Last Updated 17 Jun 2020

Ethic Business

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1. 1 Background of Sanlu Group Sanlu Group is one of the largest milk powder manufacturers in China. It was founded in 1956 and also named as Shijiazhuang Three Deers Limited. In December 2005, Sanlu Group had a joint venture agreement with Fonterra, which is a New Zealand famous dairy company. Fonterra had taken 43% equity stake in Sanlu Group and the majority 56% stake owned by the Shinjiazhuang Three Deers Limited. In 2009, Sanlu Group declared bankrupt by the court due to some unethical practices. Thus, the practices of an organization whether is ethically or unethically able to impact the future of the company and in the following part, we will indicate more on the ethical and unethical issues with the example of Sanlu Group.

1. 2 Ethical and unethical issues Business ethics is defined as the study of moral and social responsibility in relation to business practices and decision-making in business. In other word, ethics is conforming to the standards of behavior that widely accepted by the social.

Ethical behavior can base on three areas in making managerial decision. First, choose about what the laws should be and whether to follow them. Second, choose about economic and social issues outside the domain of law. Third, choose about the priority of self-interest over the company’s interest. The example of ethical action practiced by Sanlu Group is they had donated dairy product that worth RMB 1milion to the Sichuan disaster area after the earthquake in 2008.

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However, an unethical issue is the behavior that is not compatible to the social or professional behavior standards that is recognized. It is actions that take advantage in others people without their consent but not necessarily illegal. For instant, Sanlu Group used the unsafety ingredients in producing the milk powder; conceal the incident from the public and showing respect to those who act unethically. In the next part, we will discuss about the unethical issues of Sanlu Group in more detail.

2. 1 Unsafety ingredients The first unethical issue that Sanlu Group did was using unsafety ingredients in producing their products. The milk powders were contaminated with harmful chemical named as melamine. Melamine is a harmful chemical which usually used to produce plastics and fertilizer but not in food industry. Those who consume melamine in large amount will cause toxicity problems and damage the kidney. The kidney stone which is some sort of solid deposits will form within the kidneys or bladder of the consumer.

It may also cause death if over consumed. (“Sanlu Recalls 700 Tons of Melamine-Tainted Milk Powder”, 2008) In 2008, around 300,000 children in China were sick heavily and even six babies died due to the over consuming the milk powder. This is the effect of the practice of this unethical behavior as melamine able to imitate the properties of protein and artificially increases the protein level. Several food quality test unable to detect the presence of this chemical since the melamine testing only exist to particular laboratory and drug manufacture.

Moreover, melamine is small organic molecules that having high content of nitrogen that can easily pass through the quality control equipment and the tester will wrongly believe that the nitrogen is protein. Sanlu Group also abuses the consumer right to safety which used to protect the consumers. (W. W. Joseph, 2009, P. 225) The reason of practicing this unethical behavior is Sanlu Group intended to be more profitable in their financial position. The adding of melamine able to increase the volume of sales for the milk powder as the product is perceived as high quality product. This is because the nutrition fact of the product is showing the product is having high content of protein compared to other products.

2. 2 Concealing the incident Second, Sanlu Group was trying to conceal the fact from the public during the beginning of the milk powder incident. They had used approximately hundreds of thousands of dollars in order to prevent these negative issues to be publicized. They paid the victims to keep them silent from the rising contaminated milk crisis and willing to accept all the requests from the sufferers with the purpose of mutual pacification.

In addition, they also reached an agreement with Baidu, which is a China’s local internet search engine to block all the related negative articles or stories online. In this, Sanlu agreed to purchase the advertising which worth NZ$640,000 with Baidu as a return. (“Sanlu Cover Up Over Tainted Milk”, 2008) This unethical practice causes the number of victims increase. This is because plenty of consumers will buy the product as Sanlu was a well-known brand and occupied most of the market share in China.

Consequently, about 300,000 of innocent baby affected. It abuses the moral right of a consumer to know about the truthful information of a product and also abuse the safety concern of a consumer. This is due to moral right is concerning about the freedom to pursue one’s interest, as long as those interest do not violate others’ right. (W. W. Joseph, 2009, P. 109) The motive of Sanlu Group carry out this unethical practice is they are determined in maintaining the steady growth of the sales.

This is because they may exposed to financial problems if they unable to remain the sales level. They may have a lot of liability and debt and may cause them bankruptcy. In addition, they intend to maintain the reputation of the organization. They will lose a lot of market share as no people are willing to purchase their product if this issue is publicized.

2. 3 Showing respect to those who act unethically The next unethical issue of Sanlu Group is the management teams are showing respect to those who plan to use the unsafety ingredient.

They did not expose these actions to the top management, but yet work together to gain their own benefits. There are around sixty of them had been arrested and pleaded guilty for their role in the scandal. Those who involved in the scandal included the former board chairwoman, general manager, deputy general manager, head of division and executives. (“60 Arrested Over China’s Tainted Milk”, 2009) Based on their action, they had brought impacts to their company’s shareholders and stakeholders.

First, is the company joint venture partner, the Fonterra Co-operative Group Limited from New Zealand, although Fonterra have not involve in the case, but the company have to face the outcome from being the joint venture partner, they lost faint of the customers, lost a large amount of customers and profits. Next will be the employees, the employees of San Lu Group that didn’t know the truth until the contamination expose to the public. The employees had lost their job, thus their source of income and this might affect their daily life.

Furthermore, the customers of San Lu Group, all the customers are affected, because the customers that purchased San Lu Group products are for their children. After consuming the contaminated milk powder, the infants face health problems like kidney stone and other complications. The effects are greatly harmed the customers and their family. As result, the safeties of the milk powder products are questioned, not only the San Lu Group products, as well as other brands in the market. Other than that, the news that covered the contaminated milk powder spread over the world, the country had to suffer many losses due to the scandal.

There is several reason of doing this unethical issue. One of them is some employees had been forced to join the involved parties. This is because the involved parties may sack those who do not want to join them and may lose the job. In addition, there will be hard to find jobs in China as the unemployment rate are quite high in China. Thus, they have to be part of them in order to secure their job and living condition. In the next section, there will be ways in overcoming these issues.

3. 1 Individual level When the crisis had been publicized, the involved parties need to face and bear the consequences because they need to be responsible for their action. As a result, all the involve executives went for the trial that charged them for producing and selling illegal product. They were sentenced to imprisonment for years. Some of them even received the sentences of up to life in prison until death. In addition, the quality control official also has the responsibility in these issues.

The official should be more strict in checking or controlling the safety of the food. The official should for Following by the article, the Chinese investigators found that there is about 70 milk products from more than 20 companies contain melamine. Thus, the quality control official Li Changjiang had been forced to resign after the carelessness.

3. 2 Organizational level

After the scandal of the contaminated milk powder being discovered by the public, the company should immediately halt the production and recall the products all over the country. The main reason of this action is to avoid the increase in the number of innocent people to become victims of the contaminated products. The company also needs to destroy all the unsold and recalled contaminated products. This action enable to prevent any unethical person to have a chance to get hold the contaminated products and resell it into the market that may cause more victims fall into the tragedy.

Next, the company should immediately hold a press conference to apology to the public and the victims’ family for the contaminated milk powder incident. This action is aimed to confess the mistake or unethical behavior that the company did. Furthermore, they also need to admit all the crimes that the company committed. This action able to calm down the enrage public and the company may have a chance to redeem their reputation. The company also needs to pay for the medical expenses and compensation to all the victims.

Based on the compensatory justice, every victim able to get compensation for a past harm and what they lost (W. W. Joseph, 2009, P. 111). The payouts to all the victims in the incidents may cost nearly billions of RMB and may cause bankruptcy of the company. But this is the consequences that the company must bear with. With the compensation, the burden of the victims’ family can be reduced, and the victims can have a chance to get a better treatment.

4. 1 Association level Melamine had caused a lot of sickness and death to human and also animals, therefore we must take serious action on it in order to avoid the same things happened again or being worst. One of the best ways to prevent these unethical actions is forbid the usage of melamine in any type of the product in future. The association needs to set a lot of barriers for any companies or retailing outlets in getting the permission of selling any products.

All of the food or drinks that needed to sell to retailer’s example Tesco and Giant have to pass through a strong and high strictly food quality test and also checked by the Food and Drug Administration’s (FDA). Moreover, the association should set higher barrier of entry for the manufacturers to prevent any food poisoning in the future. All the manufactures have to confirm that all the raw materials get from others suppliers are safe and trustworthy and at least need to have the Good Manufacturing Practice (GMP) standard in food safety to ensure quality product.

Next, manufacturers need to retest their product in order to reduce the risk of launching harmful products to the market and harmful to consumers.

4. 2 Societal level The country should restrict their legislation level. Enactment of new acts and laws in term of business, corporate and industry should be implement in order to prevent the happen of the unethical issue. It also able to increase the confidence of the society toward every organization and public will feel relieve and safety to every consumed products. In addition, the country should set higher qualification standard for allowing the product to be selling in the market.

This is because there is plenty of bribery case in this stage and causes low quality or unqualified products to be sold in the market. Thus, by enhancing the qualification, it standardizes the quality of every product.

4. 3 International level Next method to prevent any future tragedy is to centralize the evaluation of the safety of the foods in every country. All countries should integrate a standard level of agreement in this policy. The evaluation of the safety should not exceed the standard provision that set by the International Organization of Standardization (ISO), the world largest developer and publisher of International Standard.

By the agreement and supervise from all the countries security, the crisis can be prevented. Therefore, before a product release into the market, the country is responsible to conduct the sample testing. And the product can only be release into the market after qualified from the testing. If a product was detected harmful and unsafe, the government should take legal action toward the company in charge. Thus, the right and benefits of consumer can be protected.


As a conclusion, all the practices whether is ethical or unethical will bring impacts to the individual, organization, society, association and international. The impacts caused are either positive or negative. Therefore, social responsibility of an organization becoming more important since nowadays most of the organization are following what is necessary to implement rather than having more contribution that is not required. Thus, in order to have better growth in an organization, the organization should more concern about their social responsibility and protect the rights and justices among the public.

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Ethic Business. (2018, Apr 17). Retrieved from

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