Markkula Center of Applied Ethics

The Case of Nutritional Foods

By Kirk O. Hanson

What do we do when products go wrong? That question was explored by the Ethics Center's Ethics Roundtable for Executives at a September meeting featuring Greg Steltenpohl, chair of Odwalla Inc., and Kirk O. Hanson, director of Stanford University's Sloan Program at the Graduate School of Business. To facilitate discussion of the issue, Hanson created the following fictitious case. It does not represent a real event, but it does provide a framework for looking at questions of product responsibility. The case is presented in four parts to mimic how such a scenario might evolve in real time. At each break in the case, stop and ask yourself what you would do given the information you have.

[Apple]
First Warnings

Fred James, chief executive of Nutritional Foods Inc., a $50 million manufacturer of healthful foods, listened with concern as John Healy, his vice president for production, described reports that had come in during the past hour.

The reports came from two county health departments, one in Seattle and the other in Southern California. In each case, the health department official reported a possible link between acute food poisoning of a child and an unpasteurized apple product produced by Nutritional Foods and distributed throughout the Western United States. The health departments had not yet ruled out all other possible causes. Additional information was not yet available, and Healy did not have batch numbers for the products in question.

Nutritional Foods was rapidly becoming the best-known brand of natural or nonpasteurized foods in the Western United States. It made its products in two facilities, one in California's Central Valley and the other in a coastal city of Central California. Fresh fruit and vegetable products were shipped from growing regions throughout the West to these two facilities for processing and canning or bottling. The handling of nonpasteurized products was critical as contamination could occur in picking, transporting, or processing the fresh product.

Distribution was also critical to the freshness and safety of the company's products. Daily distribution from the company's processing facilities in company-owned refrigerated trucks ensured freshness.

Unpasteurized products had been popular in the health-food market for many years, but Nutritional Foods was the most successful of several companies seeking to appeal to the mainstream market as well as to the niche consumer. The company's success had led to its rapid growth and the construction of its new processing facility in the Central Valley.

"OK, John," said James, "what's our response? Do two 'maybes' mean we should do something immediately? We have had an occasional report, perhaps one every couple of months, during the past two years. None of those turned out to be traceable to our product. Do two reports represent anything other than a statistical quirk? Should we be doing anything but waiting for the final reports from the health departments in a couple of days?"

Concern Deepens

Healy dispatched company managers to the two counties where initial reports indicated there might be acute food poisonings related to one of the company's unpasteurized products. He was startled a short time later to receive a third and fourth report similar to the first two.

Although also not conclusive, the new reports made Healy wonder if something was terribly wrong. Healy immediately dispatched company managers to the two new counties, urging all four to get the batch numbers of the products in question. He also asked for an immediate meeting with James.

"Now what should we do?" asked Healy. "Should we warn the retailers, asking them to stop selling the product? Should we also warn the public? Such a move could devastate the company's reputation and its stock price at a critical moment. Don't we have an obligation to think long and hard before we take that step? How much certainty must we have and how serious does a problem have to be for us to proceed?"

Time to Act?

[Carrot]

Healy was deeply troubled when he heard from his managers that health officials in the four counties they visited were virtually certain Nutritional Foods' product was indeed involved in the food poisonings. All the batch numbers, however, were not available. The two cases where company managers could get batch numbers were from a single day's production.

Healy was further troubled that three additional reports of possible food poisonings had come in by the end of the workday, though two were relayed by newspaper reporters. Each was checking claims by consumers that one of Nutritional Foods' products had made them sick. One of the reports involved a different company's products.

Healy also heard late in the afternoon from one of his children who had read in an Internet nutritional chat room that Nutritional Foods had a poisoning problem. Had the time come, Healy wondered, for more dramatic action? If so, what action should he take?

Crisis

At 7 p.m., Nutritional Foods announced publicly and through its retail network that it was pulling all batches of the unpasteurized product associated with all but one of the alleged poisoning incidents. Once the news hit the wire services, 50 more calls cascaded into company headquarters late that night and early the next morning. Most were from consumers alleging they, too, had been poisoned by the company's products. Five more were reports from health professionals who stated they were treating possible poisonings.

At 9 a.m. the next morning, James convened a meeting of his Crisis Action Committee, an ad hoc group of managers that had been formed a few months earlier for just such a crisis. "Let me put several questions before the group," said James. "Are we doing enough by conducting a recall for the specific product in question, publicly asking consumers to return all unused products to their local retailer, and asking retailers to stop selling and return all of their supply to us? The press has done a pretty good job getting the word out. It's on the front page of perhaps 80 percent of the daily newspapers in our distribution area this morning.

"Should we do more to notify customers? Should we consider pulling all our products? The calls this morning allege adverse reactions from many different products.

"And what should be our strategy toward those who have been made sick by our product? If we show concern, isn't there a risk we will look like we are admitting liability? Finally, what should we do about the sickest of those affected? Two children are reported this morning to be in critical condition."

If you were Fred James, what action would you take?

Winter 1998

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