Spoiled milk: A Chinese mother’s struggle and the rebuilding of trust in state dairy enterprises

AuthorW. Michael Hoffman,Yuli Wang,Erica Steckler
Date01 September 2020
Published date01 September 2020
Bus Soc Rev. 2020;125:289–309.
We want to believe that the businesses we buy from are ethical. We expect firms and firm leadership
to be trustworthy in terms of ensuring a basic level of safety for the products we purchase and use.
Unfortunately, there is ample evidence to suggest that such optimism is not always warranted. Although
most enterprises are working toward the goal of ethical management, it has been well established that
firms driven by short-term profit objectives can have a tendency to make immoral decisions (Bommer,
Received: 12 June 2020
Accepted: 15 June 2020
DOI: 10.1111/basr.12211
Spoiled milk: A Chinese mother’s struggle and the
rebuilding of trust in state dairy enterprises
W. MichaelHoffman3
© 2020 W. Michael Hoffman Center for Business Ethics at Bentley University.
We honor Michael Hoffman’s enduring vision and impact in the field of business ethics. This research was made possible
through the W. Michael Hoffman Center for Business Ethics Visiting Scholars Program at Bentley University. We are
grateful for generative insights shared by Robert McNulty and Abel Monfort in the development of this work.
1Department of Economics and Financial
Management, Yunnan Normal University
Business School, Kunming, China
2Manning School of Business, Donahue
Center for Business Ethics & Social
Responsibility, University of Massachusetts
Lowell, Lowell, MA, USA
3W. Michael Hoffman Center for Business
Ethics, Bentley University, Waltham, MA,
Erica Steckler, Manning School of
Business, Donahue Center for Business
Ethics & Social Responsibility, University
of Massachusetts Lowell, Lowell, MA,
Email: erica_steckler@uml.edu
Recent research has highlighted the importance of cultivat-
ing the ethical climate of a firm with implications for ethical
decision making and consumer confidence. However, there
are important lessons still to be gleaned from firms respon-
sible for generating ethical failures. Based on a case study
of the Sanlu melamine milk powder scandal in China, this
article analyzes the key factors that have affected consumer
confidence in Sanlu and highlights main reasons for Chinese
consumers’ continued distrust of state dairy enterprises. We
explore the causes of business distrust in the Sanlu case
from the perspective of Chinese product consumers. We
further recommend solutions to repair a crisis of consumer
confidence and trust in the domestic dairy industry by con-
sidering these stakeholders’ perspectives.
ethical climate, ethical decision making, scandals
WANG et Al.
Gratto, Gravander, & Tuttle, 1987). Scandals—and in particular recent consumer product and food scan-
dals such as Samsung's exploding phones, Europe's “horse gate” involving horsemeat substitutes for beef,
and Chipotle's E. coli contamination—have eroded consumer confidence in the capacity of enterprises to
make and implement ethical decisions (SAI Global, 2017). Following a scandal, it can be extremely dif-
ficult for consumers to rebuild trust in an organization (Elsbach, 2006; Pfarrer, Decelles, & Smith, 2008).
While research has contributed to a better understanding of the conditions or attributes that influence
firm leaders and employees to behave ethically or to make ethical decisions more often or more consistently
(e.g., Geeta, Pooja, & Mishra, 2016; Treviño, 1986), a more ambitious task of management scholarship is
to support morally impaired firms to correct and overcome past wrong-doing and to rebuild stakeholder
trust. Prominent scandal-driven business failures of the past two decades such as Enron, Lehman Brothers,
and WorldCom reinforce the substantial consequences of unethical practices. Lessons from these failures
spotlight the critical importance of ethical management, but tend to lack a focus on helping firms to correct
ethical shortcomings, remedy harm, and recover trust (Rhee & Valdez, 2009; Sims, 2009).
In this article, we focus on the China Sanlu Group melamine scandal to suggest ways in which com-
panies, and in particular enterprises operating in economic environments comparable to the Chinese
market context, could avoid a similar crisis of consumer trust. In 2008, Sanlu added melamine—an
industrial chemical typically used in the manufacture of plastics—to their infant milk powder. This
nitrogen-rich chemical was added to artificially elevate protein content, an important product qual-
ity indicator by regulators and purchase-decision criteria by consumers.1 Sanlu's toxic milk powder
caused kidney damage for an estimated 300,000 infants and young children, including six reported
deaths (Branigan, 2008; Ramzy, 2008).
China's domestic dairy enterprises and milk powder market share have been heavily impacted by the
Sanlu scandal. Prior to news of the scandal, the domestic milk powder market share in the low-to-mid-
end formula categories was 60%; after the scandal broke this market share fell to less than 40% (Dong
& Liu, 2011; myguancha.com, 2016).2 In response to the 2008 melamine scandal, Chinese dairy enter-
prises strengthened the management of the milk powder supply chain and restructured to include the
purchase of high-quality raw milk from overseas. The government also established stricter supervision
of the milk powder market. These activities were anticipated to help Chinese consumers regain trust
in domestic dairy enterprises. However, according to 2012 CNFOL.com survey data, the confidence
of Chinese consumers in domestic dairy enterprises in terms of “strong trust” remained at only 7.43%,
while 80.41% of respondents indicated “strong distrust.” About 75% of consumers reported they would
choose imported milk powder, while only 6.76% of consumers reported they would choose domestic
milk powder (ENFOL, 2012; Tong, 2012). Although Chinese consumer confidence in domestic milk
powder has improved from 2012 to 2017 as measured by volume of purchases (Gao & Zhou, 2017), it
has not yet returned to consumption levels that preceded the Sanlu scandal. In 2007, an estimated more
than 60% of China consumers purchased domestic powder milk (Liu & Li, 2012). In the third quarter
of 2017, a survey of 2005 Chinese respondents by the China Youth Newspaper Social Survey Center
Joint Questionnaire Network indicated that 55% purchased domestic milk (Du, 2017). After a decade of
efforts to improve, why do Chinese dairy enterprises remain in the shadow of the Sanlu incident? In this
paper, we discuss the business ethics crisis from the perspective of the China domestic milk powder con-
sumer. We also make suggestions about how to rebuild consumer confidence in China's dairy industry.
Like most Chinese mothers, I have a child who relied on powdered milk formula for nutrition when
he was an infant, toddler, and in early childhood.3 Since 2013, I have been one of the many mothers

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