Please answer each of the following questions as they pertain to this case study.  Each question should be answered with a minimum of 350 words.  Please include the complete reference following each question rather than on a reference page.  There is no cover page needed.  I have attached a scan of the case study.
(1)  In a narrative format, summarize the key facts and issues of the case.
(2)  Update the information in the case by researching it on the internet.  Focus your response on the specific issues in the case.
(3)  What steps should Fonterra have taken to prevent the crisis?  Why?
(4)  What is the responsibility of a company, such as Fonterra or BP in controlling the actions of suppliers and sub-contractors?
(5)  Assume that you are the Chief Ethics Officer for Fonterra.  How do you rebuild the trust and reputation of the company?
Chapter 10. The Underlying Role of Ethics in Crisis Management
283
nor did it reveal the information to the public until September 11. So why the delay?
It appears there was concern about social stability during the August 8–24, 2008,
Summer Olympic Games, because a food scare would be damaging given the events
that were about to take place in Beijing (Liu, 2008).
For Fonterra, the situation was especially delicate, as it was now faced with a
crisis of life and death, literally. It was also concerned about saving the face of
its Chinese partner. Nonetheless, Fonterra executives, realizing they had a major
problem on their hands, contacted the New Zealand embassy, which began the
process of alerting the Chinese central government of the food contamination
problem.
Once the matter became public on September 11, the Sanlu Group received
much criticism from Chinese parents and the public. Zhang Zhenling, Sanlu’s vice
president, delivered an apology letter on behalf of the company at a news briefing
on September 15. The apology expressed regret and included a declaration to recall
all the infant milk powder produced prior to August 6, as well as an optional recall
for milk produced after that date if consumers had concerns about sick infants. The
late apology and the dismissal of Sanlu president Tian Wenhua did did not satisfy
the public sufficiently, and many citizens lost confidence in the Sanlu brand (“Four
officials sacked.” 2008). Within four months of the scandal going public, the Sanlu
Group declared bankruptcy.
Mini-Case Questions
1. The Sanlu case illustrates how a supplier can be the cause of a crisis for
the affected organization. However, blaming the supplier instead of taking
responsibility is not an acceptable strategy in the eyes of the general public.
you think this is the case?
Why do
2. This case also illustrates the problem a company like Fonterra can face
when it partners with companies in other countries. Identify other
examples of a partner company being drawn into a crisis as a result of the
actions of another company.
3. From a cultural perspective, it is important for students to know what hap-
pened to some of the executives involved in the scandal, because penalties
for the Sanlu Group crisis were rather extreme by American standards.
Conduct an Internet search and find out what happened to the executives
and managers involved in this scandal.
Mini-Case References
DeLaurentis, T. (2009). Ethical supply chain management. China Business Review, 36(3), 38–41.
Four officials sacked following baby milk scandal. (2008, September 17). China Daily
Online. Retrieved July 25, 2012, from http://www.chinadaily.com.cn/china/2008–09/17/
content_7034236.htm.
Hartley, R. (1993). Business ethics: Violations of the public trust. New York: Wiley.
Liu, M. (2008, October 6). Saving face goes sour. Newsweek, 7.
282
CRISIS MANAGEMENT IN THE NEW STRATEGY LANDSCAPE
Mini-Case: The Melamine Milk Crisis in China
Melamine is a product that is used in the making of plastics and laminates.
Unfortunately, it has also been illegally added to milk to boost its protein rating.
The product is extremely dangerous once consumed and can cause kidney stones
and renal failure (Pickert, 2008). In China, a scandal erupted in which dairy mid-
dlemen were spiking milk with melamine after they had watered down the milk to
extend the product usage. The higher protein content enabled these middlemen to
command higher prices on the market (Long, Crandall, & Parnell, 2010).
One Chinese company, the Sanlu Group, was purchasing melamine-laced
milk for use in its baby formula. Initially, Sanlu management was unaware of the
melamine presence in the product. However, some Sanlu staff eventually discovered
the melamine but continued to produce and distribute their baby milk formula,
even months afterward (DeLaurentis, 2009). The case is reminiscent of Beech-Nut’s
1979 discovery, discussed earlier in the chapter, of fake apple juice concentrate that
it had unknowingly purchased from one of its suppliers (Hartley, 1993). Rather
than abandoning the supplier, Beech-Nut executives continued to use the supplier
covertly and eventually found itself in the midst of a major crisis.
The fallout from the Beech-Nut apple juice scandal did not include health
problems for the babies that consumed its apple juice. Unfortunately, the same
outcome would not be true for the Sanlu Group. On June 28, 2008, an infant with
kidney stones was admitted to a hospital in Gansu’s provincial capital of Lanzhou.
The parents told doctors they had been feeding their baby milk produced by the
Sanlu Group. Within two months, 14 infants with similar problems had been
admitted to the hospital. Other cases were reported in provinces of the Ningxia Hui
Autonomous region, Shandong, Jiangxi, Hubei, Shanxi, Jiangsu, Shandong, Anhui,
and Hunan. All of the affected infants had been fed the milk formula produced by
the Sanlu Group (Long et al., 2010).
By September 2008, the cases of melamine-induced sickness escalated over a
much wider geographic area. The World Health Organization (WHO) reported
more than 54,000 children in China had sought medical treatment, with four
fatalities reported (Schlein, 2010). In other countries, reports of the melamine
scandal began to surface. Bans on the Chinese-made milk products were reported
in Japan, Malaysia, Bangladesh, Tanzania, and Gabon. The 27-nation European
Union also put a ban on all baby food containing Chinese milk (Long et al., 2010).
The Sanlu Group moved slowly in its response to the crisis. In fact, even before
the hospitalization of children in June, the company had received complaints about
its baby formula milk in March 2008. At that time, the Sanlu Group claimed its
products had repeatedly passed quality tests, met national quality standards, and
that sick babies must have been fed counterfeit milk powder that used the Sanlu
brand name. However, the company later learned that melamine had indeed been
introduced into its milk supply. The discovery occurred in early August when its
co-owner, New Zealand-based Fonterra, used melamine-testing equipment to
verify the presence of the substance. At that time, Fonterra owned 43 percent of
the Sanlu Group (“Sanlu Dairy,” 2009). Although Sanlu confirmed the melamine
contamination in August, it did not report the problem to the Chinese government,

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