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

• Author: W. Michael Hoffman,Yuli Wang,Erica Steckler
• Date: 01 September 2020
• DOI: http://doi.org/10.1111/basr.12211
• Published date: 01 September 2020

Bus Soc Rev. 2020;125:289–309.

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INTRODUCTION

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

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Accepted: 15 June 2020

DOI: 10.1111/basr.12211

ORIGINAL ARTICLE

Spoiled milk: A Chinese mother’s struggle and the

rebuilding of trust in state dairy enterprises

YuliWang1

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EricaSteckler2

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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,

USA

Correspondence

Erica Steckler, Manning School of

Business, Donahue Center for Business

Ethics & Social Responsibility, University

of Massachusetts Lowell, Lowell, MA,

USA.

Email: erica_steckler@uml.edu

Abstract

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.

KEYWORDS

ethical climate, ethical decision making, scandals

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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.

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A CHINESE MOTHER’S STRUGGLE: THE FIRST

AUTHOR’S PERSPECTIVE

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