Nestlé: Unethical Marketing and Corporate Social Responsibility

Nestlé is a global food and drinks company founded in 1866 by Henri Nestlé and is headquartered in Vevey, Vaud, Switzerland. It is the largest food company in the world, selling products in 189 countries with an expansive product portfolio of around 2000 Nestlé brands. Nestlé products are divided into seven product segments namely powdered and liquid beverages, nutrition and health science, milk products and ice-cream, pet care, prepared dishes, cooking aids, confectionery, and bottled water. The company operates its factories in 85 countries, as a result deeply involving itself in intricate stakeholder networks at the local and national levels in the respective countries of operation. The current CEO of Nestlé is Ulf Mark Schneider.

An estimate by the United Nations projects a 59%-98% increase in food demand by 2050 as a function of increasing global population (Harvard Business Review, 2016). In the light of such projections, companies operating in the food and nutrition industry find themselves in the position of increasing responsibility to meet the growing needs of consumers. In meeting these demands, firms often resort to morally questionable practices. I chose Nestlé for my analysis due to the extensiveness of its product range and operations. Its positioning as a nutrition and health-oriented food company and its enormous market share subjects the firm to the great scrutiny of its operational standards and the character of its business conduct.

1. Unethical Marketing

One of Nestlé’s biggest product categories in terms of market share is the firm’s baby food range of products. Outrage broke out in the 70s when Nestlé’s unethical marketing practices that led to concerning decline in breastfeeding were first brought to light by a report in 1974 called “The Baby Killer” by Mike Muller, managing to capture world-wide attention of consumers, activists, the government and non-governmental organizations. In 1977, this resulted in an international boycott of Nestlé that covers 18 countries and continued to drag the company down for decades after the boycott was officially suspended.

Nestlé was accused of violating multiple international and domestic marketing codes in many economically underdeveloped parts of the world. The main accusations of Nestlé are as follows:

• Promotion of infant formula as a similar or better alternative to breast-milk

• Manipulation of product information to expand market share

• Inappropriate product labeling and inadequate product information and instructions

• Distribution of free samples to pregnant women in hospitals and maternity wards under the claim of humanitarian aid

• Unethical incentive-giving practices

• Continued violation of the WHO code

• Inconsistency in nutritional information in different countries

A report by Changing Markets Foundation which considered over 70 baby milk products by Nestlé in 40 countries revealed Nestlé’s promotion of its milk formulas as being ‘closest to’ or ‘inspired by’ and of ‘identical structure’ to breast-milk, blatantly ignoring WHO codes that prohibit marketing of breast-milk substitutes as comparable or better alternatives to breast-milk. The study revealed several inconsistencies in Nestlé’s nutritional claims, with different versions of advertising information being used in different countries and contradictions that called into question the scientific legitimacy of these claims. For instance, infant milk formulas in South Africa were found to contain sucrose while the firm marketed sucrose-free formulas in Brazil and Hong Kong as being beneficial for the baby’s health. Baby milk powders in Hong Kong claimed to be healthier due to being free from vanilla flavoring but at the same time, flavored milk powders were being sold elsewhere in the region (Guardian, 2018). The firm’s infant formulas went as far as to claim the ability to develop height, strength, and intelligence in growing babies. Aspirational marketing is particularly provocative in poorer sections of the society. Such unsubstantiated claims easily mislead gullible mothers into accepting these substitutes, unaware of the developmental and often fatal risks of depriving babies of breast-milk.

The usage of infant formula requires careful consideration of hygienic preparation. Formula is mixed with water before use. In the poor, underdeveloped countries where Nestlé has targeted its products, this is often contaminated water prepared in unsterilized bottles. According to estimations made by the UNICEF, formula-fed babies of mothers residing in unhygienic living conditions are 6 to 25 times more likely to die from diseases like diarrhea and pneumonia than breastfed children. This is due to the fact that breast-milk contains antibodies essential for the development of the baby’s immune system which cannot be provided by formula. Breastfeeding almost all children in the world could prevent one in seven infant deaths. The UNICEF (2016) estimates this at 823,000 deaths, which is 13.9% of the global under-5 mortality rate as of 2015.

Unaware mothers that are not acquainted with proper sanitation methods require clear directions in a language that they can read. Nestlé ignored the basic requirements of its market by selling products with no directions or warnings on them. Moreover, poor mothers that are unable to afford a supply of infant formula often use less than the required amount of powder to make it last longer. Nestlé distributed free samples in hospitals under the pretense of providing humanitarian aid. However, as soon the mothers are discharged, they are required to pay for the expensive infant formulas, often having to forego eating themselves in order to be able to afford them. A combination of negligent marketing practices, inadequate product information and high illiteracy in the developing country of Laos resulted in devastating consequences when the bear brand label on Nestlé products which showed a mother bear breastfeeding a baby bear led people to believe that products featuring the logo was appropriate for consumption for infants. Babies under 36 months were mistakenly fed coffee creamer causing developmental conditions, brain damage and in some cases, death. The most devastating of these cases occurred in China in 2008 when melamine-contaminated infant formula caused illnesses like kidney damage in over 300,000 infants, hospitalizing 54,000 babies and resulting in six cases of infant deaths.

1.1. The Stakeholders

An instrumental approach to Nestlé’s stakeholders would establish consumers as the most relevant stakeholder in this case. Poor mothers in third world nations are easily misled and lack the resources to ensure the correct preparation of formula which often results in diseases that cost the lives of their children. The second most relevant body of stakeholders are secondary stakeholders. They have a major stake in the company’s activities and exercise their influence and responsibility to intervene in the incidence of ethical violations. They play a crucial role in building a consensus about the company and in decision making and conflict management. In this case, the local and state governments, healthcare organizations and their employees and NGOs advocating against Nestlé’s conduct make up this category of stakeholders.

1.2. The WHO code

As a response to the growing concern over a general decline in breastfeeding and the unethical practices of baby food manufacturers, the World Health Assembly adopted the International Code on the Marketing of Breast-milk substitutes in May 1981. The code bans the promotion of breast-milk alternatives entirely, requiring companies to include appropriate labeling and warnings that inform mothers about the superiority of breast-milk. These rules hold for infant formula and all other food and beverage products that are marketed as partial or total substitutes to breast-milk. The code further restricts the interference of food and nutrition companies in the healthcare of child-bearing women, limiting their involvement with healthcare workers to informational activities only.

The WHO code mandates the following requirements for companies manufacturing and distributing breast-milk substitutes.

1. A statement acknowledging the superiority of breast-milk

2. Clear instructions for preparation and storage

3. Warnings against inappropriate preparation

4. Adequate labeling in relevant languages

5. No promotional statements/activity

6. No free samples to children, pregnant women or healthcare workers

7. No promotional activity in healthcare facilities or provision of incentives to healthcare workers

8. Compliance with the code

1.3. Violations of the WHO code

Despite the international boycott of Nestlé and the adoption of the WHO code which the firm maintains that it fully complies with across its operations, allegations of ethical violation and non-conformance continued to plague the company for the four decades that followed since the boycott was first launched. Nestlé continues to target developing nations with poor, illiterate populations with its inappropriate marketing practices, with a special focus on Southeast Asian countries with their high birth rates and developing economies. In Laos, for instance, most people in the low-to-middle income demographics do not speak Thai or English. Nestlé’s continued disregard for local translations as well as accusations of providing incentives to healthcare professionals in return for promotion of Nestlé’s infant formula prompted a coalition of local and international NGOs into pressuring the firm to independently investigate these allegations. An analysis of promotional materials in several retail outlets in the country in 2011 confirmed the violations of the WHO code and the Lao PDR decree, both of which require the firm to include a notice stating the importance of breast-milk in the official language of the country on the product labeling. According to Article 9 of the WHO code, labeling on infant formula should contain the words “Important Notice” followed by a statement of the superiority of breast-milk and clear instruction to use the product only if advised by a healthcare professional on the proper method of its usage. 63% of the retailers in this investigation sold products that weren’t in compliance with the code.

Recent investigations by the Guardian and “Save the Children” revealed that Nestlé representatives were constantly involved in local healthcare facilities in the poorest regions of the Philippines, distributing pamphlets that disguised the promotion of infant formula as so-called medical advice. The firm targeted local doctors and midwives by treating them to free trips, movie tickets, and dinners and in return nurses would recommend their infant formula to new mothers, citing it as an essential medical expense. The study revealed that only 34% of the mothers in these facilities breastfed their babies in the first six months. This was in clear violation of both national law and Article 7 of the International Code that states that “no financial or material inducements to promote products within the scope of this Code should be offered by manufacturers or distributors to health workers or members of their families, nor should these be accepted by health workers or members of their families” (WHO, 1981).

Nestlé’s response to criticisms has been predominantly that of denial and neglect in all the countries where violations were reported. It took several years of pressure from activist groups just for Nestlé to change the language it used in marketing its products. Promotional messages like “natural start” or “the gold standard” in infant nutrition were a continued systematic violation of the code. Noticeable changes in their approach came in the form of termination of the promotion of complementary foods for infants before 6 months of age. The firm agreed to change statements that it supported breastfeeding for 4-6 months although breast-milk is exclusively recommended for the first 6 months and beyond. Nestlé denies providing incentives, stating that expenses provided for were limited to plane fares, hotel rooms, and research funds.

The company currently advocates for an environment that supports breastfeeding and has installed public breastfeeding rooms in Bangladesh, India, and Iran. In Ecuador, Nestlé launched media campaigns to raise awareness around breastfeeding. This is in line with a series of other PR efforts in countries like Egypt and Iran through collaboration with other actors in society to promote breastfeeding and educate women. The company maintains that it is in full compliance with the WHO code and observes stricter company regulations in high-risk countries where legislations around breast-milk substitutes are weaker. The Save the Children report on pro-formula marketing suggests inconsistencies in these claims. In Mexico, like in the Philippines, only 31% of the infants are exclusively breastfed in the first 6 months of their lives and 75% of the investigated healthcare professionals reported the involvement of representatives from formula companies.

1.4. Ethical Theory

Infant formula is the next most suitable alternative to breast-milk. In the case of HIV infected mothers, this product has life-saving consequences. While the intention behind the formulation of this product is ethical in nature, negative consequences result from the reckless and greedy advertising and promotion of this product. Nestlé’s ethical violations were in resorting to unconscientious ways of increasing their market share, without any regard for the disadvantaged mothers in underdeveloped countries or the lives of the babies that it cost. Whether the product has a positive or negative consequence, therefore, boils down to the conduct of Nestlé’s marketing activities and its regard or disregard for the codes of conduct that govern these activities to safeguard the lives of the stakeholders most affected by them.

Deontological ethics is a school of normative ethical theory that prescribes that morally right actions should result from a sense of duty or obligation (Waller, 2005). Here, the focus is on the moral nature of one’s conduct rather than the outcomes of it. Deontological theories identify actions as right or wrong through the perspective of set rules and are therefore sometimes referred to as rule-based ethics. In contrast to consequentialism, the consequence itself requires little consideration in deontological ethics. However, philosophers like T.M Scanlon have advanced the notion that consequentialism and deontological theories are not mutually exclusive as moral duties are ultimately justified by their ability to produce desirable consequences (Scheffler, 1988).

Nestlé, as one of the largest marketers of baby food, with a vast majority of its target market being poor, uneducated mothers has an obligation to engage in responsible marketing practices with special consideration to its promotional content, product packaging and the international guidelines that are in place to protect consumers and their babies, the latter of which Nestlé continued to neglect for years. It is their duty to these consumers to include instructions on the safe and sanitary usage of their products, to inform them about the importance of breast-milk, to provide training and education and to participate in some form of philanthropic effort to support the local government in making clean water, healthcare and proper training available to these mothers. The firm has neglected its duties and proceeded to carelessly market its products with inadequate labeling in languages that aren’t even locally spoken. Nestlé violated several rules of conduct set by the World Health Association through their practice of providing incentives and promoting breast-milk substitutes. The firm refused to conform to the United Nations ‘Protect, Respect and Remedy’ framework by disregarding the human rights of the affected stakeholder communities and denying their responsibility. According to the deontological school of ethics, these actions are ethically wrong as they neglect fundamental duties and violate rules, as a result producing negative consequences in society.

2. Nestlé CSR Strategy

The foundational elements of Nestlé’s overall Corporate Social Responsibility approach are:

I. Corporate Compliance: Upholding ethical principles throughout the Nestlé value chain is fundamental to their operations and failing to do so puts the trust of consumers as well as their brand credibility at risk. Nestlé’s Corporate Business Principles and Code of Business Conduct sets out the guidelines for responsible business, safeguarding its stakeholders against ethical misconduct through codes that discourage corruption, bribery or fraudulent internal practices, and policies that protect the personal data and privacy of the public.

II. Sustainability: Nestlé is committed to sustainable business practices. Their approach includes environmental sustainability as one of the instruments in creating both shareholder and social value in the long-term.

Nestlé CSR approach

2.1. Creating Shared Value

Nestlé’s main CSR approach is Creating Shared Value (CSV). This is a social enterprise-based approach that was first featured in a Harvard Business Review article on competitive strategy and corporate social responsibility and was further expanded on by Michael E. Porter and Mark Kramer. In 2006, Nestlé adopted “Creating Shared Value” as their main CSR approach. The concept is now heavily embedded across the firm’s value chain activities.

The key idea behind this concept is that the growth of a company and the health of the communities that surround it—from where it derives its resources and directs its services to—are mutually inter-dependent. This model of mutual value creation is founded upon the goals of economic and social sustainability. Porter and Kramer (2011) assert that tackling social issues present enormous opportunities for innovation and growth in firms. By creating social good around them, a company can leverage the resources required for its own growth which translates into shareholder value. Nestlé argues that economic sustainability cannot be achieved for shareholders at the expense of other stakeholders. In their CSV report, the firm identifies three areas with the potential for shared value creation, namely nutrition, rural development, and water. In nutrition, Nestlé is committed to expanding its portfolio of nutritious products and create healthier alternatives by reducing sugar, sodium and saturated fat content, increasing fiber content, including portion sizes and eliminating artificial colors from products (CSV Report, 2018). The company is currently engaged in making nutrition affordable for low-income, “base of the pyramid” communities and innovating through micronutrient fortification.

In Latin America, Nestlé’s history of rigorous CSR efforts bore many social fruits. The advent of Nescafé helped Brazilian government in processing and preserving the vast surplus of coffee that occurred in the 30s, and protected farmers from going bankrupt. Since then, the firm has been involved in various activities in wastewater management, sustainable farming and other environmental initiatives. Through Nestlé’s efforts in reducing packaging materials, the company has been able to save more than 25,000 tonnes of packaging material in the continent between 2001-2004 (Nestle, 2006). Nestlé’s Develop People Initiative in rural communities have encouraged leadership and self-employment through “agripreneurship”. This involves training young people and developing their knowledge of business skills and agricultural science. The company has committed itself to improving farm economies through cross-sector partnerships that utilize technical expertise of the partners in helping small scale farmers improve production quality and engage in profitable farming. Examples of this are the Nestlé Cocoa Plan, innovative dairy farming across Latin America and the firm’s sustainable Fairtrade Partner’s Blend coffee programmes.

Creating Shared Value differs from traditional corporate social responsibility in the sense that the ultimate focus is on value creation rather than a purely philanthropic sense of responsibility to the society. For Nestlé, CSV is a means to long-term value creation for both the company and the society where it operates.

3. Recommendations

Nestlé should prioritize education and training in communities from the more underdeveloped parts of the world. Through initiatives that encourage people to contribute to the development of their own community, Nestlé can initiate social development that sustains itself. The firm has been able to achieve this to an extent through its program involving micro-distributors in Brazil. Countries like the Philippines, India, and Bangladesh present tremendous opportunities for the success of such programs.

Nestlé can increase the positive social impact of its inclusive initiatives in rural communities by extending the access to employment at Nestlé to the capable and distinguished participants of their programs. This form of stakeholder engagement aligns itself perfectly with the ideology of shared value.

Greater collaborative involvement with non-governmental organizations can help Nestlé shed off its negative history with co-operation and present shared-value opportunities the firm has yet to realize. Instead of neglecting the approaches of Baby Milk Action in the baby milk case, the company can involve itself in joint objectives with the group. A proactive stance is a better CSR strategy than a reactive one and it can trigger positive responses that would ultimately work in the company’s favor.

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