit. Nestle finally reached a settlement of $1.5 million with Ethiopia, the maximum the government could afford.

Recently, Nestle has made headlines again for getting caught spying on Attac, a non-government organization. Nestle has been ordered to pay compensation to the organization. (http://www.frontlinedefenders.org/node/21523).

Numerous other shady dealings have been reported about the big company, from allegations of murder (http://www.dw.de/nestle-under-fire-over-colombian-murder/a-16195009) to harassment of a Corporate Food Safety manager (http://www.multiwatch.ch/cm_data/PR_text-Final_15_05_2012_final.pdf). With numerous scandals to its name, Nestle is one company that epitomizes poor business practices, not to mention poor life practices.

Mattel

The quest to drive down costs very often leads to poor product quality, and puts end users at risk, leading to a strong case of bad business ethics. This is exemplified by Mattel, of Barbie doll fame.

Mattel has earned notoriety for manufacturing hazardous toys. The company outsourced manufacturing to China to cut costs, but the toys that came back were coated with toxic lead paint and contained 180 times the legal limit of lead content. The dolls also came with poorly attached small magnets that could perforate the intestines if swallowed. The dolls became a major hazard, and Mattel had to recall them, and face public ire for its unethical business conduct.

Wal-Mart

The standard business practices of “bigger is better” does not seem to hold true when it comes to ethics, for sheer size by itself raises allegations of poor business ethics, as seen in the case of Wal-Mart.

Wal-Mart very often finds itself slapped with lawsuits that accuse it of predatory pricing, or pricing products too low to drive competition out of business and gain a monopoly in local markets. Among several lawsuits, the one in 2003 struck, where Germany’s High Court ruled Wal-Mart’s low-cost pricing strategy “undermined competition.”

Wal-Mart also faced charges of monopoly, by making suppliers dependent on them and forcing them to indulge in self-defeating practices, such as pressuring them to sell goods below cost or at prices lower than they would get elsewhere.

Wal-Mart regularly faces lawsuits from employees accusing the company of forcing them to work overtime without pay and denying them health insurance. The allegations against Wal-Mart are so numerous that it is a common example for bad ethics.

CitiBank

Deciding to spend $50 million on a new private jet after taking $45 billion in taxpayer funds to stay afloat, as Citibank did is a textbook example of bad business ethics. To make matters worse for CitiBank, CEO Vikram Pandit lied to Congress that he received a compensation of one million a year when the actual figure was $11 million.

Companies indulge in unethical business conduct primarily to maximize profits. However, rubbing customers and other stakeholders the wrong way in the quest to maximize profits can be self-defeating and lead to loss of valuable patronage.

Reference

MSN. “The Bad Boys of Business.” http://articles.moneycentral.msn.com/Investing/Extra/the-bad-boys-of-business.aspx?slide-number=1. Retrieved April 22, 2011.

Image Credit:

geograph.ie/Kenneth Allen

geograph.org.uk/Steve Daniels

 

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