Nestle's Maggi Crisis: Corporate Governance & Recovery

This assignment examines Nestle India's handling of the Maggi noodle ban in 2015. It analyzes the crisis, identifying factors like regulatory compliance issues, stakeholder communication lapses, and potential ownership structure influence on decision-making. The assignment further explores Nestle's efforts to rebuild trust and regain market share through product reformulation, transparency initiatives, and stakeholder engagement.

Running head: STRATEGIC MANAGEMENT
Strategic Management: Nestle India
Name of the Student:
Name of the University:
Author note:

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Introduction
Nestle is originally a Swiss multinational food and drink company. It is the world’s
biggest food company, measured by the revenues and other aspects. The company ranked 33
among the 2000 largest global public companies in the list by Forbes (Nestle.com 2017). The
relationship between Nestle and India goes back to 1912, when it started to export its products to
India. After independence, the Government of India took the initiatives to build a strong
economic relationship with Nestle. It has its headquarter in Gurgaon, Haryana, and has its
presence all over the India. For more than a century, Nestle has contributed in the Indian
economy through better life, employment opportunities and business opportunities for the
farmers (Mitra 2016). The company produces and supplies international quality food products
under international brand names, such as, Maggi, Nescafe, Milkibar, Milkmaid, Kit Kat, Nestea.
It has launched some specific products for the Indian markets, such as, Nestle Dahi, Nestle Jeera
Raita etc. As the company has achieved huge success in India, it has also faced some severe
controversies, such as, in the case of Maggi and MSG.
The following report focuses on some different aspects of the company, such as, their
board structure, public scandals and its implications in terms of corporate ethics, their
relationships with the stakeholders, relevance of the guidelines by the OECD corporate
governance principle and the application of the Carroll’s philanthropic model in the context of
the chosen company. The purpose of the report is to highlight and discuss about the strategic
management of Nestle India and its corporate governance, ethics and corporate social
responsibility.

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Board structure
Board structure of a company is generally concerned with the issues related to the
operation and freedom of working of the board committees, diversity regarding the company
experience, functional backgrounds of the members and the top management. The board is a
group of people, holding the higher positions in the company and responsible for taking
decisions on behalf of the company. Their main purpose is to maintain the corporate governance,
ethics, corporate social responsibility, and looking after the stakeholders interests. In majority of
firms, there is a two-tier corporate hierarchy. The board of directors or governors is on the first
tier and they are elected by the shareholders. The upper management is on the second tier and
elected by the board of directors (Blake 2016).
The board structure can be classified into four categories.
Figure 1: Board Structure
(Source: Blake 2016)
In Nestle India, there are three committees, namely, Board of Directors, comprising of
five people, Adult committee, and Risk Management Committee, both consisting of three

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members. After the Maggi ban in 2015, Nestle changed its business strategy and its MD Etienne
Benet stepped down. He was replaced by Suresh Narayanan, who was the Chairman and CEO of
the company’s segment in Philippines. Narayanan has spent almost 320cr INR to pulp out the
existing stock of Maggi from the market and changed other strategies to fight back the ban
(Nestle.com 2017).
Controversy: Maggi ban in India
In the year 2015, Nestle faced a huge downslump in its 103 years old business in India.
One of its products, Maggi Two-Minute instant noodles faced a severe breakdown when it was
banned by the Food Safety and Standards Authority of India (FSSAI). Nestle was told to
withdraw the product from the market. 38000 tonnes of Maggi noodles were simply withdrawn
and destroyed and the sales of the other Maggi labeled products, i.e. ketchup, jams, beverages
were affected too. The market share went down to zero from 80% in just a few days (Mitra
2016).
It all started with a routine check by a FSSAI inspector, Sanjay Singh, in Uttar Pradesh,
who wanted to check the claim of No Added MSD by Nestle India. He sent the sample to the
state laboratory for testing, which brought out positive results. For double checking, he sent
another few samples to the Central Food Laboratory in Kolkata in 2014 June. In 2015 June, the
results came out as positive once again, with 17.2ppm (Parts per mllion) lead. This amount is
more than 1000 times than what Nestle had claimed initially. The company was sent letters but
they did not clarify. The national newspapers started writing about it, but Nestle maintained its
claim that it does not add MSG in Maggi. Finally, on June 5, 2015, FSSAI ordered Nestle to

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recall all the products from the market and put a ban on it. This had shaken up the entire business
operation of the company, as well as its brand image was demolished (Livemint.com 2016).
Figure 2: Loss of business of Nestle after Maggi ban
(Source: Mitra 2016)
This was an issue of violating the corporate ethics. The company claimed something,
which they did not maintain. Nestle added Mono Sodium Glutamate (MSG) in Maggi that is
harmful for human health. Along with that, the amount of lead is also 1000 times more than what
was claimed by the company. Both of the elements are quite higher than the safety limits. This is
a violation of ethics. Business ethics refer to the moral principles guiding the business behavior.
The ethical acting refers to the way of distinguishing the choice between right and wrong and
then taking the right decision. The moral dilemmas are answered by using the ethical theories in
the business practice, and by choosing the right way over the wrong. When a company does not
follow this practice, then it is said that the company has adopted unethical practices, mainly due
to profit maximization.

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In the context of Maggi scandal, the theory of consequentialism can be applied. It is a
class of normative ethics, which says that the consequences of the action of a person or an
organization are the ultimate basis for any type of judgment of right and wrong of that action.
Hence, from this theory it can be derived that an act is a morally right one if it delivers a positive
outcome or consequence. The end justifies the means in this theory. In case of Maggi, the
company claimed in their advertisement and packaging that it does not use Mono Sodium
Glutamate (MSG) in Maggi. MSG is a harmful component for human health. It should not be
used in food. Along with that, the led component was found to be 1000 times higher than what
Nestle had claimed to be using (Desai 2016). It was another unethical practice by the company.
Hence, along with consequentialism, the virtue ethics was also violated by Nestle. For profit
making, the company has adopted dishonesty. More usage of lead makes the product tastier,
which increases its sales. Thus, even if it claims to not using the harmful products, the lab test
results said something else. Profit maximization by the compromisation with the consumer’s
health cannot be an ethical act. Thus, Nestle has violated the business ethics of virtue and the
theory of consequentialism is the most relevant theory of ethics that can justify the Maggi
scandal of Nestle India (Saluja and Mahajan 2017).
Stakeholders of Nestle India
A stakeholder is the person, group of people or an organization, which has the concern or
interest in a business or company. The stakeholders can affect or can be affected by the actions,
decisions, policies and objectives of the organization (Nazir and Malhotra 2016). The creditors,
employees, directors, owners or shareholders, suppliers, investors, government, and the social
community are examples of stakeholders of a company. The stakeholders can be external or
internal. The external stakeholders are those, who do not work in the organization, but are

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somehow affected by the actions of the company and the outcomes of the actions. Creditors,
suppliers and public groups are the external stakeholders. The internal stakeholders are those
who are directly involved with the company through employment, investment or ownership.
Investors are the most common type of internal stakeholders, who are majorly affected by the
outcomes of a business (Andriof et al. 2017). Hence, if a company achieves great success or
failure, the investors are hit most. At the same time, the external stakeholders are also affected by
the outcomes of a business sometimes. If a business activity generates negative externality, then
well being of the external stakeholders are affected (Sakunia and Jha 2016).
In case of Nestle India, there are many stakeholder groups. The company believes in
engaging with their stakeholders for new ideas for business and their improvements. The
stakeholder groups of Nestle are Academia, Communities, Consumers and general public,
Customers, Employees and the representatives, Governments, Industry and trade associations,
intergovernmental organizations, NGOs, Reporting agencies, shareholders and financial
communities and suppliers, i.e. farmers and small holders (Weiss 2014). In India, when the
Maggi got banned, the Consumers and general public, Customers, Employees and the
representatives, and shareholders and financial communities were majorly affected. The profit
and market share of the brand had declined significantly. The customers and consumers are
affected for the health factor. All these led to a huge fall in the company’s business
(Livemint.com 2016).

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Figure 3: Effect on the stakeholders of Nestle India
(Source: Livemint.com 2016)
The figure shows how the stakeholders of Nestle were affected due to the Maggi ban.
OECD Principles of Corporate Governance
The OECD principles for corporate governance ensure the basics of business ethics and
corporate governance in an organization. It encourages for protecting the rights of the
shareholders, which includes equitable treatment of all the shareholders (Siems and Alvarez-
Macotela 2014). It also promotes the recognition of the rights of stakeholders, encouragement of
the active co-operation between the stakeholders and the company; ensures that the timely and
precise disclosure is done on all types of material matters concerning the company’s business,
and encourages the effective management monitoring by the board of the organization and
accountability of the board to the organization and to the shareholders and stakeholders (Tricker
and Tricker 2015). Hence, OECD promotes a general rule for corporate ethics and governance.
End User
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In the context of Maggi controversy, it can be said that Nestle did not follow these rules
in case of Maggi in India. For more than a century, the company has been operating in India and
in other nations. The international guidelines have been followed mostly and Nestle has been
able to capture the market leader status. However, in India, to capture the market and maximize
profit, Nestle indulged in unethical practices. It did not follow all the rules for corporate
governance framed by OECD. The company did not follow the timely and accurate disclosure of
the matters regarding the business. It kept on claiming no added MSG and least amount of lead
in the product, while it silently increased those components to increase the taste at a lower cost
for profit making. This broke the virtue of honesty, and customers lost faith on the company,
which resulted in huge loss (Sinha, Sinha and Gupta 2015). It did not protect the rights of the
shareholders. The board of Nestle India was also ignorant about the effective monitoring of the
management. When the news of MSG and lead in Maggi broke out, the company still tried to
deny the facts and wanted to settle the issue outside. This violated the rights of the stakeholders
as well as the shareholders (Soni and Harnawale 2015). It did not justify the board’s
accountability to the consumers and to the shareholders. Hence, the company faced a huge loss
due to violation of the OECD principles for corporate governance.
Carroll’s Philanthropic Model
Carroll’s Philanthropic Model is also known as the Pyramid of Corporate Social
Responsibility. The model presents the CSR structure in a pyramidal form with four different
responsibilities from top to bottom. These tiers help the businesses to understand the different
types of obligations of the businesses to the society (Leipziger 2017). The lower most layer
comprises of ‘Economic responsibilities’, which says the business to be productive in a
profitable manner. This is the foundation of any business. Upon that, there is ‘Legal

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responsibilities’, which says to obey the laws of the society. Third top layer is the ‘Ethical
responsibilities’, which is concerned about the ethical obligation of choosing between right and
wrong, and avoiding the harmful acts for the society and environment. The top most layer is the
‘Philanthropic responsibilities’ that encourages to be a good corporate citizen (Carroll 2016).
Overall, the model encourages the businesses to produce and make profit but in a legal and
ethical manner, i.e. not making any harm to others for being profitable.
Figure 4: Carroll's Philanthropic model of CSR
(Source: Carroll 2016)

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Figure 5: Nestle India CSR practices
(Source: Mitra 2016)
In the context of the Maggi scandal of Nestle India, it can be said that, Nestle did not
follow the pyramidal model by Carroll. It followed the economic responsibilities but it did not
follow the legal, ethical and philanthropic responsibilities. The company did not follow the legal
rules for food safety. It did not abide by the rules for ethical business practices by hiding as well
as denying the facts of added harmful MSG and lead in the product and this in turn made them
not to follow the philanthropic responsibilities (Turker 2016). Thus, it can be said Nestle India
did not follow the Carroll’s philanthropic model in its business operations of Maggi.

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Conclusion
Nestle India is one of the biggest companies in the nation. For more than a century the
company operated lawfully and has been successful in making a good brand image of itself.
However, in 2015, a major controversy hit the company in India. One of the major products of
Nestle, Maggi was banned due to findings of high amount of MSG and lead in the product.
Although the company claimed that it did not add those in the Maggi, the reports found
otherwise. This hit the company in a major way as it lost 80% of the market share. The board
structure was changed and it was found that Nestle was not following the OECD principles of
corporate governance and Carroll’s CSR pyramid model in their business. The stakeholders were
affected majorly and the company faced a huge loss sue to unethical practices.

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