 .

 
 


Case Study Competition in
Corporate Communications
2005
  .  
 

    

   

 
  
 ,    ,  
Coca Cola India

  —  

  
 ,     ,
  
Euornext N.V.: The Fight for LIFFE
  
 . ,  .   ,  . ,
   ,    
Starbucks Corporation: Can Customers Breastfeed in a Coffee Shop?
  
 ,   ,  
United States Postal Service: Lessons in Crisis Communication

  —  ⁄  

  
 ,  ,     ,
  ,   
Managing the Tide, Marketing to Controversial Demographics
  
 ,  ,  ,    ,
     ,   
Boeing Co.: Government Contracts and Conflicts of Interest
  
 
     ,   
How Dumplings Became Garbage? The Korea Food and Drug Administration’s
Handling of a Food Scare

To view the case study submissions,

teaching notes and slides, go to
www.awpagesociety.com
(Case studies can be found under Resources)
 
Four years ago, the Arthur W. Page Society issued its first call
for original case studies written by business school students
that focus on corporate communications and the practice of
public relations. Last year the call for entries was expanded to
include students and faculty at communications and
journalism schools.
The objectives for the competition remain the same.
They are to:
• Introduce the practical applications of the core principles
that define public relations as a critical function of
management to scholars, teachers and students.
• Encourage research that contributes to the profession’s
body of knowledge and provide practical suggestions on
how to improve the corporate public relations function.
As part of the objective to increase awareness among future
business leaders about the value of public relations, the Page
Society, in alliance with the Institute for Public Relations,
invited the students and faculty at more than 1,000 accredited
schools of business, communications and journalism to
participate in the 2005 case writing competition. Each year,
the competition has attracted increasing numbers of entries
from students representing a broad spectrum of universities.
This year’s winners were selected from among 42 entries,
nearly evenly divided between business schools (22 entries)
and communications/journalism schools (20 entries). The
total submissions represent a 13 percent increase over last
year’s competition and included entries from Australia,
Canada, Singapore and Turkey, as well as from schools
throughout the United States.
The student authors and their faculty advisers are awarded
cash prizes and their prize-winning entries are published in a
Page Society Journal and also can be found on the Society’s
Web site, www.awpagesociety.com. The Grand Prize winners
are recognized at a dinner that is part of the Society’s annual
Spring Seminar. This year, the dinner is scheduled for April 7
at the St. Regis Hotel in New York City.
About the Sponsors
The Arthur W. Page Society is a select membership
organization for senior public relations and corporate
communications executives who seek to strengthen the
management policy role of the corporate public relations
     .        

officer. It is committed to the belief that public relations is a
function of executive management and is central to the
success of the corporation.
The Institute for Public Relations is the only independent
foundation in the field of public relations dedicated to
research and education. Through publications, lectures,
awards, symposia, professional development forums and
other programs, IPR has been at the leading edge of efforts to
promote academic and professional excellence and to build
the professional body of knowledge.
About Arthur W. Page
Considered the father of corporate public relations, Arthur
W. Page (1883-1960) was the first person in a public relations
position to serve as an officer and member of the Board of
Directors of a major corporation. He viewed public relations
as the art of developing, understanding and communicating
characte – both corporate and individual. Page believed the
successful corporation must operate in the public interest,
manage for the long run and make customer satisfaction its
primary goal.
The principles of business conduct for which he became
known have influenced thousands of thought leaders and
have earned the support and respect of chief executive
officers throughout the country. The Society bearing his
name is built upon a foundation of management concepts
that have been tested for more than half a century. Page
practiced these principles of public relations management as
a means of implementing his philosophy (shown on page 68).
Examples of the effective use of the Page Principles is one of
the criteria by which the case writing entries are judged.
Guidelines and Judging for the Competition
A panel of prestigious judges representing the corporate,
agency and academic sectors of public relations reviewed all
case studies that were entered in this year’s competition,
which began with a nationwide call in August, 2004. The
judging was completed in February, 2005. In all instances, the
judges are acknowledged experts in the field with no specific
association to either the case writers or the universities they
attend, nor to the companies or organizations that may be the
subjects of the cases they review.
This year’s judges were: Catherine V. Babington, vice
president-investor relations and public affairs, Abbott
Laboratories; Patty Blackburn, senior vice president-
corporate communications, Bank of America; Elizabeth
Brooks, vice president-corporate communications, Nextel; R.
Jeep Bryant, managing director-global head of
communications, The Bank of New York; Barbara S.
Carmichael, The Brunswick Group; Debra Sanchez Fair;
James Farmer, vice president-merchandising, advertising and
communications, GMAC; Michael Goodman, Ph.D.,
Awards and Prizes
Cases submitted for this competition may address any
category or specialty within the field of corporate
communications or public relations. At the discretion of the
judges, 1st, 2nd and 3rd prizes may be presented. The Grand
Prize is awarded to the best overall entry. The posted prizes
for the 2005 competition were:
Prize Student(s) Faculty Adviser(s)

director-Corporate Communication Institute, Fairleigh Grand $5,000 $1,500

Dickinson University; Steven Hoechster, senior vice
president, Euro RSG Magnet; Richard S. Kline, regional 1st $2,500 $650
president and senior partner, Fleishman-Hillard, Inc.; Alan 2nd $1,500 $350
Kelly, chief executive officer, Applied Communications
Group; Frank Ovaitt, president, Institute for Public Relations; 3rd $800 $200
Douglas G. Pinkham, president, Public Affairs Council; Ellen
Robinson, executive vice president-communications and
government relations, Tennessee Valley Authority; Richard J. Eligibility Requirements
White, vice president-corporate communications, Wisconsin
Energy Corporation; and W. Ward White, former vice Any student, graduate or undergraduate, who is enrolled in
president-corporate relations, Northwestern Mutual. an accredited school of business, communications or
journalism and is pursuing a degree (full or part time), is
The judges had the authority to make a final determination eligible to participate in this competition. Students may
regarding any or all of the posted prizes and also the participate as sole authors or as members of a case study
authority to make no awards if none seemed appropriate. team, not to exceed four people. In order to participate, each
student author or case study team must have sponsorship of a
Criteria used to judge all entries faculty member who is expected to advise and guide the case
included the following: study’s development.

• The purpose of the case study, its relevance and timeliness. Recent graduates who have received business degrees during
the past two years are eligible to submit case entries that were
• The significance of the business problem (not the
written while they were enrolled as students. Faculty
communications problem) and the critical issues
sponsors may be full-time or part-time, regular or adjunct,
identified and explored.
tenured or non-tenured.
• How the effective use of the Page Principles generated
constructive action and support from affected
constituencies or, conversely, the outcomes generated from
the ineffective use or non-use of the Page Principles.
• How well the problem addresses a substantive challenge
and its importance to the organization.
• How the interests of the organization and its constituents
were served.
• How the impact of the communication is measured.
The judges were also asked to weigh a submission’s usefulness
and general value to the profession as well as its educational
value.

     .        
  
Jennifer Kaye
Faculty Adviser: Paul A. Argenti
Tuck School of Business
Dartmouth College
Coca-Cola India
On August 20, 2003 Sanjiv Gupta, president and CEO of
Coca-Cola India, sat in his office contemplating the events of
the last two weeks and debating his next move. Sales had
dropped by 30-40 percent1 in only two weeks on the heels of
a 75 percent five-year growth trajectory and 25-30 percent2
year-to-date growth. Many leading clubs, retailers,
restaurants, and college campuses across the country had
stopped selling Coca-Cola3 and only six weeks into his new
role as CEO, Gupta was embroiled in a crisis that threatened
the momentum gained from a highly successful two-year
marketing campaign that had given Coca-Cola market
leadership over Pepsi.
On August 5, The Center for Science and Environment
(CSE), an activist group in India focused on environmental
sustainability issues (specifically the effects of
industrialization and economic growth) issued a press release
stating: “Twelve major cold drink brands sold in and around
Delhi contain a deadly cocktail of pesticide residues”(See
Exhibit 1). According to tests conducted by the Pollution
Monitoring Laboratory (PML) of the CSE from April to
August, three samples of 12 PepsiCo and Coca-Cola brands
from across the city were found to contain pesticide residues
surpassing global standards by 30-36 times including lindane,
DDT, malathion and chlorpyrifos (See Exhibit 2). These four
pesticides were known to cause cancer, damage to the
nervous and reproductive systems, birth defects, and severe
disruption of the immune system.4
In reaction to this report, the Indian government banned
Coke and Pepsi products in Parliament, and state
governments launched independent investigations, sending
soft drink samples to labs for testing. The Coca-Cola Bottling
Company (Coke) stock dipped by $5 on the New York Stock
Exchange from $55 to $50 in the six sessions following the
August 5 disclosure, as did shares of Coca-Cola Enterprises
(CCA).5
     .        

Pepsi and Coca-Cola called the CSE allegations “baseless” and
questioned the method of testing but the CSE claimed it had
followed standard procedures documented by the U.S.
Environmental Protection Agency including Gas
Chromatography and Mass Spectrometry. Pepsi’s own tests
conducted at an independent laboratory showed no
detectable pesticides and led Pepsi to file a petition with the
high court questioning the credibility of the CSE’s claims6
while Coke’s Gupta commented: “The allegation is serious and
it has the potential to tarnish the image of our brands in the
country. If this continues, we will consider legal recourse.”7
Despite Coke and Pepsi’s early responses denying the validity
of the CSE’s claims and threatening legal action, a survey
conducted in Delhi a few days after the CSE announcement
found that a majority of consumers believed the findings
were correct and agreed with Parliament’s move to ban the
sale of soft drinks.8 It was clear that the $1 billion Indian soft
drink market9 was at stake and Gupta had to act.
History of Coke
The Early Days
Coca-Cola was created in 1886 by John Pemberton, a
pharmacist in Atlanta, GA, who sold the syrup mixed with
fountain water as a potion for mental and physical disorders.
The formula changed hands three more times before Asa D.
Candler added carbonation and by 2003, Coca-Cola was the
world’s largest manufacturer, marketer, and distributor of
nonalcoholic beverage concentrates and syrups, with more
than 400 widely recognized beverage brands in its portfolio.
With the bubbles making the difference, Coca-Cola was
registered as a trademark in 1887 and by 1895, was being sold
in every state and territory in the United States. In 1899, it
franchised its bottling operations in the U.S., growing quickly
to reach 370 franchisees by 1910.10 Headquartered in Atlanta
with divisions and local operations in over 200 countries
worldwide, Coca-Cola generated more than 70 percent of its
income outside the United States by 2003 (See Exhibit 3).
International Expansion
Coke’s first international bottling plants opened in 1906 in
Canada, Cuba, and Panama.11 By the end of the 1920s, Coca-
Cola was bottled in 27 countries throughout the world and
available in 51 more. In spite of this reach, volume was low,
quality inconsistent, and effective advertising a challenge with
language, culture, and government regulation all serving as
barriers. Former CEO Robert Woodruff ’s insistence that
Coca-Cola wouldn’t “suffer the stigma of being an intrusive
American product,” and instead would use local bottles, caps,
machinery, trucks, and personnel contributed to Coke’s
challenges as well with a lack of standard processes and
training degrading quality.12
Coca-Cola continued working for over 80 years on
Woodruff ’s goal: to make Coke available wherever and
whenever consumers wanted it, “in arm’s reach of desire.”13
The Second World War proved to be the stimulus Coca-Cola
needed to build effective capabilities around the world and
achieve dominant global market share. Woodruff ’s patriotic
commitment “that every man in uniform gets a bottle of
Coca-Cola for five cents, wherever he is and at whatever cost
to our company”14 was more than just great public relations.
As a result of Coke’s status as a military supplier, Coca-Cola
was exempt from sugar rationing and also received
government subsidies to build bottling plants around the
world to serve WWII troops.15
Turn of the Century Growth Imperative
The 1990s brought a slowdown in sales growth for the
Carbonated Soft Drink (CSD) industry in the United States,
achieving only 0.2 percent growth by 2000 (just under 10
billion cases) in contrast to the 5-7 percent annual growth
experienced during the 1980s. While per capita consumption
throughout the world was a fraction of the United States,’
major beverage companies clearly had to look elsewhere for
the growth their shareholders demanded. The looming
opportunity for the 21st century was in the world’s
developing markets with their rapidly growing middle class
populations.
     .        
The World’s Most Powerful Brand
Interbrand’s Global Brand Scorecard for 2003 ranked Coca-
Cola the #1 Brand in the World and estimated its brand value
at $70.45 billion (See Exhibit 4).16 The ranking’s
methodology determined a brand’s valuation on the basis of
how much it was likely to earn in the future, distilling the
percentage of revenues that could be credited to the brand,
and assessing the brand’s strength to determine the risk of
future earnings forecasts. Considerations included market
leadership, stability, and global reach, incorporating its ability
to cross both geographical and cultural borders.17
From the beginning, Coke understood the importance of
branding and the creation of a distinct personality.18 Its
catchy, well-liked slogans19 (“It’s the real thing” (1942, 1969),
“Things go better with Coke” (1963), “Coke is it” (1982),
“Can’t beat the feeling” (1987), and a 1992 return to “Can’t
beat the real thing”)20 linked that personality to the core
values of each generation and established Coke as the
authentic, relevant, and trusted refreshment of choice across
the decades and around the globe.
Indian History
India is home to one of the most ancient cultures in the
world dating back over 5,000 years. At the beginning of the
21st century, 26 different languages were spoken across India,
30 percent of the population knew English, and greater than
40 percent were illiterate. At this time, the nation was in the
midst of great transition and the dichotomy between the old
India and the new was stark. Remnants of the caste system
existed alongside the world’s top engineering schools and
growing metropolises as the historically agricultural economy
shifted into the services sector. In the process, India had
created the world’s largest middle class, second only to China.
A British colony since 1769 when the East India Company
gained control of all European trade in the nation, India
gained its independence in 1947 under Mahatma Ghandi and
his principles of non-violence and self-reliance. In the
decades that followed, self-reliance was taken to the extreme
as many Indians believed that economic independence was
necessary to be truly independent. As a result, the economy
was increasingly regulated and many sectors were restricted
to the public sector. This movement reached its peak in 1977
when the Janta party government came to power and Coca-
Cola was thrown out of the country. In 1991, the first
generation of economic reforms was introduced and
liberalization began.
 Coke in India
Coca-Cola was the leading soft drink brand in India until
1977 when it left rather than reveal its formula to the
government and reduce its equity stake as required under the
Foreign Exchange Regulation Act (FERA) which governed the
operations of foreign companies in India. After a 16-year
absence, Coca-Cola returned to India in 1993, cementing its
presence with a deal that gave Coca-Cola ownership of the
nation’s top soft-drink brands and bottling network. Coke’s
acquisition of local popular Indian brands including Thums
Up (the most trusted brand in India),21 Limca, Maaza, Citra
and Gold Spot provided not only physical manufacturing,
bottling, and distribution assets but also strong consumer
preference. This combination of local and global brands
enabled Coca-Cola to exploit the benefits of global branding
and global trends in tastes while also tapping into traditional
domestic markets. Leading Indian brands joined the
company’s international family of brands, including Coca-
Cola, Diet Coke, Sprite and Fanta, plus the Schweppes
product range. In 2000, the company launched the Kinley
water brand and in 2001, Shock energy drink and the
powdered concentrate Sunfill hit the market.
From 1993 to 2003, Coca-Cola invested more than US$1
billion in India, making it one of the country’s top
international investors.22 By 2003, Coca-Cola India had won
the prestigious Woodruff Cup from among 22 divisions of
the Company based on three broad parameters of volume,
profitability, and quality. Coca-Cola India achieved 39
percent volume growth in 2002 while the industry grew 23
percent nationally and the company reached break-even
profitability in the region for the first time.23 Encouraged by
its 2002 performance, Coca-Cola India announced plans to
double its capacity at an investment of $125 million (Rs. 750
crore) between September 2002 and March 2003.24
Coca-Cola India produced its beverages with 7,000 local
employees at its 27 wholly-owned bottling operations,
supplemented by 17 franchisee-owned bottling operations
and a network of 29 contract-packers to manufacture a range
of products for the company. The complete manufacturing
process had a documented quality control and assurance
program including over 400 tests performed throughout the
process (See Exhibit 5).
The complexity of the consumer soft drink market demanded
a distribution process to support 700,000 retail outlets
serviced by a fleet that includes 10-ton trucks, open-bay
     .        

three-wheelers, and trademarked tricycles and pushcarts that
were used to navigate the narrow alleyways of the cities.25 In
addition to its own employees, Coke indirectly created
employment for another 125,000 Indians through its
procurement, supply, and distribution networks.
Sanjiv Gupta, president and CEO of Coca-Cola India, joined
Coke in 1997 as vice president - marketing and was
instrumental to the company’s success in developing a brand
relevant to the Indian consumer and in tapping India’s vast
rural market potential. Following his marketing
responsibilities, Gupta served as head of operations for
company-owned bottling operations and then as deputy
president. Seen as the driving force behind recent successful
forays into packaged drinking water, powdered drinks, and
ready-to-serve tea and coffee, Gupta and his marketing
prowess were critical to the continued growth of the
company.26
The Indian Beverage Market 27
India’s one billion people, growing middle class, and low per
capita consumption of soft drinks made it a highly contested
prize in the global CSD market in the early 21st century. Ten
percent of the country’s population lived in urban areas or
large cities and drank 10 bottles of soda per year while the
vast remainder lived in rural areas, villages, and small towns
where annual per capita consumption was less than four
bottles. Coke and Pepsi dominated the market and together
had a consolidated market share above 95 percent. While soft
drinks were once considered products only for the affluent,
by 2003 91 percent of sales were made to the lower, middle
and upper middle classes. Soft drink sales in India grew 76
percent between 1998 and 2002, from 5,670 million bottles to
over 10,000 million (See Exhibit 6) and were expected to
grow at least 10 percent per year through 2012.28 In spite of
this growth, annual per capita consumption was only six
bottles versus 17 in Pakistan, 73 in Thailand, 173 in the
Philippines and 800 in the United States.29
With its large population and low consumption, the rural
market represented a significant opportunity for penetration
and a critical battleground for market dominance. In 2001,
Coca-Cola recognized that to compete with traditional
refreshments including lemon water, green coconut water,
fruit juices, tea, and lassi, competitive pricing was essential. In
response, Coke launched a smaller bottle priced at almost 50
percent of the traditional package.
Marketing Cola in India
The post-liberalization period in India saw the comeback of
cola but Pepsi had already beaten Coca-Cola to the punch,
creatively entering the market in the 1980s in advance of
liberalization by way of a joint venture. As early as 1985, Pepsi
tried to gain entry into India and finally succeeded with the
Pepsi Foods Limited Project in 1988, as a JV of PepsiCo,
Punjab government-owned Punjab Agro Industrial
Corporation (PAIC), and Voltas India Limited. Pepsi was
marketed and sold as Lehar Pepsi until 1991 when the use of
foreign brands was allowed under the new economic policy
and Pepsi ultimately bought out its partners, becoming a
fully-owned subsidiary and ending the JV relationship in
1994.30
While the joint venture was only marginally successful in its
own right, it allowed Pepsi to gain precious early experience
with the Indian market and also served as an introduction of
the Pepsi brand to the Indian consumer such that it was well-
poised to reap the benefits when liberalization came. Though
Coke benefited from Pepsi creating demand and developing
the market, Pepsi’s head start gave Coke a disadvantage in the
mind of the consumer. Pepsi’s appeal focused on youth and
when Coke entered India in 1993 and approached the market
selling an American way of life, it failed to resonate as
expected.31
2001 Marketing Strategy
Coca-Cola CEO Douglas Daft set the direction for the next
generation of success for his global brand with a “Think local,
act local” mantra. Recognizing that a single global strategy or
single global campaign wouldn’t work, locally relevant
executions became an increasingly important element of
supporting Coke’s global brand strategy.
In 2001, after almost a decade of lagging rival Pepsi in the
region, Coke India re-examined its approach in an attempt to
gain leadership in the Indian market and capitalize on
significant growth potential, particularly in rural markets.
The foundation of the new strategy grounded brand
positioning and marketing communications in consumer
insights, acknowledging that urban versus rural India were
two distinct markets on a variety of important dimensions.
The soft drink category’s role in people’s lives, the degree of
differentiation between consumer segments and their reasons
for entering the category, and the degree to which brands in
the category projected different perceptions to consumers
were among the many important differences between how
urban and rural consumers approached the market for
refreshment.32
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In rural markets, where both the soft drink category and
individual brands were undeveloped, the task was to broaden
the brand positioning while in urban markets, with higher
category and brand development, the task was to narrow the
brand positioning, focusing on differentiation through
offering unique and compelling value. This lens, informed by
consumer insights, gave Coke direction on the tradeoff
between focus and breadth a brand needed in a given market
and made clear that to succeed in either segment, unique
marketing strategies were required in urban versus rural
India.
BRAND LOCALIZATION
STRATEGY: THE TWO INDIAS
India A: “Life ho to aisi”
“India A,” the designation Coca-Cola gave to the market
segment including metropolitan areas and large towns,
represented four percent of the country’s population.33 This
segment sought social bonding as a need and responded to
aspirational messages, celebrating the benefits of their
increasing social and economic freedoms. “Life ho to aisi,”
(life as it should be) was the successful and relevant tagline
found in Coca-Cola’s advertising to this audience.
India B: “Thanda Matlab Coca-Cola”
Coca-Cola India believed that the first brand to offer
communication targeted to the smaller towns would own the
rural market and went after that objective with a
comprehensive strategy. “India B” included small towns and
rural areas, comprising the other 96 percent of the nation’s
population. This segment’s primary need was out-of-home
thirst-quenching and the soft drink category was
undifferentiated in the minds of rural consumers.
Additionally, with an average Coke costing Rs. 10 and an
average day’s wages around Rs. 100, Coke was perceived as a
luxury that few could afford.34
In an effort to make the price point of Coke within reach of
this high-potential market, Coca-Cola launched the
Accessibility Campaign, introducing a new 200ml bottle,
smaller than the traditional 300ml bottle found in urban
markets, and concurrently cutting the price in half, to Rs. 5.
This pricing strategy closed the gap between Coke and basic
refreshments like lemonade and tea, making soft drinks truly
accessible for the first time. At the same time, Coke invested
in distribution infrastructure to effectively serve a disbursed
population and doubled the number of retail outlets in rural
areas from 80,000 in 2001 to 160,000 in 2003, increasing
market penetration from 13 to 25 percent.35
 Coke’s advertising and promotion strategy pulled the
marketing plan together using local language and idiomatic
expressions. “Thanda,” meaning cool/cold is also generic for
cold beverages and gave “Thanda Matlab Coca-Cola”
delicious multiple meanings. Literally translated to “Coke
means refreshment,” the phrase directly addressed both the
primary need of this segment for cold refreshment while at
the same time positioning Coke as a “Thanda” or generic cold
beverage just like tea, lassi, or lemonade. As a result of the
Thanda campaign, Coca-Cola won Advertiser of the Year and
Campaign of the Year in 2003 (See Exhibit 7).
Rural Success
Comprising 74 percent of the country’s population, 41
percent of its middle class, and 58 percent of its disposable
income, the rural market was an attractive target and it
delivered results. Coke experienced 37 percent growth in 2003
in this segment versus the 24 percent growth seen in urban
areas. Driven by the launch of the new Rs. 5 product, per
capita consumption doubled between 2001-2003. This
market accounted for 80 percent of India’s new Coke
drinkers, 30 percent of 2002 volume, and was expected to
account for 50 percent of the company’s sales in 2003.36
Corporate Social Responsibility
As one of the largest and most global companies in the world,
Coca-Cola took seriously its ability and responsibility to
positively affect the communities in which it operated. The
company’s mission statement, called the Coca-Cola Promise,
stated: “The Coca-Cola Company exists to benefit and refresh
everyone who is touched by our business.” The company has
made efforts towards good citizenship in the areas of
community, by improving the quality of life in the
communities in which they operate, and the environment, by
addressing water, climate change and waste management
initiatives. Their activities also included The Coca-Cola
Africa Foundation created to combat the spread of
HIV/AIDS through partnership with governments, UNAIDS,
and other NGOs, and The Coca-Cola Foundation, focused on
higher education as a vehicle to build strong communities
and enhance individual opportunity (See Exhibit 8).37
Coca-Cola’s footprint in India was significant as well. The
company employed 7,000 citizens and believed that for every
direct job, 30-40 more were created in the supply chain.38
Like its parent, Coke India’s Corporate Social Responsibility
(CSR) initiatives were both community and environment-
focused. Priorities included education, where primary
education projects had been set up to benefit children in
slums and villages; water conservation, where the company
supported community-based rainwater harvesting projects to
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
restore water levels and promote conservation, education;
and health, where Coke India partnered with NGOs and
governments to provide medical access to poor people
through regular health camps. In addition to outreach efforts,
the company committed itself to environmental
responsibility through its own business operations in India
including:39
Environmental due diligence before acquiring land or
starting projects
• Environmental impact assessment before commencing
operations
• Ground water and environmental surveys before
selecting sites
• Compliance with all regulatory environmental
requirements
• Ban on purchasing CFC-containing refrigeration
equipment
• Waste water treatment facilities with trained personnel at
all company-owned bottling operations
• Energy conservation programs
• 50 percent water savings in last seven years of operations
Previous Coke Crises
Despite Coke’s reputation as a socially responsible corporate
citizen, the company has faced its share of controversy
worldwide surrounding both its products and its policies in
the years preceding the Indian pesticide crisis.
Ingram, et al. v. The Coca-Cola
Company – 199940
In the spring of 1999, four current and former Coca-Cola
employees, led by Information Analyst Linda Ingram, filed
bias charges against Coca-Cola in Atlanta Federal Court. The
lawsuit charged the company with racial discrimination and
stated: “This discrimination represents a company-wide
pattern and practice, rather than a series of isolated incidents.
Although Coca-Cola has carefully crafted African-American
consumers of its product by public announcements, strategic
alliances and specific marketing strategies, it has failed to
place the same importance on its African-American
employees.”41
In the decades leading up to the suit, both internal and
external warnings surrounding Coke’s diversity practices were
issued. In 1981, the Rev. Jesse Jackson, director of the
Rainbow/ PUSH coalition instigated a boycott against Coca-
Cola challenging the company to significantly improve its
business relationship with the African American
community.42
The Ware report, written by Senior Vice President Carl Ware,
an African-American executive at the company, cited a lack of
diversity at the decision-making level, a basic lack of
workplace diversity, a “ghettoization” among blacks who
worked for Cola-Cola, and an overt lack of respect for
cultural differences as well as an implicit assumption that
African-American employees lacked the intelligence to meet
the challenges of the highest executive levels.43
Cyrus Mehri, one of the most visible and successful plaintiff
advocates in the US, represented the group and was skilled at
leveraging the power of the media, creating a true crisis for
the Coca-Cola Company and exerting tremendous pressure
for settlement. In 2000, the lawsuit was settled for $192.5
million after the company had sent mixed messages and
damaging statements regarding the merit of the suit for over
a year. Analysts identified the bias suit as a prime reason for
the $100 billion decrease in Coca-Cola’s stock price between
1998-2000.44
Belgium 1999 45
On June 8, 1999, 33 Belgian school children became ill after
drinking Coke bottled at a local facility in Antwerp. A few
days later, more Belgians complained of similar symptoms
after drinking cans of Coke that had been bottled at a plant in
Dunkirk, France and 80 people in northern France were
allegedly stricken by intestinal problems and nausea, bringing
the total afflicted to over 250.
In the days following the first outbreak, 17 million cases of
Coke from five European countries were recalled and
destroyed. It was the largest product recall in Coke’s history,
and Belgian and French authorities banned the sale of Coca-
Cola products for 10 days. Germany placed a temporary
import ban on Coca Cola produced in Belgium and the
Netherlands, and Luxembourg banned all Coca Cola
products. Health ministers in Italy, Spain, and Switzerland
warned people about consuming Coke products.
Coca-Cola sources explained that the contamination was due
to defective carbon dioxide used at the Antwerp plant and
that a wood preservative used on shipping pallets had
contaminated the outside of cans at the Dunkirk plant. The
European Commission, however, believed production faults
and contaminated pipes were more likely to be the cause of
the problem.
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Though CEO Ivester was in Paris when the news broke, he flew
home to Atlanta and kept silent, waiting over a week to issue
his first public statement on the crisis, citing that “Coke would
do whatever necessary to ensure the safety of its products.” A
Netherlands-based toxicologist Coke had hired issued a report
on June 29 exempting the company from blame for the CO2
impurity in Antwerp and the fungicide at Dunkirk. Though
the product ban was lifted, Coke had a tremendous amount of
work to do to win back consumer confidence.
An aggressive PR campaign included vouchers and coupons
for free product delivered to each of Belgium’s 4.4 million
homes, sponsored dances, beach parties, and summer fairs for
teenagers, and significant television advertising reinforcing
“Today, more than ever, we thank you for your loyalty.”
Kinley Bottled Water
On February 4, 2003 the Center for Science and Environment
(CSE) in India released a report based on tests conducted by
the Pollution Monitoring Laboratory (PML) titled “Pure
Water or Pure Peril?” Analysis of 17 packaged drinking water
brands sold across the country revealed evidence of pesticide
residues including lindane, DDT, malathion, and chlorpyrifos.
The CSE used European norms for maximum permissible
limits for pesticides in packaged water “because the standards
set for pesticide residues by the Bureau of Indian Standards
(BIS) are vague and undefined.”46 Coca-Cola’s Kinley water
brand had concentration levels 15 times higher than
stipulated limits, top-seller Biserli had 79 times and Aquaplus
topped the list at 109 times.47 In the wake of this statement,
Coca-Cola remained largely silent and the buzz went away.
Corporate Communications at Coca-Cola
Corporate Communications was a critical function at the
Coca-Cola corporation given the number of constituencies
both internal and external to the company. In addition, the
complexity and global reach of the Company’s operations
could not be centrally managed and instead demanded a
matrixed team organization.
The senior communications position at the company, senior
vice president - worldwide public affairs and communication,
sat on the company’s executive committee and reported to
the chairman and CEO at the time of the crisis in India.
Director-level corporate communication functions included:
media relations, nutrition communications, financial
communications, and marketing communications, but the
geographic diversity of the company’s businesses required
 regionally based communication leaders in addition to the
corporate resources in place. As a result, five regional
communications directors serviced North America, Latin
America, Asia, Europe, and Africa with their own teams of
communications professionals (See Exhibit 9).
NGO Activism 48
NGOs (Non-Governmental Organizations) evolved to
influence governments but by the early 21st century many
realized that targeting corporations and key corporate
constituents such as investors and customers could be an
even more powerful way to effect change. Along with their
ability to focus, gain attention, and act quickly was the high
level of credibility NGOs had cultivated with many
constituencies. This credibility stemmed in part from their
emotional, rather than fact-based, appeals and the
impassioned nature of their arguments.
The most common tactic of NGOs was to develop campaigns
against business through which they garnered support from
consumers and the media. These campaigns, such as
Greenpeace’s attack on Shell Oil following the company’s
decision to dump the Brent Spar oil rig in the ocean in the
1990s, typically focused on a single issue; targeted companies
with successful and well-known brands such as McDonald’s
and Nike; and were augmented by market trends such as the
homogenization created by chains like Wal-Mart and
Starbucks. NGOs realized that anti-corporate campaigns
could be far more powerful than anti-government
campaigns. Global Exchange’s attack on Nike for sweatshop
labor conditions in the 1990s, for example, was one of the
most highly publicized and also one of the most successful
anti-business campaigns in recent years.
Center for Science and Environment
The CSE, an NGO, was established in India in 1980 by a
group of engineers, scientists, journalists and
environmentalists to “catalyze the growth of public awareness
on vital issues in science, technology, environment, and
development.”49 Led by Sumita Narain, a former schoolmate
of Coke India CEO Gupta, the CSE’s efforts included
communication for awareness, research and advocacy,
education and training, documentation, and pollution
monitoring.
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
Spurred by the February 2003 report on bottled water and
questions like “if what we found in bottled water was correct,
then what about soft drinks?” the CSE’s August 2003 report
claimed that soft drinks were extremely dangerous to Indian
citizens based on tests conducted at the Pollution Monitoring
Laboratory (PML). All samples contained residues of lindane,
DDT, malathion, and chlorpyrifos, toxic pesticides and
insecticides known to cause serious long term health issues.
Total pesticides in all Coca-Cola brands averaged 0.0150
mg/l, 30 times higher than the European Economic
Commission (EEC) limit. PML also tested samples of Coke
and Pepsi products sold in the United States to see if they
contained pesticides and they did not.
Regulations on soft drinks were weak in India, even
compared to bottled water, as neither the Prevention of Food
Alteration Act (PFA) nor the Fruit Products Order (FPO),
aimed at regulating food standards in India, addressed
pesticides in soft drinks, and there were no standards to
define ‘clean’ or ‘potable’ water. The report called on the
government to put in place legally enforceable water
standards and chastised the multi-nationals for taking
advantage of the situation at the expense of consumer health
and well-being.
Indian Regulatory Environment50
The main law governing food safety in India was the 1954
Prevention of Food Alteration Act (PFA) which contained a
rule regulating pesticides in foods but did not include
beverages. The Food Processing Order (1955) required that
the main ingredient used in soft drinks be “potable water” but
the Bureau of Indian Standards (BIS) had no prescribed
standards for pesticides in water. One BIS directive stated that
pesticides must be absent and set a limit of 0.001 parts per
million but the Health Secretary admitted, “There are lapses
in PFA regarding carbonated drinks.”51
Indian law enforcement was minimal with virtually no
conviction under PFA. In the absence of national standards,
NGOs such as the CSE turned to the United States and the
European Union for “international norms.” The
appropriateness and feasibility of these standards for
developing nations, however, remained a question for many.
Under EU food laws for example, milk, fruit, and basic staples
such as rice and wheat would need to be imported into India
to satisfy safety standards.
The Initial Response
The day after the CSE announcement, Coke and Pepsi came
together in a rare show of solidarity at a joint press
conference. The companies attacked the credibility of the CSE
and their lab results, citing regular testing at independent
laboratories proving the safety of their products. They
promised to provide this data to the public, threatened legal
Exhibit 1:
Center for Science and Environment Press Release
HARD TRUTHS ABOUT SOFT DRINKS
New Delhi, August 5, 2003: After bottled water, it’s
aerated water that has plugged the purity test. In another
exposé, Down To Earth has found that 12 major cold drink
brands sold in and around Delhi contain a deadly cocktail
of pesticide residues. The results are based on tests
conducted by the Pollution Monitoring Laboratory (PML)
of the Centre for Science and Environment (CSE). In
February this year, CSE had blasted the bottled water
industry’s claims of being ‘pure’ when its laboratory had
found pesticide residues in bottled water sold in Delhi
and Mumbai.
This time, it analysed the contents of 12 cold drink brands
sold in and around the capital. They were tested for
organochlorine and organophosphorus pesticides and
synthetic pyrethroids — all commonly used in India as
insecticides.
The test results were as shocking as those of
bottled water.
All samples contained residues of four extremely toxic
pesticides and insecticides: lindane, DDT, malathion and
chlorpyrifos. In all samples, levels of pesticide residues far
exceeded the maximum residue limit for pesticides in
water used as ‘food,’ set down by the European
Economic Commission (EEC). Each sample had enough
poison to cause – in the long term – cancer, damage to
the nervous and reproductive systems, birth defects and
severe disruption of the immune system.
What we found
• Market leaders Coca-Cola and Pepsi had almost
similar concentrations of pesticide residues. Total
pesticides in all PepsiCo brands on an average were
0.0180 mg/l (milligramme per litre), 36 times higher
than the EEC limit for total pesticides (0.0005 mg/l).
Total pesticides in all Coca-Cola brands on an average
were 0.0150 mg/l, 30 times higher than the EEC limit.
• While contaminants in the ‘Dil mange more’ Pepsi were
37 times higher than the EEC limit, they exceeded the
norms by 45 times in the ‘Thanda matlab Coca-Cola’
product.
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action against the CSE while seeking a gag order, and
contacted the United States Embassy in India for assistance.
Coca-Cola India’s CEO Sanjiv Gupta published the following
statement for the Indian public: 52
You may have seen recently in the media some allegations
about the quality standards of our products in India. We
take these allegations extremely seriously. I want to
reassure you that our products in India are safe and are
• Mirinda Lemon topped the chart among all the tested
brand samples, with a total pesticide concentration of
0.0352 mg/l.
The cold drinks sector in India is a much bigger money-
spinner than the bottled water segment. In 2001, Indians
consumed over 6,500 million bottles of cold drinks. Its
growing popularity means that children and teenagers,
who glug these bottles, are drinking a toxic potion.
PML also tested two soft drink brands sold in the US, to
see if they contained pesticides. They didn’t.
The question, therefore, is: how can apparently quality-
conscious multinationals market products unfit for human
consumption?
CSE found that the regulations for the powerful and
massive soft drinks industry are much weaker, indeed
non-existent, as compared to those for the bottled water
industry. The norms that exist to regulate the quality of
cold drinks are a maze of meaningless definitions. This
“food” sector is virtually unregulated.
The Prevention of Food Adulteration (PFA) Act of 1954, or
the Fruit Products Order (FPO) of 1955 – both mandatory
acts aimed at regulating the quality of contents in
beverages such as cold drinks – do not even provide any
scope for regulating pesticides in soft drinks. The FPO,
under which the industry gets its licence to operate, has
standards for lead and arsenic that are 50 times higher
than those allowed for the bottled water industry.
What’s more, the sector is also exempted from the
provisions of industrial licensing under the Industries
(Development and Regulation) Act, 1951. It gets a one-
time license to operate from the ministry of food
processing industries; this license includes a no-objection
certificate from the local government as well as the state
pollution control board, and a water analysis report. There
are no environmental impact assessments, or citing
regulations. The industry’s use of water, therefore, is not
regulated.
Source: CSE Press Release, “Hard Truths about Soft Drinks,” 8/5/03.
 tested regularly to ensure that they meet the same rigorous
standards we maintain across the world.
Maintaining quality standards is the most important
element of our business and we cannot stand by while
misleading and unaccredited data is used to discredit
trusted and world-class brands. Recent allegations have
caused unnecessary panic among consumers in India and,
if unchecked, would impair our business in India and
impact the livelihoods of our thousands of employees
across the country.
This site is about the truth behind the headlines. It
provides some context and facts on these issues and we
hope it helps you understand exactly why you can trust
our beverage brands and continue to enjoy them as
millions of Indians do each day.
– Sanjiv Gupta, Division President, Coca-Cola India
In the following days, the Delhi High Court asked the
government to convene an expert committee to test and
report on the safety of soft drinks within three weeks and to
revise existing standards to include pesticide norms. Coca-
Cola and Pepsi launched independent campaigns to reassure
the public, taking out full-page newspaper advertisements
and directing consumers to their corporate Web sites to
review test results and safety protocol in greater detail (See
Exhibits 10 and 11). In spite of these actions, the public
seemed to believe the CSE’s claims and the crisis was far from
over for the beverage giants. With sales continuing to
experience a precipitous drop, one Delhi medical student’s
sentiments appeared to be widespread: “For a person drinking
at least one bottle a day, the report came as a rude shock. I
haven’t picked up a bottle today and most definitely will not
consume soft drinks in the future. The reports of pesticides
and other pollutants have made soft drinks a strict no-no and
we will now stick to juices and plain drinking water.”53

Exhibit 2: Pesticide Content in Twelve Leading Soft Drink Brands

Cold comfort
Pesticides in soft drink brands in India

0.0400 Total organochlorine pesticides

0.0362
Total organophosphorus pesticides
0.0350
Total pesticides
0.0300 EEC limit for total pesticides 0.0005 mg/l
Residues (mg/l)

0.0250 0.0223 0.0214

0.0187 0.0196
0.0200 0.0166
0.0148
0.0141
0.0150
0.0147 0.0111

0.0100
0.0071
0.0050
0.0055

0.0000
Pepsi Mountain Diet Mirinda Mirinda Blue 7-Up Coca-Cola Fanta Limca Sprite Thums Up
Dew Pepsi orange lemon Pepsi

Brands

Source: CSE Press Release, “Hard Truths about Soft Drinks,” 8/5/03.

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
Gupta’s Dilemma
As he contemplated the crisis at hand, Sanjiv Gupta
questioned what action if any was necessary. Coke India was
well within the country’s legal guidelines and the crisis had
not been widely reported outside of India. Gupta knew that
the Indian public had a short attention span and had reason
to think that it wouldn’t be long before the CSE’s report
faded, just as the Kinley water issue had earlier this year.
On the other hand, he wondered if the situation might offer
the company an opportunity to display higher standards of
social responsibility at a time when it needed to differentiate
itself from the competition. Multinationals had slipped in
numerous situations of late and were blamed for not
adhering to the same standards in developing countries as in
industrialized nations. The additive effect of this negative
press meant that the potential damage to Coke’s reputation
was even greater. Finally, an ineffective resolution would be a
devastating blow to the momentum Coke had gained after
three long years of work on the marketing front.

Exhibit 3: The Coca-Cola Company Income Statement

(in millions $ except per share data)
2002 2001 2000
Net Operating Revenues 19,564 17,545 17,354
Cost of Goods Sold 7,105 6,044 6,204
Gross Profit 12,459 11,501 11,150
Selling, general, and administrative expenses 7,001 6,149 6,016
Other operating changes ,000 ,000 1,443
Operating Income 5,458 5,352 3,691
Interest Income 209 325 345
Interest Expense 199 289 447
Equity Income (loss) 384 152 (289)
Other Income (loss)–net (353) 39 99
Gains on issuances of stock by equity investee 0 91 0
Income before income taxes and cumulative
effect of accounting change 5,499 5,670 3,399
Income Taxes 1,523 1,691 1,222
Net Income before cumulative effect of
accounting change 3,976 3,979 2,177
Cumulative effect of accounting change for
SFAS No. 142 net of income taxes:
Company operations (367) 0 0
Equity investments (559) 0 0
Cumulative effect of accounting change for
SFAS No. 133 net of income taxes: 0 (10) 0
Net Income 3,050 3,969 2,177
Basic Net Income per share
Before accounting change 1.60 1.60 0.88
Cumulative effect of accounting change (0.37) 0 0
1.23 1.60 0.88
Diluted net income per share
Before accounting change 1.60 1.60 0.88
Cumulative effect of accounting change (0.37) 0 0
1.23 1.60 0.8
Average shares outstanding 2478 2487 2477
Effect of dilutive securities 5 0 0
Average shares outstanding assuming dilution 2483 2487 2487

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 Exhibit 4: Interbrand’s Global Brand Scoreboard 2003

Rank Company 2003 Brand Value ($Billion) 2002 Brand Value ($Billion) Percent Change Country of Ownership

1 Coca-Cola 70.45 69.64 +1% U.S.

2 Microsoft 65.17 54.09 +2 U.S.

3 IBM 51.77 51.19 +1 U.S.

4 GE 42.34 41.31 +2 U.S.

5 Intel 31.11 30.86 +1 U.S.

6 Nokia 29.44 29.97 -2 Finland

7 Disney 28.04 29.26 -4 U.S.

8 McDonald’s 24.70 26.38 -6 U.S.

9 Marlboro 22.18 24.15 -8 U.S.

10 Mercedes 21.37 21.01 +2 Germany

Source: Interbrand’s Global Brand Scorecard, 2003. BusinessWeek, 8/4/03.

Exhibit 6: Soft Drink Sales in India

Fiscal Year Million Bottles Sold

1998-1999 5670

1999-2000 6230
Exhibit 5: Rountine tests carried out by bottling
operations and external laboratories 2000-2001 6450
Process Parameter No. of tests 2001-2002 6600
1 Water 71 2002-2003 10000
2 Water Treatment & Auxiliary Chemicals 68
Source: “Soft drink sales up 10.4%,” PTI, 9/29/04.
3 CO2 50

4 Sugar 13

5 Syrup 17 Exhibit 7: Thanda Matlab Coca-Cola Advertising

Campaign, Print Media
6 Packaging Material 25

7 Container Washing 17

8 Finished Product 18

9 Market Samples 15

10 External Lab 147

TOTAL 441

Source: The Coca-Cola Company; http://www.myenjoyzone.com

Source: McCann-Erickson Worldwide Web site

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
 Exhibit 8: Coca-Cola Principles
of Corporate Citizenship
Our reputation is built on trust. Through good citizenship
we will nurture our relationships and continue to build that
trust. That is the essence of our promise — The Coca-
Cola Company exists to benefit and refresh everyone it
touches.
Wherever Coca-Cola does business, we strive to be
trusted partners and good citizens. We are committed to
managing our business around the world with a
consistent set of values that represent the highest
standards of integrity and excellence. We share these
values with our bottlers, making our system stronger.
These core values are essential to our long-term business
success and will be reflected in all of our relationships and
actions — in the marketplace, the workplace, the
environment and the community.
Marketplace
We will adhere to the highest ethical standards, knowing
that the quality of our products, the integrity of our brands
and the dedication of our people build trust and
strengthen relationships. We will serve the people who
enjoy our brands through innovation, superb customer
service, and respect for the unique customs and cultures
in the communities where we do business.
Workplace
We will treat each other with dignity, fairness and respect.
We will foster an inclusive environment that encourages all
employees to develop and perform to their fullest
potential, consistent with a commitment to human rights
in our workplace. The Coca-Cola workplace will be a
place where everyone’s ideas and contributions are
valued, and where responsibility and accountability are
encouraged and rewarded.
Environment
We will conduct our business in ways that protect and
preserve the environment. We will integrate principles of
environmental stewardship and sustainable development
into our business decisions and processes.
Community
We will contribute our time, expertise and resources to
help develop sustainable communities in partnership with
local leaders. We will seek to improve the quality of life
through locally-relevant initiatives wherever we do
business.
Responsible corporate citizenship is at the heart of The
Coca-Cola Promise. We believe that what is best for our
employees, for the community and for the environment is
also best for our business.
Source: Coca-Cola Company Web site

Exhibit 9: Corporate Communications at Coca-Cola

SVP WW
Public Affairs &
Communications

Assistant VP & Director, Health & Director, Director, Director, North Director,
Director, Nutrition Financial Marketing America Asia
Media Relations Communications Communications Communications Communications Communications

Senior Manager,
Public Affairs &
Source: Case writer derived from Coca-Cola Company Web site Communications,
Coca-Cola India

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 Exhibit 10: Myths and Facts from Coca-Cola India Web site
Since August 5, 2003 the quality and safety of Coca-Cola
and PepsiCo products in India have been called into
question by a local NGO, the Centre for Science and
Environment (CSE). The basis of the allegations are tests
conducted on products of Coca-Cola and PepsiCo by CSE’s
internal unaccredited laboratory, the Pollution Monitoring
Laboratory.
In India, as in the rest of the world, our plants use a multiple
barrier system to remove potential contaminants and
unwanted natural substances including iron, sulfur, heavy
metals as well as pesticides. Our products in India are safe
and are tested regularly to ensure that they meet the same
rigorous standards we maintain across the world.
Myth Coca-Cola products in India contain pesticide residues
that are above EU norms.
Fact Throughout all of our operations in India, stringent
quality monitoring takes place covering both the
source water we use as well as our finished product.
We test for traces of pesticide in groundwater to the
level of parts per billion. This is equivalent to one drop
in a billion drops. For comparison’s sake, this would
also be equivalent to measuring one second in 32
years, or less than one person in the entire population
in India. These tests require specialized equipment at
accredited labs to have accurate results. Even at these
stringent miniscule levels we are well within the
internationally accepted safety norms.
Myth Coca-Cola products sold in India are “toxic” and unfit
for human consumption.
Fact There is no contamination or toxicity in our beverage
brands. Our high-quality beverages are — and have
always been — safe and refreshing. In over 200
countries across the globe, more than a billion times
every day, consumers choose our brands for
refreshment because Coca-Cola is a symbol of quality.
Myth Coca-Cola has dual standards in the production of its
products, one high standard for western countries,
another for India.
Fact The soft drinks manufactured in India conform to the
same high standards of quality as in the USA and
Europe. Through our globally accepted and validated
manufacturing processes and Quality Management
systems, we ensure that our state-of-the-art
manufacturing facilities are equipped to provide the
consumer the highest quality beverage each time. We
stringently test our soft drinks in India at independent,
accredited and world-class laboratories both locally
and internationally.
Myth In India the soft drinks industry is virtually unregulated.
Fact There are no standards for soft drinks in the US, the
EU, or India. In India, water used for beverage
Source: Coca-Cola Company Website
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
The result of these allegations has been consumer confusion,
significant impact on the sale of a safe and high-quality
product, and the erosion of international investor confidence
in the Indian business sector. This situation calls for the
development of national sampling and testing protocols for
soft drinks, an end to sensationalizing unsubstantiated
allegations, and co-operation by all parties concerned in the
interests of both Indian consumers and companies with
significant investments in the Indian economy.
The facts versus the fiction statements made in recent weeks
have led to false perceptions by Indian consumers:
manufacture must conform to drinking water
standards. The water used by Coca-Cola conforms to
both BIS and EU standards for drinking water and our
production protocols ensure this through a focus on
process control and testing of the water used in our
manufacturing process and the final product quality.
Myth Coca-Cola has put out results for Kinley water only and
not for their soft drinks.
Fact The results of product tests conducted by TNO
Nutrition and Food Research Laboratory in the
Netherlands is conclusive and is available on The
Science Behind Our Quality Web page.
Myth International companies like Coca-Cola are
“colonizing” India.
Fact The Coca-Cola business in India is a local business.
Our beverages in India are produced locally, we
employ thousands of Indian citizens, our product range
and marketing reflect Indian tastes and lifestyles, and
we are deeply involved in the life of the local
communities in which we operate. The Coca-Cola
business system directly employs approximately
10,000 local people in India. In addition, independent
studies have documented that, by providing
opportunities for local enterprises, the Coca-Cola
business also generates a significant employment
“multiplier effect.” In India, we indirectly create
employment for more than 125,000 people in related
industries through our vast procurement, supply and
distribution system.
Myth Farmers in India are using Coca-Cola and other soft
drinks as pesticides by spraying them on their crops.
Fact Soft drinks do not act in a similar way to pesticides
when applied to the ground or crops. There is no
scientific basis for this and the use of soft drinks for
this purpose would be totally ineffective. In India, as in
the rest of the world, our products are world class and
safe and the treated water used to make our beverages
there meets the highest international standards.
BIBLIOGRAPHY
Argenti, Paul A.. Collaborating with Activists: How Starbucks Works with NGOs.
California Management Review, Vol. 47, No. 1, Fall 2004.
Bhatia, Gauri. Multinational Corporations: Pro or Con? Outlook India, October 29, 2003.
BusinessWeek Online, Things Aren’t Going Better with Coke, June 28, 1999
Centre for Science and Environment (CSE): Analysis of Pesticide Residues in Soft Drinks,
August 5, 2003.
Coca-Cola India. Marketing: Questioning Paradigms, Internal Company Presentation.
Coke, Pepsi challenge India pesticide claim:
http://www.ajc.com/business/content/business/coke/0803/06pesticide.html
Coke, Pepsi India deny pesticides in soft drinks:
http://www.forbes.com/home_europe/newswire/2003/08/05/rtr1049160.html
Coca-Cola, Philips Win Marketing Awards: http://www.financialexpress.com 10/7/04
Dawar, Niraj and Nancy Dai. Cola Wars in China: The Future is Here. HBS Case,
August 21, 2003.
Dey, Saikat. Interview on Indian history and economic liberalization. January 10, 2005.
http://www.coca-cola.com/flashIndex1.html
http://www2.coca-cola.com/presscenter/viewpoints_india_situation.html
http://www.coca-colaindia.com/
http://www.indiaresource.org/
http://www.killercoke.org
http://www.myenjoyzone.com/press1/truth.htm
“Global Brand Scorecard 2003: Special Report.” Interbrand, as seen in Business Week
8/04/03.
Kaul, Nymph. Interview of Sanjiv Gupta, President and CEO of Coca-Cola India, June
2004.
Kaul, Nymph. Rai University, multiple interviews.
Kaul, Nymph. Rai University, “Coca-Cola India.”
Keller, Kevin Lane. Strategic Brand Management. Prentice Hall, 1998.
Kochan, Nicholas, editor. The World’s Greatest Brands: an International Review by
Interbrand. New York University Press, 1997.
“People’s Forum Against Coca-Cola,” Brochure.
Pendergrast, Mark: For God, Country and Coca-Cola. Charles Scribners, 1993.
Sanghvi, Rish. Interviews on Cola in India before liberalization and
marketing/advertising of Coke and Pepsi in India, November 2004.
Society for Environmental Communications: Colanisation’s Dirty Dozen: Deadly
pesticides found in 12 leading brands of soft drinks, 8/15/03.
“Soft drink sales up 10.4%,” PTI, 9/29/04.
Srivastava, Amit: Coke with a New Twist: Toxic Cola, India Resource Center,
February 15, 2004.
The Corporate Web Site as an Image Restoration Tool: The Case of Coca-Cola
Yoffie, David B. and Yusi Wang, Cola Wars Continue: Coke versus Pepsi in the Twenty-
First Century. HBS Case, January 11, 2002.
Yoffie, David B. and Richard Seet, Internationalizing the Cola Wars: The Battle for China
and Asian Markets. HBS Case, May 31, 1995.

ENDNOTES 28. Ibid.

1. “Toxic effect: Coke sales fall by a sharp 30-40%.” The Economic Times, 8/13/03, p. 1 29. Ibid.
2. “Controversy-ridden year for soft drinks.” Business Line, New Delhi, 12/30/03, p.6 30. “Broken commitments: The case of Pepsi in India.” Kavaljit Singh, PIRG Update,
May 1997
3. “Toxic effect.”
31. Interview with Nymph Kaul, 9/20/04
4. “Hard Truths About Soft Drinks.” Center for Science and Environment, Press
Release, 8/5/03. 32. Coca-Cola India Internal Marketing Presentation.
5. “No standards for world-wide pesticide residues in soft-drinks.” Business Line, New 33. Ibid.
Delhi, 10/3/03, p. 9.
34. Kaul.
6. “Coke & Pepsi in India: Pesticides in Carbonated Beverages.”
35. Kaul.
http://www.vedpuriswar.org/articles/Indiancases retrieved 12/7/04
36. Ibid.
7. “Tests show pesticides in soft drinks, claims CSE,” Economic Times, 8/6/03, p. 1.
37. http://www.coca-colaindia.com
8. “Coke & Pepsi in India: Pesticides in Carbonated Beverages.”
38. Ibid.
9. http://www.indiastat.com
39. Ibid.
10. “Coca-Cola India.” Nymph Kaul, 2004 and Coca-Cola Company Web site:
http://www2.coca-cola.com/heritage/ and Pendergrast, For God and Coca-Cola. 40. “The Corporate Web site as an Image Restoration Tool.” Nicola K. Graves and
Charles Scribner’s, 1993. Randall L. Waller, 2004.
11. http://www2.coca-cola.com/ourcompany/aroundworld.html 41. “Coca-Cola accused of a ‘companywide pattern.’” Unger, H., The Atlanta Journal-
Constitution, p. H1, (1999am April 24)
12. Pendergrast, 172.
42. “The real thing: Truth and power at the Coca-Cola Company,” Hays, C. L., New
13. Ibid.
York: Random House 2004.
14. Ibid., 199.
43. Ibid.
15. Ibid., 200-201.
44. “Coke crisis: Equity erodes as brand troubles mount.” MacArthur, K. & Linnett, R.,
16. “The Top 100 Brands: Interbrand Brand Scorecard 2003.” Interbrand Special Advertising Age, p. 3, 4/24/00.
Report, as seen in BusinessWeek 8/4/03.
45. “Coke & Pepsi in India: Presticides in Carbonated Beverages,” p. 8.
17. Ibid.
46. “Pure Water or Pure Peril,” CSE press release 2/03.
18. The World’s Greatest Brands, A Review by Interbrand. Edited by Nicholas Kochan.
47. Ibid.
19. Strategic Grand Management. Kevin Lane Keller, p. 153.
48. “Collaborating with Activists: How Starbucks Works with NGOs,” Argenti, Paul A.,
20. http://www.portobello.com.au/portobello/reading/memorabilia_cocacola.htm CMR, Fall 2004.
21. “Brands of Coca-Cola in India,” Rai University, 11/04. 49. http://www.cseindia.org
22. http://www.coca-colaindia.com 50. “Coke & Pepsi in India: Pesticides in Carbonated Beverages,” p. 3.
23. Sanjiv Gupta Biography, Rai University. 51. “The Gulp War,” Supriya Bezbaruat and Malini Goyal, India Today, 8/25/03, pp. 50-53.
24. “Coca-Cola India to Double Capacity,” Kolkata, 3/8/03 52. http://www.coca-colaindia.com
25. http://www.coca-colaindia.com 53. “Shocked Dehlites Stay Away from Soft Drinks,” The Hindu, New Delhi, 8/07/03, p.1.
26. Gupta Bio
27. http://www.indiastat.com

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 WINNING ENTRIES – BUSINESS SCHOOLS
 
Alexandra Ranson
Faculty Adviser: Elizabeth Powell
Darden Graduate School of Business
University of Virginia
Euronext N.V.: The Fight for LIFFE
Thierry Barthez, director of communications for Euronext N.V.,
rubbed his weary eyes and watched Brussels station slide past the
windows of his first class carriage as the Thalys TGV slowly gathered
speed. The last 48 hours had been a whirlwind of activity, and there
was still a lot to think about on the journey back to Paris. Euronext
had made huge strides in its first year since it was formed from the
merger of the Paris, Amsterdam and Brussels stock exchanges, and
had confounded many doubters along the way. But now Euronext
faced an even greater challenge: Indeed, its very survival could
depend on the strategy and powers of persuasion of Barthez and his
boss Jean François Théodore, the chief executive of Euronext, over
the next few weeks.
It was August 2001, and Barthez had just been starting to relax on
his summer vacation in the South of France when Théodore had
called from Paris with the news that LIFFE (the London
International Financial Futures and Options Exchange), one of the
world’s busiest derivatives exchanges, was about to put itself up for
auction.1 Barthez could clearly recall the excitement in his boss’s
voice, and the rush of adrenalin he himself had felt on hearing the
news. Théodore wanted Euronext to be the leader in what he saw as
the inevitable consolidation of its industry – creating a pan-national
stock exchange that would allow cheap and easy trading across
borders. But it was difficult and costly to start a new exchange from
scratch that could seriously challenge an existing national exchange
in its own market, and established exchanges rarely came up for sale
– particularly not ones of the high caliber of LIFFE. That made this
opportunity, both men knew, too good to miss.
Before he allowed himself to get too excited, however, Barthez once
again reminded himself that both of Euronext’s main rivals, the
London Stock Exchange plc (LSE) and Deutsche Börse AG (DBAG),
would also be very interested in a prize asset like LIFFE – and both
probably had access to larger acquisition war-chests than Euronext.
He also was very well aware that the same powerful interests in the
City of London that would surely decide the future of LIFFE had
recently vetoed a proposed merger between the LSE and DBAG, and
a hostile takeover bid for the LSE from OM Gruppen of Sweden.
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
Was it possible that a foreign company could take control of one of
the United Kingdom’s flagship institutions – and if so, what would it
take to get the deal done?
Beckoning a steward over, Barthez decided to review what he knew
about LIFFE over a well-deserved aperitif as he considered how
Euronext should approach this auction. Théodore had always relied
on his communications chief as one of his key strategic advisers, and
in this case, it was clear that the processes of formulating the bid and
communicating it would have to be virtually inseparable. Barthez
knew his boss would be expecting him to come up with a plan in the
next 48 hours.
The London International Financial Futures
and Options Exchange (LIFFE)
LIFFE (pronounced ‘life’) was established in 1982, following the
removal of foreign exchange controls in the UK.2 LIFFE offered
companies and financial institutions a way to manage their exposure
to foreign exchange and interest-rate volatility by offering derivative
contracts on interest rates denominated in most of the world’s major
currencies. During the 1990s, LIFFE had added equity options and
commodities to its product range and by 2001, had grown to
become the third largest derivatives market in Europe (after DBAG’s
Eurex and Euronext itself).
For the first 16 years of its life, trading on LIFFE was by “open
outcry,” with crowds of shouting, gesturing dealers standing in
trading pits similar to those used by the commodity traders of the
Chicago Mercantile Exchange (see Exhibit 1). In November 1998,
LIFFE closed its last trading pit and switched to an extremely
advanced electronic trading platform called CONNECT (see Exhibit
2). LIFFE was very proud of CONNECT, which it had developed in-
house, and it hoped to license the technology to other derivative
exchanges elsewhere in the world.
Shortly after the switch to electronic trading, the exchange’s
structure also changed dramatically. Historically, shareholders in
LIFFE had had to be also members of the LIFFE market, with the
right to trade. In February 1999, this requirement was ended, which
enabled non-members for the first time to invest in LIFFE purely for
financial return. As a result, LIFFE was fast becoming more of a
profit-oriented, commercial organization, and — unusually for a big
exchange — its two largest shareholders were now US-based venture
capital firms (see Exhibit 3).
Why LIFFE?
There were several reasons why Euronext was so interested in LIFFE.
First, it would provide a valuable presence in London, the dominant
financial center in the European time zone. Second, Euronext’s
revenues (see Exhibit 4) were particularly vulnerable to volatility
and weak conditions in the equity markets. Derivatives markets,
however, were much less volatile than equity markets. ABN AMRO
equity analysts argued that:
...it is of strategic importance for Euronext to be better
diversified and to capture a larger part of its revenues from
derivatives trading... For Euronext the UK is very important
and they believe they have to be present there, either by
starting from scratch or through a corporate deal.3
In addition, LIFFE’s operation was extremely professional,
technologically advanced, and its management were highly rated.
Barthez did not have many contacts there himself, but he knew
Théodore was reasonably familiar with both the top men at LIFFE.
Its chairman, Sir Brian Williamson, was an extremely well respected
City veteran, who, with his tough South African-born CEO Hugh
Freedberg, had been the driving force behind the revival of LIFFE in
the last three years. Although LIFFE’s Board, made up of its major
shareholders, would of course have the final say, Williamson and
Freedberg would be responsible for assessing the merits of the bids
and making a recommendation.
The Birth of Euronext
As he contemplated the possibility of acquiring LIFFE, Barthez
reminded himself that Euronext itself was not yet even a full year
old. It was only on September 22, 2000, that the stock exchanges of
Paris, Amsterdam and Brussels had merged together to form
Euronext, the first cross-border cash (equities) and derivatives
exchange in Europe. The enormous potential benefits of being able
to trade on a single market, seamlessly, across borders were clear:
more liquidity and lower transaction costs for the financial
institutions who were the main customers of exchanges. However,
the merger nevertheless attracted a lot of comment and debate in
the industry for two reasons in particular.
Firstly, stock exchanges had always been regarded as national
flagship assets, whose ownership and control were tightly held and
guarded.4 As one industry commentator noted “the trouble with
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national exchanges is that they embody national pride and psyche.
British and Americans can hardly conceive of the death of their own
markets.”5
As a result, by the fall of 2000 there were still over 30 independently
operated exchanges in Europe (see Exhibit 5). Mergers between
exchanges could not go ahead without the consent of the exchanges’
largest shareholders, key customers (who were usually the largest
shareholders too), the respective governments, and various
regulatory authorities in each country. Until Euronext’s merger,
there had been considerable skepticism that obtaining the necessary
approvals from all these groups would ever be politically possible.
It had, of course, helped Euronext that France, the Netherlands and
Belgium were all founder members of the European Community,
and had since then been consistently at the frontline of the
movement towards a stronger, more centralized European Union.
However, attitudes towards European integration and standard-
ization varied widely across the member nations of EU, and it was
far from clear that such a deal would have been politically feasible
elsewhere.
Secondly, for Euronext signing the merger deal was just the tip of the
iceberg. Delivering the promise of seamless cross-border trading was
still to come. The technological challenge would be very complex.
Harder still, trading on exchanges, and the management of the
exchanges, had always been governed by different regulatory bodies
and laws in each country. Euronext therefore had to find a way to
achieve substantial regulatory and legal harmonization between
each of the territories in which it operated.
Euronext’s Initial Public Offering
and the Outlook for its Industry
Euronext’s IPO had taken place just seven weeks ago, on July 5,
2001.6 In one sense, the offering was successful, because it had raised
about €664 million in cash for the exchange. Since flotation, it was a
bleaker story, with Euronext stock falling in value by almost 25
percent. Investors were worried whether Euronext would be able to
overcome the structural barriers described above to create a truly
integrated cross-border exchange, whether it would be able to
integrate the complex IT systems of the three exchanges, and whether
the organizational structure of the new company was really viable.
Despite these genuine concerns, most analysts believed that
Euronext’s vision was the right one, if it could just survive the short
to medium term. The speed and efficiency of the world’s traded
exchanges had increased dramatically over the last 20 years, thanks
to continual technological advances. Still, there were more, huge
potential gains in cost and efficiency, which could never be realized
without cross-border and/or cross-product consolidation (see
Exhibit 6). The economics were simple: The larger a pool of
transactions, the more liquid and efficient the market would be —
 and the cheaper the transactions would cost. In a world with just
two or three consolidated international exchanges, global financial
institutions like Citigroup or Morgan Stanley could save the overhead
costs of running separate accounts with up to a hundred different
exchanges in different countries, and even better, the costs of having
to buy or build multiple IT systems to interface with each exchange.
As Peter Lewis, Head of Global Program Trading at SG
Securities observed:
...the situation in Europe, of about 30 exchanges, market
segments and trading platforms supported by 26 clearing and
settlement houses, is not sustainable in the long term... At
present, it is hard to pick a winner in the race to become the
pan-European stock exchange of choice. However, it is exactly
the funds raised from the listings of the Deutsche Börse,
Euronext and others that, if spent wisely, will provide the
investment in technology and services needed to distinguish
one operator from the rest.”7
The questions on everyone’s mind were not if this consolidation
would gain momentum, but when; and who would be the
consolidated, and who would be the consolidators? Massive,
powerful exchanges like the New York Stock Exchange, the Chicago
Mercantile Exchange and Deutsche Börse would appear to have the
natural advantage, but Euronext had the benefit of a head start, and
it was far from complacent.
Euronext’s Technology
Because a merger like the Euronext project had never before been
attempted – many analysts doubting whether it could be done at all
– Euronext had provided a lot of information on its integration
plans at the time of its IPO (see Exhibit 7).
Critical to the efficiencies and synergies from the merger would be
IT. The object was to end up with three group-wide IT platforms,
one for cash trading (equities), one for derivative trading, and one
for clearing.8 Euronext hoped that Clearing 21, the system that
would be used to clear all trades in its products, would be fully
operational by July 2002. Euronext had developed a state-of-the-art
cash trading platform, NSC, which was already almost completely
working in Paris, Brussels and Amsterdam. However, the big
challenge would be with derivatives trading, which would require a
much more sophisticated system than NSC. Euronext had decided
to build on two older platforms to create a new one, known as NDS.
Migrating to NDS would be extremely complex, and would not be
completed for at least another 12 months. Euronext had much still
to prove about its ability to meet the large number of integration
deadlines on the horizon.
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
Euronext’s Organizational Structure
Going into the Euronext merger in 2000, Jean-François Théodore
had been the CEO of the Paris Bourse, the biggest exchange of the
three. A former senior civil servant, who maintained a low public
profile, Théodore had been the principal driver in conceiving the
deal and in negotiating to get it done. As communications director
of the Paris Bourse at the time, Barthez could still recall the painful
compromises in the organizational design of the company which
had been required to get the necessary agreements for the merger
(see Exhibit 8).
For example, the chief executives of the Paris, Brussels and
Amsterdam exchanges had agreed to rotate the office of Euronext
chief executive between them every three years, with Théodore
taking the first turn. Euronext decided it would operate in three
official languages: English, French and Dutch, and in three
corporate headquarters, in Paris, Brussels and Amsterdam.
Euronext’s equities operations would be run from Paris; its
derivatives operations would be run from Amsterdam, under the
direction of the former Amsterdam CEO, George Möller; and the
former Brussels CEO, Olivier Lefebvre, was charged with the very
complex task of IT integration across the businesses.
Although Euronext made efforts to encourage organizational
integration, such as encouraging cross-border teams to rotate the
location of their meetings between cities, critics of the company
were concerned that this structure would preserve national silos and
prevent true integration. Others believed that the CEO rotation
system was impractical and could cause uncertainty and instability.
And now Euronext was a public company, Barthez was facing the
headache of where and how to communicate the financial results to
all the different media, investor and analyst audiences.
Perhaps the biggest question for Euronext was this: How could this
unconventional organizational structure cope with any more
acquisitions? Théodore had big ambitions. If Euronext were to be a
key player in the consolidation of the global stock exchange
industry, it would need an organizational model, which would
encourage more exchanges to join Euronext, while also having an
effective management structure with the power to take the decisions
necessary to achieve integration. It was a delicate balance to strike.
BVLP (Bolsa de Valores de Lisboa e Porto):
The Acquisition Strategy Begins
As Barthez traveled back to Paris that hot August day, the situation
in London was not the only issue on his mind. Merger negotiations
had been underway for some time with the BVLP, the Portuguese
Stock Exchange, and it looked very likely that a deal would soon be
done. Although a relatively small exchange which would, if the
merger went ahead, add less than six percent to Euronext’s revenues,
the acquisition of BVLP was nonetheless viewed as strategically
significant. BNP Paribas put it this way:
The inclusion of Portugal in the Euronext block leaves only
Spain as the odd one out. With the Spanish financial market
under re-organization, BVLP puts Euronext in a more
favorable position to continue its role as the European
consolidator.9
Although the acquisition of BVLP was a promising development, it
did raise questions for Barthez about how it might affect the
complex and delicate integration plans already underway for the rest
of the group. Even his department, Communications, was already
struggling to coordinate its activities across three countries. He
couldn’t help feeling a sense of dread as he wondered where he
would find a reliable Dutch-to-Portuguese translator....
Euronext’s Rivals
Unfortunately for Euronext, it was not the only stock exchange
attempting to be the “European consolidator.” Two more stock
exchanges were jostling for the same position: the UK’s London
Stock Exchange and Deutsche Börse of Germany. Barthez knew
both companies fairly well, but thought he should review what he
knew in the light of the news about LIFFE.
The London Stock Exchange (LSE)
As well as being the largest and most liquid cash equity market in
Europe, the LSE was also was one of the most venerable financial
institutions in the world. As one English newspaper columnist said,
“Like the Queen and steak-and-kidney pudding, the LSE is part of
our heritage.”10
Although organized stock trading was taking place in the
coffeehouses of the City of London as early as the 17th century, the
LSE was founded in 1801. Trading proceeded in much the same way
for almost 200 years, until “Big Bang” in 1986, when the LSE ended
face-to-face dealing on a physical trading floor (as still used by
NYSE) and switched to an electronic trading system conducted over
the phone and computer between different dealing rooms.
Deregulation accompanied this shift, and for the first time outside
corporations were allowed to own LSE member firms.
Between 1991 and 2001, the LSE was transformed from a mutually
owned cooperative of member firms to a listed public company. In
1991, its governing council was replaced with a board of directors
drawn from the exchange’s executive, customer and user base. Then,
in 1998, member firms voted to demutualize and re-incorporate the
LSE as a public limited company. A limited trading facility was put
in place to enable member firms to buy and sell each other’s shares
in the LSE.
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Meanwhile, in July 1998 the LSE and DBAG had announced plans to
form a strategic alliance “to harmonize the markets for their leading
securities and, ultimately to develop a joint electronic trading
platform.”11 This was taken a step further in May 2000, when the
LSE and DBAG announced a planned “merger of equals” to be
known as iX.12
The iX proposal was instantly unpopular among many in the City of
London, who were concerned that the Germans would have
dominance in the so-called merger of equals. The smaller member
firms of the LSE, who still controlled more than enough votes to
block the deal, were also opposed to the deal, complaining that the
LSE would be giving up its own trading system, SETS, and switching
to DBAG’s technology Xetra. The LSE was still struggling to gain
shareholder approval for the deal when, in August 2000, it received
an unexpected hostile takeover bid from OM Gruppen, the Swedish
technology company which operated the Stockholm Stock
Exchange. LSE was forced to scrap the plans for iX, and concentrate
on fighting what turned out to be an ugly takeover battle with OM.
Finally, in November 2000, OM’s bid lapsed, having received
insufficient acceptances of its offer from the LSE’s shareholders.
By 2001, therefore, the LSE was still independent, but in a badly
compromised position. Only a few months ago its CEO, Gavin
Casey, had argued, “the days of national stock exchanges are
numbered. Now what people want is pan-European trading and the
ability to trade on a global basis.”13 In this light, it was hard for the
LSE to argue convincingly that its prospects were as good on its
own, particularly as it was heavily dependent on income from
trading on UK cash equity markets and listing fees.14
The LSE board’s answer was to replace Casey with a new chief
executive in January 2001, career securities banker Clara Furse. Her
most pressing tasks were to prepare the LSE for its IPO in July 2001
and more importantly, to try to preserve the LSE’s independence by
finding ways to broaden its revenue base. Making the right strategic
acquisition would be the obvious solution. ABN AMRO
summarized:
[For the LSE], winning LIFFE would provide ammunition
against the ambitions of DBAG and Euronext that are far
more integrated horizontally as well as vertically. Further,
following the success of Euronext’s merger, and the stumbling
blocks of last year’s negotiations for the LSE, it needs to prove
it can generate momentum in the consolidation process.
LIFFE would clearly provide much needed scale and product
diversification.15
 Vincent Boland, the stock exchange correspondent for the Financial
Times additionally observed:
A takeover of [LIFFE] would complete a stunning
turnaround for London’s stock market. ...Since the
appointment of Clara Furse as chief executive at the start of
this year, the ship has been steadied. Ms. Furse is enjoying a
relatively long honeymoon with shareholders and has steered
its transformation into a proper company in search of
shareholder value. There is a widespread view in the City that
acquiring LIFFE, if the right deal can be done at the right
price, would be a big step in that direction.
About a third of outstanding contracts on LIFFE’s products
on July 31 were based on equities. Many of those were based
on LSE-listed stocks and the FTSE range of indices. Analysts
say there are obvious synergies from adding this stable of
products to the LSE.
The LSE, conscious that its competitors in Europe —
Deutsche Börse and Euronext — are multi-product
operators, may also want to acquire LIFFE’s stable of fixed-
income derivatives products. The LSE is the most attractive of
Europe’s stock exchanges because it runs the biggest and most
liquid stock market. But even after its listing, it is not
necessarily the strongest exchange in strategic terms. The
more of LIFFE’s products it acquired, the stronger would be
its hand in the inevitable consolidation that will take place
among European stock exchanges.
LIFFE’s two largest shareholders, with a combined interest of
just under 30 percent, are the venture capital houses Battery
Ventures and Blackstone Group. Other significant
shareholders, who will be influential if a deal is to be done, are
the futures broking operations of Gedon Hertshten, Roger
Carlsson and Michael Spencer, three veterans of the futures
markets.16
There was little doubt in anyone’s mind that the LSE would be
desperate to acquire LIFFE: Indeed, there had been rumors linking
the two exchanges all summer. Furse was very familiar with her
target, as only two years before she had served as LIFFE’s deputy
chairman for two years and as a board director for nine years. The
prospect of bringing LIFFE and the LSE together to create a national
cash and derivatives exchange was bound to be appealing to many,
particularly since both exchanges used the same central clearing
counter-party (which could massively simplify integration). Their
product offerings complemented one another; and both were
English-speaking, trading in the same currency, located only a few
minutes apart in the City of London and were subject to the same
regulatory body, the UK Financial Services Authority. Given these
advantages, Barthez had to admit to himself that the LSE was very
likely to be the front-runner in the fight for LIFFE.
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
Deutsche Börse A.G. (DBAG)
The position of Deutsche Börse was less clear. Based in Frankfurt,
Germany, Deutsche Börse was the second largest cash market in
Europe, and had a strong technology division called Systems AG,
which designed, built and operated IT solutions for other stock
exchanges, including the Chicago Board of Trade, the Irish Stock
Exchange, the Vienna Stock Exchange and the Helsinki Stock
Exchange.
In 1998, DBAG and the Swiss Exchange had jointly created the
world’s first cross-border derivatives market, Eurex. In three years,
Eurex had grown to be the world’s largest financial derivatives
exchange, trading over 674 million derivative contracts in 2001 and
contributing around 35 percent of DBAG’s revenues.17
DBAG launched an IPO on February 5, 2001, raising over €980m to
put towards expansion activities.18 Flush with these funds, DBAG
clearly had the financial resources to buy LIFFE, and, as
demonstrated by its attempts in 2000 to merge with the LSE, its
ambitions were big. However, its Eurex business was the dominant
player in the European derivatives market. Would the European
Competition Commission allow the number one player and the
number three to merge? Moreover, would DBAG have the stomach
for another fight, so soon after its last outing to London had failed?
Despite these concerns, it was speculated that DBAG could
nonetheless be tempted to enter into the bidding, at the very least to
drive up the price paid by the eventual winner and to gain
competitive information in the due diligence process.
Euronext’s Uphill Battle
Sitting back and sipping his drink, Barthez considered Euronext’s
likely role as underdog in the fight for LIFFE. Its likely rivals were
large, established and well positioned and he was highly uncertain
about the reception Euronext should expect in London, as an
upstart continental European company attempting to buy a flagship
British institution.
Barthez knew how coldly Deutsche Börse and OM Gruppen had
been received only a year earlier when they had tried to merge with
or acquire the LSE. He was only too aware that, even in 2001, British
and Americans viewed most continental European companies as
secretive, owned and controlled by complex structures of minority
interests, dominated by unions and restrictive laws, and subject to
interference from government at random. (In contrast, the so-called
“Anglo-American” approach to corporate governance was supposed
to be characterized by better transparency, liquidity, more liberal
takeover practices, deregulation and privatization.)
And if all that wasn’t bad enough, Théodore, Barthez and many
other key staff were French, and relations between the English and
the French nations had been rather uneasy (at best) for centuries
(see Exhibit 9). It didn’t take a vivid imagination to picture the influence the venture capitalists who are now keen to sell their
British tabloid headlines if the French were to march into the City holding in LIFFE but it should play a part in the thinking of
and snatch away a prized asset from under the noses of the the exchange’s other shareholders, who are also its
hometown favorite. customers.19

In other words, Barthez concluded, many factors, aside from price,
could be at play. As Patience Wheatcroft, the influential city editor
of The Times, argued:
Now that LIFFE has accepted that it must give up its
independence, it must be in the best interests of London’s
future as a financial centre that it should join forces with the
LSE rather than an overseas partner. This factor will not
Barthez’s Task
With all this in mind, Barthez turned his attention to the tough task
Théodore had commissioned him with: to figure out how to present
Euronext as a credible and serious combatant in the fight for LIFFE,
and to plan a successful campaign strategy. He began to scribble on his
cocktail napkin an outline of a memo for his boss on how Euronext
should position itself and the approach it should take with LIFFE...

Exhibit 1: A LIFFE trading pit, prior

to conversion to electronic trading Exhibit 2: A LIFFE CONNECT electronic trading interface

Photograph: BBC News online

Image: EasyScreen

Exhibit 3: LIFFE’s shareholders in the fall of 2001

Shareholders in LIFFE
Stake Note

Blackstone Group, US 29.3 These two venture capital companies can raise stake to
Battery Ventures, US as much as 40% through the 5m in warrants they have
FCT Europe 6.4 Futures trading firm
ICAP 4.5 Money broker
GH Financials 2.3 Clearing member
Carr Futures 1.5
JP Morgan 0.9
Kyte Group 0.9 Futures broking firm
Merrill Lynch 0.8
Goldman Sachs 0.7
Sucden 0.6
Total 48.2

Source: ABN AMRO, press clippings

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 Exhibit 4: Euronext segmental breakdown, year ended 2001

Cash Derivitives Settlement Information Sales of Other

Trading Listing Trading Clearing & Custody Services Software Income

Segment Revenues 211.6 47.3 106.3 128.7 32.8 55.9 101.6 13.5

External Sales 177.4 49.7 84.3 172.8 33.3 64.3 101.6 14.6

EBIT 73.7 22 19.4 32.2 2.2 9.1 18.1 0

Margin 34.8% 46.5% 18.2% 25.0% 6.7% 16.3% 17.8% 0%

Source: Deutsche Bank estimates

Exhibit 5: Stock and derivatives exchanges in Europe in 2000.

European Union countries which have adopted the Euro

(European single currency)

European Union countries which have not adopted the Euro

• Exchanges

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
Exhibit 6: Potential savings from exchange integration

Additional costs of cross-border securities transactions per year

Total volume €5 billion pa.

20% 40%
Affected by intermediaries and Affected by the EU and its member
exchange organizations countries
• Different market practices • Different regulatory frameworks
• Greater economies of scale and fiscal systems
• Different corporate action rules
• Different currencies

40%
Hard to affect, only long-term changes
conceivable
• Smaller volumes (home bias)
Source: Deutsche Börse annual report 2001 p21
• Different languages and cultures

Exhibit 7: Summary Euronext integration timetable as at August 2001

Cash eqiuities 2Q2001 3Q2001 4Q2001 1Q2002 2Q2002 3Q2002 4Q2002

NSC migration
Paris
Bruxelles
Amsterdam

Clearing
Paris
Bruxelles
Amsterdam

Settlement and custody

Mise en place des liens entre less plates-formes
de reglement-livraison

Derivatives Trading 2Q2001 3Q2001 4Q2001 1Q2002 2Q2002 3Q2002 4Q2002

Migrating Amsterdam option market from floor

to electronic system

Upgrade NSC/VF

Integration of SWITCH in NSC hub

SWITCH integrates NSC/VO & BTS functions

Migrating Belgian and French option markets on SWITCH

Integration of SWITCH and NSC/VF anto NDS

Derivities Clearing
Clearing 21 Paris
Clearing 21 Bruxelles
Clearing 21 Amsterdam

Source: Euronext Initial Public Offering Prospectus, June 2001

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 Exhibit 8: Euronext’s organizational structure at the time of its IPO in July 2001

Supervisory Board

Managing Board
CEO (rotational, currently
Jean-Francios Theodore

CFO George Möller Olivier Lefebre

Serge Harry (i/c derivatives) (i/c IT integration)

Euronext Paris Euronext Amsterdam Euronext Brussels

SBF-Bourse de Paris Amsterdam Stock Exchange Eerste markt

(main cash equities market) (main cash equities market) (main cash equities market)

Noveau Marche Amsterdam Derivatives Tweede markt

(for very small cap stocks) Exchange (equity options) (2nd equities market)

MATIF Amsterdam Commodities Niuwe markt

(interest rate and Exchange (small cap equities)
commodity derivatives)

Belgian Trading Platform

MONEP
(equity options and index
options and futures)
Belfox
(Belgian derivatives)

Majority owned Minority stake

Clearnet
(clearing house)

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
 Exhibit 9: Illustrating the sometimes passionate
anti-European feelings of many in Britain, the
front page headline in top-selling UK tabloid
The Sun, 11/1/90:

Note: Jacques Delors, a French national, was the

President of the European Commission between 1985
and 1994, a period which saw the introduction of the
European Single Market and the creation of the ECU
(European Currency Unit).

Exhibit 10: Comparative corporate data for LIFFE and its bidders, 2001.

LSE Deutsche Borse Euronext LIFFE*

Headquarters London Frankfurt Paris, Amsterdam, London

Brussels

Volume of derivative - 674m 394m 216m

contracts traded (2001)

Annual revenues (2001) €315m €760.3m €697m €144m*

Annual EBITA (2001) €120.5m €278.1m €114.7m €11.0m*

Employees 550 1016 2012 n/a

Sources: Deutsche Borse Annual Report 2001 (year ending Dec 31, 2001); Euronext unaudited pro forma
consolidated financial statements, 2001 (year ending Dec 31, 2001); London Stock Exchange annual report
2002 (year ending March 31 2002); * LIFFE profit and loss statement year ending Dec 31 2000.
£/Ä conversion rate = 1.62 (August 31, 2001).

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 Euronext N.V. the Fight for LIFFE: “B”
What Happened?
On September 27, 2001, LIFFE (the London International
Financial Futures and Options Exchange) confirmed that it
had appointed the investment bank Credit Suisse First
Boston to advise the board on evaluating a “number of
approaches” it had received.
There were immediately rumors in the media that
Euronext, Deutsche Börse (DBAG) and the London Stock
Exchange (LSE) had all submitted bids: however, only the
LSE confirmed it was a bidder.20 The LSE pushed for an
early opportunity to present its bid to the LIFFE board,
which was reported as being £14.50 per share.21
Throughout the rest of the bidding process, DBAG and
Euronext were virtually silent in public. At Barthez’s
recommendation, Jean Théodore gave several
background briefings on Euronext’s history and corporate
strategy to banking correspondents in the British media,
but would not discuss Euronext’s bid apart from to
confirm its interest in LIFFE. Euronext did not formally
contact politicians and regulators during the bidding
process, preferring to target its campaign virtually
exclusively towards the senior management and the
shareholder-customers of LIFFE.
In contrast, the LSE conducted much of its campaign in
the public eye, seeking to win public and political support
to keep LIFFE in British hands.
Euronext N.V.: the Fight for LIFFE “C”
Why LIFFE chose Euronext
The following is the transcript of an interview for
Cantos.com with LIFFE CEO Hugh Freedberg25 after the
auction result was announced, in which he discusses why
LIFFE chose Euronext.
Q. Why did you accept a seemingly lower offer
from Euronext?
Freedberg: We accepted an offer that was full value for
LIFFE shareholders. It was an all-cash offer as opposed to
an offer that represented a mix of cash and shares and in
our view the all-cash offer was full value for our
shareholders combined with the fact that the other criteria
that we used to evaluate the offer was the business case.
Euronext’s business case was compelling, it was
ambitious, it was clear and we thought it was excellent for
LIFFE’s shareholders and in particular for LIFFE’s
customers and staff.
Q. So what does Euronext bring to the party?
Freedberg: First of all it has a very big and successful
equity derivatives business, LIFFE has a very strong
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
All bidders made at least two presentations to the LIFFE
board, the final round of which took place on Thursday,
October 25, 2001. Deutsche Börse was reportedly out of
the running early, with an offer of just £17 per share.22
At Euronext’s presentation, CEO Jean François Théodore
unveiled a final offer of £18.25 (€29.83) per share in cash,
valuing LIFFE at £555 million (€907 million). He also was
reported as having given a detailed description of the
benefits for LIFFE’s customers from the deal and the way
in which LIFFE would be incorporated into the Euronext
group (including inviting Hugh Freedberg and Sir Brian
Williamson to remain in their roles as CEO and Chairman
of LIFFE); and offered to adopt CONNECT as the
derivatives trading platform across the whole of
Euronext.23
The LSE, meanwhile, was reported as having made a final
offer of £18.50 in cash and stock at its own final
presentation. Having proposed that LIFFE switch to the
LSE’s own trading system, SETS, in its first presentation,
the LSE gave up this demand, along with its insistence
that LIFFE be fully integrated into the LSE and be run by
LSE management. Following the final presentation, over
the weekend, the LSE went back to LIFFE and increased
its final offer to £19 per share.24
Meeting on Monday, October 28, the LIFFE board voted to
reject the LSE’s offer, and instead to accept Euronext’s offer
of £18.25 per share. The announcement was made on
Tuesday, October 29, 2001.
interest rate derivatives business and those two together
give us strong representation and a strong position in the
market in both segments. Euronext also will adopt LIFFE’s
technology, LIFFE CONNECT, across all of its derivatives
markets which is a very important benefit for LIFFE
indeed. Also, Euronext will enable us to offer clearing
through London Clearing House which is the status quo
for LIFFE customers and Clearnet, which is the status quo
for Euronext customers. Hopefully over time this will be
able to give customers greater choice when it comes to
clearing.
Q. You’re the first major exchange to put itself up for
sale, why’s that?
Freedberg: “We’ve put ourselves up for sale” is not quite
the right way of describing it. As people saw our
technology becoming more and more successful, being
globally distributed, and they saw LIFFE resurrecting itself
and reinventing itself, we were approached by a number
of people who expressing interest in doing business with
us in one way, shape or form. These discussions became
more corporate in their nature as time went on, and we
took the view that we should have a formal process with a
clear start and a clear end. Those people who were
interested in putting a proposal to the board could do so,
 and we would evaluate them against clear criteria. One of
the most important factors was that we would look for full
value for shareholders and an organization who, if we
teamed up with them, would allow us to go forward more
quickly than if we stayed on our own as an independent
organization. That was what we chose to do. Had we not
achieved those criteria in full, we could and would have
stayed independent. In the event, Euronext came up with
the right proposal and we’re delighted to be able to
recommend that to our shareholders.
Q. You talk about hope for efficiencies in the clearing
system, but what do LIFFE’s customers get out of
this deal?
Freedberg: LIFFE’s customers will be able to get more
products to trade, that’s of course very important. Traders
like to trade more products, they like deep pools of
liquidity, so that’s a benefit. And they will be able to do so
through the same technology because Euronext
exchanges will adopt LIFFE CONNECT for their
derivatives business, to give a single point of access into
all these products. Down the road we hope to be able to
ENDNOTES
1. A derivative is a financial product whose value is derived from another financial
product. For example, an equity option is a derivative, because its value depends on
the value of the underlying equity.
2. The UK Government had attempted to support the value of the British pound by
limiting the amount of foreign currency that UK individuals and corporations
could buy.
3. Johan van der Lugt and Marijin Smit, “Euronext Set to Launch Bid on LIFFE,” ABN
AMRO, October 12, 2001.
4. Leader column “Settling Scores: Merging Stock Exchanges is Difficult,” The
Economist, 356 (8189) September 20, 2000: 21-22.
5. Patrick Dixon, “The Final Bell Tolls for the National Stock Exchanges,” The Times,
October 19, 1998. Available from Lexis-Nexis Academic http://web.lexis-
nexis.com/universe/form/academic/s_guidednews.html (February 20, 2004).
6. An initial public offering or IPO (also known as a “flotation”) is when shares in a
company are made available for general purchase for the first time. The two most
common reasons for an IPO are 1) to raise money for the company to invest and
grow, and 2) to allow existing shareholders to valorize some or all of their stock.
Once the IPO is complete, the company’s shares can be traded on an exchange.
DBAG, Euronext and the LSE had all recently undertaken IPOs, although LIFFE
remained an unlisted company.
7. Peter Lewis, “European Bourses are Unsustainable” (letter to the Editor), The
Financial Times, June 1, 2001, London 1, 18.
8. Clearing is the process in which transactions, such as stock purchases, are then
validated, delivered and settled.
9. Christian Diebitsch, “Additional Financial Details on BVLP,” BNP Paribas European
Research Alert, December 21, 2001.
10. Terry Bond, “New voice for London Stock Exchange: We’re a crucial part of a huge
investment business so we must have a say in how our shares are being traded,” The
Independent, July 28, 2001 1, Features, 3.
11. Gavin Casey, speaking at a joint London Stock Exchange/Deutsche Borse press
conference on July 7, 1998 quoted by Neil Behrmann in “London, Frankfurt in Deal
to Create Single European Bourse,” Business Times (Singapore), July 8, 1998, 10.
12. London Stock Exchange and Deutsche Borse, joint press release, May 3, 2000.
     .        
get clearing efficiencies for our customers using our
existing relationship with London Clearing House and
Clearnet, which is the clearing entity of Euronext. Those
two organizations will hopefully be able to work together
and deliver more capital efficiencies to our customers.
Q. Has this deal, in a sense, dealt a blow to London
as a leading financial centre?
Freedberg: I don’t think that’s the case at all. I think that
London benefits because LIFFE is a business based in
London, and all of Euronext’s derivatives business will be
under the umbrella of LIFFE. LIFFE CONNECT is being
adopted as the technology. So from a London point of
view, more business comes through London as a result of
this deal. LIFFE’s ownership has always been
international – some 70-odd percent of our ownership has
been international – so we have never been owned purely
by UK organizations or individuals. It benefits London in
the sense of more business, it builds a bridge into Europe,
and makes LIFFE a more pan-European business. It’s
excellent for London.”
13. Comment made during a wire service conference call on May 3, 2000, quoted by
Philip Pank, “London and Frankfurt stock exchanges merge to form IX<” Agence-
France Press, May 3, 2000. Available from Lexis-Nexis Academic http://web.lexis-
nexis.com/universe/form/academic/s_guidednews.html (January 5, 2004).
14. Cash equity exchanges derive a significant proportion of their income from the fees
companies pay to have their stocks listed on the exchange. In weak equity market
conditions, listing fee income suffers because there are fewer IPOs.
15. van der Lugt and Smit, “Euronext Set to Launch Bid on LIFFE.”
16. Vincent Boland, “Bid for LIFFE would be icing on the cake for the SE,” Financial
Times, August 15, 2001, London Edition 1, Companies and Finance UK 18.
17. Deutsche Borse, 2001 annual report (Frankfurt: Deutsche Borse, 22002) 2
http://deutsche-boerse.com/dbag/dispatch/en/binary/gdb_navigation/investor_
relations/30_Reports_and_Figures/30_Anual_Reports/20_Archive/Content_Files/A
rchive/gdb_gesch_ftsbericht_2001_vollversion.pdf
18. Deutsche Borse, 2000 annual report, (Frankfurt: Deutsche Borse, 2001) 17
http://deutsche-boerse.com/dbag/dispatch/en/binary/gdb_navigation/
investor_relations/30_Reports_and_Figures/30_Anual_Reports/20_Archive/
Content_Files//Archive/gdb_gesch_ftsbericht_2000_vollversion.pdf
19. Patience Wheatcroft, “Sir Brian Williamson,” The Times, September 29, 2001,
Business 2.5.
20. London Stock Exchange press release, “Re: LIFFE (Holdings) PLC,” September 28,
2001. Available on Lexis-Nexis Academic http://web.lexis-nexis.com/universe/
form/academic/s_guidednews.html (January 10, 2005)
21. Charles Pretzlik, “LSE Set to Face Competition in Move for LIFFE,” Financial Times,
October 13, 2001 London 2, Companies & Finance 14.
22. Chris Hughes, “LIFFE Rejects Stock Exchange Offer in Favour of Euronext,” The
Independent, October 30, 2001, Business 16.
23. Ibid.
24. Ibid.
25. Hugh Freedberg, video interview with Cantos.com. London., October 29, 2001.
Reproduced with kind permission from Cantos.com.
  
Jennifer E. Bailey, Cameron A. McHale, Shannon J. Rainer
James S. O’Rourke, faculty adviser
Mendoza College of Business
University of Notre Dame
Starbucks Corporation:
Can Customers Breastfeed in a Coffee Shop?
Audrey Lincoff sat back in her office chair, looking at the numerous
newspaper articles that covered her desk. As the spokeswoman for
Starbucks, she knew she played a major role in Starbucks response to
the current dilemma. The question was all over the news and the
office: How would Starbucks handle the pressure from a new activist
group, breastfeeding mothers? Led by a powerful woman and skilled
negotiator, the disgruntled breastfeeders had gathered at a Maryland
Starbucks to stage a “nurse-in.” Ms. Lincoff worried about the
media attention and had to make a decision: Cater to the group’s
demands or ignore them in hopes that they would either fade away
or choose another target.
History of Starbucks Coffee Company
Starbucks began as a coffee importing and roasting company in
1971. The Seattle-based corporation was named after the first mate
in Herman Melville’s classic novel, Moby Dick. The name reflected
the quirky nature of the company’s founders, Gerald Baldwin,
Gordon Bowker, and Zev Siegl, who had become friends during
their college days at the University of Seattle.1
The Starbucks Coffee, Tea, and Spice company sold roasted coffee
beans to restaurants and to the public from its store in the Pike Place
Market next to Puget Sound. Starbucks had grown to four stores by
1982, the year their Hammerplast sales rep decided to pay them a
visit. Howard Schultz was selling a lot of coffee percolators to the
little company in Seattle; he flew out from New York City to see why.
He fell in love with the company, and pushed the founders to create
the job of director of retail sales for him.
The next year, Schultz spent his vacation in Milan. He experienced
Italian café culture and realized America had nothing like it. More
importantly, he decided America was ready for such a “third place,” a
location outside of the home and the office for people to gather.
However, his employers did not share his vision. Schultz left to
follow his dream, starting the Il Giornale chain of cafés in the Seattle
area in 1985.
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
Two years later, Starbucks’ owners decided they were ready to leave
the coffee business. Schultz put together a group of investors,
including Bill Gates, Sr., and bought the company. He re-branded
the Il Giornale stores as Starbucks and didn’t look back. It took him
five years to prepare the company for a public offering, but by 2004,
SBUX was number eight on Fortune magazine’s list of “America’s
Most Admired Companies.”
Since 1987, the company has expanded at an astonishing rate.
Schultz’s hunch was right: America was ready for the third place
provided by Starbucks. In 1987, Starbucks opened its first store
outside of the State of Washington. Over the next eight years, the
company spread throughout North America before opening its first
overseas location in Japan. The company continues to open new
stores at an impressive rate. Fifteen hundred new stores have been
planned for 2006. Starbucks has also grown through licensing
relationships and by offering bottled drinks and bags of coffee for
sale in grocery stores. Retail sales for 2003 were $3.45 million.2
Corporate Culture
Starbucks’ unique culture was what led Howard Schultz to leave his
successful appliance sales career and move his family from one coast
of the country to the other. As it has grown, the leadership has been
careful to maintain and grow the company’s culture. As Schultz has
said, “Building Starbucks has been very much about building the
company my father never got a chance to work for.”3
All Starbucks’ employees who work more than 20 hours per week
are eligible for benefits. The company also works with the farmers
who grow the coffee beans to improve their lives, as coffee growing
regions tend to be very poor and the cost of coffee has been
depressed because of oversupply.4 Starbucks’ baristas tend to be
proud of both the company they work for and the training they
receive. Upper management is more diverse than most large
companies in the United States.5 All of this has built the company’s
reputation for being progressive, even liberal, for a large
corporation.
Training
Barista training involves 20 hours of on-line and in-store on-the-job
training. Many of the stores have wireless Internet routers. While
the wi-fi connection is a great draw for customers, it also
complements the company’s training program. After entry-level
training, advanced programs are also available on-line, including the
recently introduced “black apron” training for baristas to achieve
Coffee Master status.6
The management training program involves another 10 weeks.7
Starbucks knows that an important part of developing superior
managers is making sure the right people go through the training
program. Training for store development managers is conducted at
headquarters in Seattle after the managers have worked for at least
three months in a store.8
Customers
While employees clearly come first in the Starbucks culture, the
customer is a close second. Starbucks’ fourth guiding principle is to
“Develop enthusiastically satisfied customers all the time.” “We
recognized early on that the equity of the Starbucks brand was going
to be the retail experience that the customers had in our stores,” says
Schultz.9
As an industry analyst recently noted, “The two things that make
them great are real estate and making sure no one has a bad
experience in their stores.” Schultz says this is because “our
customers see themselves inside our company, inside our brand –
because they’re part of the Starbucks experience.”10
The Breastfeeding Protest: Got Milk?
On August 8, 2004 a new item was added to a Maryland Starbucks
menu, but for a much younger crowd. About 100 people, including
babies, the babies’ mothers and fathers, grandmothers and friends,
filed into a Silver Springs, MD Starbucks coffee shop to stage a
“nurse-in.” Holding signs, feeding babies, and passing out fliers on
the benefits of breastfeeding, the mothers were focused.
The idea of the “nurse-in” began a month earlier, after a Starbucks’
employee received several complaints and asked Lorig Charkoudian
to relocate to the bathroom or cover up as she breastfed her 15-
month-old daughter in the Maryland coffee shop. Inspired by the
incident, Lorig gathered about 30 mothers to breastfeed at the store
and protest actions that they felt belittled the importance of
breastfeeding, which they saw as a natural, healthy process. Lorig
argued that covering is uncomfortable for the baby and that
breastfeeding shows, in her words, “fewer breasts than the average
beer ad.”11
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By 2005, Starbucks did not have an official policy regarding
breastfeeding in its coffee shops. In Lorig’s case, the law was on her
side. In Maryland, an act passed in 2003 prohibits stopping mothers
from breastfeeding in public. Starbucks spokeswoman Audrey
Lincoff responded by stating that “Starbucks complies with all
applicable state and local laws regarding breastfeeding” and that
Starbucks would “instruct our Maryland store partners to inform
any concerned customer that by Maryland law, mothers have their
right to breastfeed in public and to suggest to the customer that they
either avert their eyes or move to a different location within the
store.”12
Unfortunately for Starbucks, Lorig was not satisfied with this effort.
She wanted Starbucks to allow breastfeeding in all of its 5,882
United States shops. To support her efforts, Lorig started a website,
http://www.nurseatstarbucks.comhttp://www., to allow mothers to
send letters to Starbucks chief executive, Orin C. Smith.13 “It’s all
about public acceptance of breastfeeding,” said Lorig.14 Supporting
mothers seemed to agree with the decision to use Starbucks for their
demonstrations. One participating “nurse-in” mother responded by
saying, “If you look at the clientele during business hours, you’ll find
a lot of young mothers with children who come to congregate and
talk. If they want to continue to attract this clientele, they need to
change their policies.”15 On the other hand, a regular, loyal
customer inside the shop at the time of the demonstration
responded by stating that Lori’s decision was an “overreaction” and
that in a place where he is eating or drinking, a “nurse-in” was the
last thing he wanted to see.16
The Leader of the Pack
Lorig Charkoudian is no stranger to public confrontation and
conflict. From the death penalty to elephant rights, she has been
involved in a number of causes and movements. Recently voted one
of “Maryland’s Top 100 Women,” Charkoudian has a history of
public confrontation and public demonstrations.
From 1995 to 2005, Charkoudian served as the founder and
executive director of the Community Mediation Program (CMP) in
Baltimore. The CMP was established initially to help Baltimore
residents resolve conflicts non-violently, but developed into a much
larger program spanning the State of Maryland. She is also
employed as an adjunct professor in the University of Baltimore’s
Negotiation and Conflict Management Program. Charkoudian is
the recipient of numerous of local awards in the Baltimore area,
including the Unsung Hero Award (1999), the Brick Award (1997),
and the Human Rights Community Builder (1997).17 Thus, it
would appear the breastfeeding conflict at Starbucks is not the
product of amateur activists; it is led by an experienced professional
who knows how to lead and convince others to follow.
 Past Problems
The breastfeeding issue is not the first to involve conflict and
controversy in a Starbucks store. In 1995, Starbucks’ Corporate
Customer Relations Manager Betsy Reese became aware of several
problems associated with an espresso machine purchased by a
customer named Jeremy Dorosin. In just six weeks, the problem had
escalated to a point unforeseen by any Starbucks executive.
In April of 1995, Mr. Dorosin purchased an espresso machine from a
California Starbucks, which left him unsatisfied because of defects.
Upon returning the machine for repair, Dorosin received a “loaner”
from the company. Apparently pleased with the performance of the
machine he’d been loaned, Dorosin purchased another as a wedding
gift for a friend. Unfortunately, his friend found the gift to be in
unacceptable condition – dirty, wet, and not functioning properly –
as if it had been previously used. Embarrassed, Dorosin returned
the wedding gift to the Starbucks store and complained to the
manager. After several interactions with the manager, the corporate
service supervisor, and the district manager, no resolution could be
reached. Even when Starbucks offered apologies and gifts, Dorosin
responded with “too little, too late.” In response, he chose to take the
disagreement public and confront the company in the media.18
Jeremy Dorosin ran an advertisement in the Wall Street Journal on
May 5, 1995, describing what had happened to him and asking if
other people had similar or comparable bad experiences with
Starbucks. In response, he received thousands of calls from angry
customers, competitors and employees. Although Starbucks and
Dorosin’s stories differ concerning exactly when the company
offered to apologize, one thing is crystal clear: the short timeline
between problem and escalation. Between the first advertisement on
May 5, 1995 until mid-June of that year, Dorosin received non-stop
attention in four Wall Street Journal articles, three radio shows, three
television program appearances, and one New York Times article.
He even launched a website entitled, http://www.starbucked.com.19
Dorosin’s name serves today as a reminder to Starbucks of how
small problems can escalate out of control.
Breastfeeding Legislation
On May 22, 2003, Maryland Gov. Robert L. Ehrlich, Jr. signed
legislation regarding breastfeeding in public. The State of Maryland
Code, Title XX, Subtitle XIII states that:
• A mother may breastfeed her child in any public or private
location in which the mother and child are authorized to be.
• A person may not restrict or limit the right of a mother to breast-
feed her child.20
This law gives a mother the right to breastfeed her child virtually
anywhere in the State of Maryland, but does not clarify whether or
not an individual has the right to request that a mother cover her
nipple during breast feeding.
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
Maryland was not the first to enact legislation specifically governing
breastfeeding in public places. In fact, close examination of other
state laws regarding breastfeeding reveals the complexity of the
situation. By 2005, 16 U.S. states had no legislation exempting
breastfeeding from indecent exposure laws. This leaves mothers
who breastfeed in public at risk of violating a criminal statute.
Some states, such as Missouri, give mothers the right to breastfeed in
public, but with as much discretion as possible. Georgia laws
previously incorporated similar language, until 2002 when it was
removed. Conversely, nine states have legislation stating, “a mother
may breastfeed her baby in any location, public or private, where the
mother is otherwise authorized to be, irrespective of whether or not
the nipple of the mother’s breast is covered during or incidental to
the breastfeeding.” New Jersey and Connecticut state laws impose a
fine and even potential imprisonment for persons discriminating
against breastfeeding mothers. State law in Hawaii and Illinois give
breastfeeding mothers the right to bring proceedings against any
person engaging in a discriminatory practice. Connecticut, Hawaii
and Louisiana refer to the restriction of the right of a mother to
breastfeed her child as a discriminatory practice.21
Not only do numerous state laws address public breastfeeding, but
many states have enacted legislation regarding breastfeeding in the
workplace, deferral of jury duty, and the exemption of sales and use
tax on breastfeeding-related items. Coincidently, Maryland was the
first state to exempt breastfeeding supplies from sales tax.
Considering that 34 states have some form of legislation regarding
public breastfeeding, it was becoming obvious to Starbucks
management that breastfeeding mothers had become a powerful
special interest group.
Breastfeeding Everywhere
Starbucks is not the only organization attempting to assess the
impact that a breastfeeding policy (or lack thereof) might have on
company performance. McDonald’s experienced a similar incident
as women across the country protested at local fast food restaurants
in support of Jamie Lovett. Ms. Lovett was asked to stop nursing her
9-month-old at a McDonald’s in Birmingham, AL on June 27, 2004.
The McDonald’s manager referred questions to marketing
representative Stacy Cox who could not be reached for comment.22
Burger King also experienced a similar incident at a franchise in Salt
Lake City. Burger King implemented a policy that allows
breastfeeding in its restaurants the night before a scheduled protest.
A spokesman for Burger King responded to the incident by saying,
“We want to be a family-friendly place.” The new policy requires
Burger King employees to ask complaining customers to move to a
different area of the restaurant. While Burger King’s public apology
and policy implementation satisfied the Utah woman, the same
cannot be said for all breastfeeding advocates. Some women assert
that a policy allowing breastfeeding is not enough. Advocates want
restaurants claiming to be “family friendly” to provide a special
room where mothers can breastfeed their children.23
The array of responses from breastfeeding advocates makes it clear
that satisfying all of their needs will be very difficult for any
company. Any organization that succumbs to the demands of one
breastfeeding mother will open itself up to even more demands.
Organizations must decide how far is too far and address this issue
before it becomes a major crisis.
Going Forward
Ms. Lincoff swept the clippings into a folder to take to the
communications strategy meeting. She wondered what shape the
final plan would take. Even a small incident could damage the
brand if it were mishandled. As she headed down the hall, she
thought about the conflicting goals of the stakeholders and possible
ways to satisfy them. With growth and success in the marketplace
come challenges and opportunities of many sorts; breastfeeding
mothers and their babies appeared to be next.
Discussion Questions
1. Should Lorig’s group’s demands be taken seriously, or are they
just another case of ridiculous requests which can be safely
ignored by the company?
2. Is there a reasonable way for Starbucks to satisfy all customer
segments?
3. Assuming Starbucks adopts an official policy, how can it
effectively communicate the policy throughout the company?
4. When state laws which affect store operations change, how can
Starbucks communicate the new laws to stores in that state to
ensure that all stores are in compliance?
Writing Assignment
Please respond in writing to the issues presented in this case by
preparing two documents: a communication strategy memo and a
professional business letter.
In preparing these documents, you may assume one of two roles:
you may identify yourself as an external communication consultant
who has been asked to provide Ms. Lincoff with advice, or you may
identify yourself as a communication manager within Starbucks
Corporation. Either way, you must prepare a strategy memo
addressed to Ms. Audrey Lincoff, vice president for corporate
communication.
Your strategy memo should provide analysis of the business
problem, the relevant background details, critical issues, audience
factors, options for action, and your specific recommendations.
     .        
Think broadly and provide comprehensive advice for Ms. Lincoff
regarding the issue of customers breastfeeding in Starbucks stores.
You must also prepare a professional business letter for Howard
Schultz’s signature. That document should be directed to Starbucks
customers and should explain the company’s policy and the reasons
why the company has adopted that policy. If you have questions
about either of these documents, please consult your instructor.
ENDNOTES
1. Serwer, A. “Hot Starbucks to Go,” Fortune, January 26, 2004, 60.
2. Starbucks corporate Web site: http://www.starbucks.com. Retrieved December 23,
2004, 1:54 p.m. EST.
3. O’Connell, P. “A Full-Bodied Talk with Mr. Starbucks,” BusinessWeek, October 15,
2004. Retrieved from http://yahoo.businessweek.com.
4. Stopper, W. “Establishing and Maintaining the Trust of Your Employees,” Human
Resource Planning, June 21, 2004.
5. Fellner, K. “The Starbucks Paradox,” ColorLines, Spring 2004. Available from
http://www.arc.org.
6. Wolff, L. “Coffee Chains Perk Up Training, Store Design,” Gourmet News, May 1,
2004.
7. Coeyman, M. “Loving the Daily Grind,” Restaurant Business, October 10, 1996, 82.
8. H.D. “Boot Camp Brewhaha,” Training, July 17, 2004.
9. Dann, Schulz, Somberg and Levitan. “How to...Find a Hit as Big as Starbucks,”
Business 2.0, May 2004, 66.
10. Smith, S. “Experiencing the Brand – Branding the Experience,” February 2001.
Available from http://www.personaglobal.com
11. Helderman, R. “Maryland Moms Say No to Coverup at Starbucks,” Washington Post,
August 9, 2004. Available from http://www.washingtonpost.com/ac2/wp-
dyn/A50610.
12. Mothers Stage ‘Nurse-in’ at Starbucks Store,” MSNBC, August 10, 2004. Available
from http://www.msnbc.msn.com/id/5662809.
13. Ibid.
14. Charkoudian, L. Resume. Maryland Daily Record, October 26, 2004. Available from
http://www.mddailyrecord.com/top100w/01charkoudian.html.
15. Helderman, R. Washington Post, August 9, 2004.
16. Ibid.
17. Charkoudian, L. Maryland Daily Record, October 26, 2004.
18. Rosenthal, D.; Barr, T.; and Boyd, T. “Dorosin v. Starbucks,” Cast Research Journal,
1998. Retrieved October 2, 2004 from http://www.starbucked.com.
19. Ibid.
20. “Maryland Code 220-81, S.B. 223, Chap. 369,” Maryland General Assembly Home
Page, May 22, 2003. Available from
http://mlis.state.md.us/2003rs/chapters/Ch_369_SB0223T.rtf.
21. Vance, M. “A Current Summary of Breastfeeding Legislation in the U.S.,”
La Leche League International, September 21, 2004. Available from
http://lalecheleague.org/Law/summary.html.
22. Daley, J. “Local Breastfeeding Advocate to Join Nationwide Protest,:
The Marion Star, August 7, 2004. Available from
http://www.marionstar.com/news/stories/20040807/localnews.
23. “Breastfeeding OK at Burger King.” Online posting. A Sassy Lawyer in Philippine
Suburbia, November 25, 2003. Available from http://journal.houseonahill.net.
  
April Mollerberg
Faculty Adviser: Dr. Anne Grinols
Hankamer School of Business
Baylor University

United States Postal Service:

Lessons in Crisis Communication
Introduction
Annette Davidson shuffled her papers into a manila folder, grabbed
her coffee, and checked her watch. It was 7:15 a.m. and time for her
meeting with the senior management at the United States Postal
Service. Annette worked for a large business communication
consulting company that specialized in executive management
communication services. Today’s meeting with the Postmaster
General and members of the Board of Governors would be the
fourth this week and today was only Wednesday. Things had really
kicked into high gear since the anthrax had been detected in the mail
system last week and Annette was called in to assist the Postal Service
management team in dealing with the continually evolving crisis.
As Annette walked briskly towards the conference room, she
reviewed the agenda in her mind. She entered the room and found
an empty seat as Wade Holmes stepped up to the podium to make
the morning announcements. “This morning,” Wade started, “I
want to begin with new updates on the symptoms of anthrax
infection, information on a possible new case of inhalation anthrax
infection in New York, and where we currently stand on the
identification of a suspect(s).”
Annette sighed; this was definitely going to be another long day.*
HISTORY
In the more than two centuries since the United States Postal Service
began, it has grown and changed with America. Discovering the
history of the Postal Service is a journey into the history of
transportation, economics, industrialization, communications and
government. The USPS represents an industry that drives American
commerce; and still provides universal service for every family in
the nation.
Since its crude beginnings in 1639, the Postal Service has had a
colorful history. When Benjamin Franklin was appointed the first
Postmaster General in 1753, there were only a handful of post
offices. Today, with over 38,000 post offices, 800,000 employees, and
*Introduction scenario not based on any actual events.
a yearly budget of more than $35 million, the USPS has become one
of the world’s largest organizations.
The internal organizational structure of the Postal Service has also
changed over the years. Early on, the Postmaster General was
appointed by the President. The Post Office Department was
transformed into the United States Postal Service, an independent
establishment of the executive branch of the Government of the
United States, on July 1, 1971, when the Postmaster General ceased
to be a member of the President’s cabinet. The Board of Governors
was established by the Postal Reorganization Act and includes nine
Governors who are appointed by the President with the advice and
consent of the Senate. The nine Governors select a Postmaster
General, who becomes a member of the Board, and those 10 select a
Deputy Postmaster General, who also serves on the Board.
The mission of the Postal Service, as stated in Title 39 of the U.S.
Code, is: The Postal Service shall have as its basic function the
obligation to provide postal services to bind the nation together
through the personal, educational, literary, and business
correspondence of the people. It shall provide prompt, reliable, and
efficient services to patrons in all areas and shall render postal
services to all communities. 1
October 2001
On September 11, 2001, terrorists attacked the United States, killing
thousands. The Postal Service helped keep the lines of communi-
scation open despite severe restrictions on commercial air
operations during this tragic time.
In the days, weeks, and months following the September 11th
attacks in New York and Washington D.C., there was an intense
climate of uneasiness and panic in America. American citizens were
consumed with grief over the unprecedented tragedy and were
wondering what might happen next. In October 2001, barely three
weeks after the attacks, another wave of terror spread throughout
the country. (Figure 1).

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
Anthrax is a rare, infectious disease caused by bacteria and is usually
spread in the form of a spore. There are three forms of anthrax
infection: cutaneous (skin), inhalation (lungs), and gastrointestinal
(stomach and intestine). Anthrax infection can cause boils, sores,
fever, fatigue, difficulty breathing, and even death. Most persons who
are exposed to anthrax become ill within one week of exposure.2
On October 5, 2001, a photo editor in Florida died from inhalation
anthrax. A week later, a media employee in New York City was
diagnosed with cutaneous anthrax after opening a letter addressed
to an NBC anchorman. On October 15, a letter containing anthrax
was delivered to the Capitol Hill office of a U.S. Senator. On
October 21, an employee at a postal facility in Washington D.C. who
handled mail for Capitol Hill, was diagnosed with inhalation
anthrax and died the next day. That night, an employee from the
same facility died from inhalation anthrax. By October 27, anthrax
spores had been detected in other locations. In the following weeks,
business and government offices closed and the country went on
high alert.3
Impact On USPS
Crises have many different sources. Crisis, whether the result of a
natural disaster (earthquakes, fire, storms, etc) or man-made (such
as vandalism, acts of terror, etc.), big or small, short term or long
term, is an inevitable occurrence for all organizations.
The anthrax attacks of October 2001 thrust the United States Postal
Service into the media spotlight and onto the stage of public
scrutiny. The entire nation watched to see how the U.S. government
and the Postal Service would respond to this newest act of terror.
Indeed, never before in the history of the Postal Service had a crisis
of this magnitude occurred.
Man-made Crisis
The Postal Service faced a very serious man-made crisis. Although it
was ultimately determined that the USPS was not the intended
target, terrorists were, nonetheless, using the mail system as a vehicle
to perpetuate terror through the spread of a rare biological agent.
Little was known about anthrax as there had been no previous cases
of its use as a biological weapon against Americans.
Communication Scope during Crisis
The message itself was particularly challenging to communicate due
to the technical nature of the issue. Because anthrax – its method of
spread, its symptoms, prevention, and treatment – was
predominantly medical in nature, the Postal Service was
disadvantaged in that the agency was ill-equipped to understand and
communicate the dangers of anthrax. Additionally, the task of
disseminating this message to all Americans was enormous.
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Communicating the message to business partners as well as to all
800,000 Postal Service employees also presented Postal Service
management with a mammoth task of tailoring the message to each
specific stakeholder group and spreading the message through the
most effective channels.
USPS Responds
The Postal Service wasted little time in responding to the threat of
the anthrax attacks. Within a matter of hours after the CDC
confirmed that a letter carrier had cutaneous anthrax, the Postal
Service closed the Trenton and Brentwood postal facilities. The
USPS began working diligently with government and medical
agencies to determine the nature and the extent of the danger
involved. The Postmaster General announced that the Postal
Inspection Service was working with other law enforcement agencies
on the incident in Florida. Two days after the announcement, the
USPS began to educate employees nationwide on signs of anthrax
exposure and procedures for handling mail to avoid anthrax
infection. A week later, the agency began mailing out informational
postcards to all American households (Exhibits 2 and 3) to educate
the public on the signs and dangers of anthrax. Press releases issued,
public appearances made, a special Mail Security Task Force created,
a $1 million reward offered and extensive collaboration between the
USPS and various government and media agencies were just a few of
the many initial steps taken by the Postal Agency.
The 2004 GAO report gave the following account to Congress:
“While noting that Postal Service officials could have taken other
actions to respond to the anthrax incidents, postal union leaders
nevertheless praised the Postal Service for its efforts to provide a safe
work environment and to prevent future occurrences, as well as to
involve them in the response and to keep employees informed. For
example, in testimony delivered to the House Committee on
Government Reform on October 30, 2001, two union leaders
stressed that the Postal Service had acted in good faith and that its
decisions were guided by the advice and recommendations it
received from the medical community.”3
GAO Response
The Government Accountability Office – the audit, evaluation, and
investigative arm of Congress – exists to support Congress in
meeting its constitutional responsibilities and to help improve the
performance and accountability of the federal government for the
American people.
In September 2004, the GAO released publication # GAO-04-239,
which analyzed, critiqued and reported on the USPS response to the
2001 anthrax attacks. In the report, the GAO made the following
observations:
 “The Postal Service communicated information to affected postal
employees about the health risks posed by, and the extent of, anthrax
contamination at the five facilities in our review, but problems with
the accuracy, clarity, and timeliness of the information provided led
employees to question the information they received. Problems with
accuracy occurred because the early health risk information public
health officials provided was based on their existing knowledge and
experience that proved to be far more uncertain than the officials
initially recognized and which resulted in underestimating the health
risks to postal employees. Problems with clarity occurred because
information on the medical response to anthrax contamination
changed as knowledge evolved. Problems with timeliness occurred
when the Postal Service delayed the release of quantitative data
(anthrax spore counts) from environmental tests at one of the five
facilities. A union representative had requested this information, and
the Postal Service was required to disclose it, but the Postal Service
delayed disclosure in part because it was uncertain what the results
meant for worker safety and public health. The Postal Service has
taken steps aimed at communicating more effectively, including
establishing a center to coordinate information within the postal
system and working with other agencies to develop guidelines for
responding to anthrax.”3
Although some preliminary problems were identified by the GAO
report, the overall conclusion of the committee was that USPS
handled the situation well, given the circumstances. The report also
affirmed the USPS commitment to further improve its internal
communication process.
A Matter of Social Responsibility
The Postal Service understood that a polished message alone could
not protect the organization’s reputation. For USPS to excel, it must
follow the message with concrete action. Since the anthrax
incidents, the Postal Service has twice revised its Interim Guidelines
to incorporate the lessons it has learned from their response to
anthrax in its facilities.
Recognizing the need to improve its communication both internally
and externally, the USPS took a number of steps aimed at
communicating more effectively during the fall of 2001. First, on
October 16, 2001, it established a National Postal Operations Center
to coordinate information within the postal system. It also created a
Mail Security Task Force composed of representatives from
management associations and employee unions. To improve its
communications with other agencies, on October 31, 2001, the
USPS established a Unified Incident Command Center with
representatives from the agencies that respond to contamination in
postal facilities. The USPS also worked with the National Response
Team – a group of 16 federal agencies responsible for planning,
preparing, and responding to the release of hazardous substances –
to revise existing guidelines for responding to anthrax. Consistent
with GAO recommendations, the most recent version of the
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
guidelines, suggests that agencies (1) disclose more – rather than less
– information, particularly when the release of undisclosed
information could damage an agency’s credibility; (2) consider the
needs of different audiences (e.g., employees, reporters, local
politicians) for different types of information; (3) anticipate what
information people need and in what form; and (4) admit when you
do not know the information. The USPS also revised its guidance to
require that facility managers communicate future test results —
including quantitative results — to employees and others as quickly
as possible, along with information explaining any limitations or
uncertainties associated with the results.3
Looking Forward
In addition to adopting new technology to help detect and prevent
anthrax from moving through the mail system, the Postal Service
has also improved its ability to share information.
During the anthrax response, the USPS learned more about the roles
and responsibilities of key federal agencies and personnel. Postal
managers now interact regularly with federal agencies, including
OSHA and the EPA. In addition, postal managers meet periodically
with representatives of the 16 federal agencies that make up the
National Response Team. Such regular interaction has established a
basis for better coordination with federal agencies than the USPS
had prior to the anthrax incidents. Internally, the USPS has
centralized responsibility for any future response. The agency has
created a new position; the vice president for emergency
preparedness, to identify a single decision maker and to ensure that
one individual will be involved in all phases of planning for and
responding to any future emergency. This new position signifies the
importance of having communication as a core function of
executive management. Additionally, the Postal Service has
established a 24-hour watch desk so that when an incident occurs, a
call goes directly to the desk and the Inspection Service can transmit
information nationwide. The USPS can then see, track, and analyze
patterns as they develop, whereas in the past such information was
not available until after a report on the incident had been prepared.
Having earlier information on the response also allows the
Inspection Service to meet sooner with the Department of
Homeland Security to discuss the issues. Finally, the USPS has
established procedures for obtaining up-to-date information for
contacting employees. For example, the employees are required to
provide current information before their ID badges are issued. In
addition, the plant orientation brochure and orientation briefing
address the importance of keeping the information up to date. The
USPS also posts periodic reminders and locates a kiosk within the
workspace to make it easier for employees to update their contact
information.
Questions
1. Imagine yourself as an executive in a strategy planning session at
USPS headquarters. Who should be present at the planning
session? Describe the conversation that might occur.
2. What are the appropriate steps an organization should take to
handle a crisis situation? At what point should communication
occur with employees, media, and outside stakeholders?
3. Would you consider the communication strategy of USPS a
success? Why or why not?
4. What made the USPS corporate communication strategy
effective/ineffective?
5. What follow-up actions did USPS take that were imperative
to success?
Figure 1: Date (2001), Type and Location of Anthrax Cases
Note: The date reflects when CDC either (1) confirmed a case of anthrax
or (2) suspected a case of anthrax that could not be confirmed.
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6. What are the long-term benefits to be gained from effective
corporate communication?
7. Suppose that a suspect/perpetrator is identified during Wade’s
morning announcements. Should this information be
communicated to the public? What if the perpetrator is an
employee or relative of an employee of either the Postal Service
or a high ranking government official – does this affect the
public’s right to know?
8. What if a suspect is never identified? How can USPS promote
confidence in the agency?
ENDNOTES
1. www.usps.gov
2. CDC Emergency Preparedness website.
http://www.bt.cdc.gov/agent/anthrax/needtoknow.asp
3. 2004 GAO Report. www.gao.gov
Source: GAO analysis of CDC documentaion.
 Table 2: Distribution of Anthrax Cases, Fall 2001 Type of anthrax and affected population
Cutaneous Inhalation
Number of confirmed
Facility location or suspected cases Postal employees Others Postal employees Others

Florida 2 0 0 0 2
New York 8 0 7 0 1
New Jersey 6 3 1 2 0
Washington, D.C. 5 0 0 4 1
Connecticut 1 0 0 0 1
Total 22 3 8 6 5

Source: GAO analysis of CDC information.

Exhibit 1: Time Line of Key Events, Fall 2001

Source: GAO based on information provided by the U.S. Postal Services, the CDC, the Connecticut Department of Public
Health,the D.C. Department of Health, the FBI, the Florida Department of Public Health, the New Jersey Department of
Public Health and Senior Services, and the New York City Department of Public Health and Mental Hygiene.

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
 TIMELINE continued next page

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 Time Line of Key Events, Fall 2001 continued from previous page

Exhibit 2: Example of Informational Postcard Exhibit 3: Example of Informational Postcard (Spanish)

Source: http://www.usps.gov Source: http://www.usps.gov

Text of Postcard:
A MESSAGE FROM THE POSTMASTER GENERAL
The U. S. Postal Service places the highest priority on the safety
of our customers and employees and on the security of the mail.
Please see the other side of this card for information about
safety and mail handling. We want you to know we are doing
everything possible to make sure the mail is safe, and we need
your help. Your security and peace of mind are paramount to us.
John E. Potter

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
Exhibit 4: Press Release October 12, 2001
USPS News
FOR IMMEDIATE RELEASE
October 12, 2001
Release No. 01-088
POSTAL SERVICE REDOUBLES EFFORTS TO
MAINTAIN SAFE AND SECURE MAIL SERVICE
WASHINGTON — The U. S. Postal Service today issued
guidance to customers and employees concerned with
the security of the U.S. Mail.
“We are taking every reasonable measure to assure the
safety of our employees and customers,” said John E.
Potter, Postmaster General.
The Postal Service conducts recurrent and routine
learning programs for its employees on safe and secure
mail handling, transportation and delivery procedures.
“We will continue to work with our employees and the
Exhibit 5: Press Release October 15, 2001
USPS News: Press Releases
FOR IMMEDIATE RELEASE
October 15, 2001
Release No. 01-089
POSTMASTER GENERAL ANNOUNCES
MAIL SECURITY TASK FORCE
DENVER, CO — Postmaster General John (Jack) E. Potter
today assured the American public that the U.S. Postal
Service and the mailing industry are doing everything within
their power to ensure the integrity of what’s in the mail.
Speaking here to an audience of more than 2,000 mailers
attending National Postal Forum, Potter emphasized that
the Postal Service has mobilized its resources to meet the
challenges and announced the formation of a task force to
review every plan and approach it has regarding mail
security and the handling of hazardous materials in the mail.
“None of us could have anticipated the events of the last
week — and how someone or some group would target
the mail for such evil purposes,” said Potter.
But... “make no mistake, we cannot sit back and allow our
nation’s confidence in the mail to erode,” he said, adding
that federal law enforcement officers from the Postal
Inspection Service to the FBI will bring to justice whoever
or whatever group is behind this malicious, evil activity.
The task force announced by Potter will be led by Chief
Postal Inspector Kenneth Weaver. Weaver will be joined
by representatives from postal unions, management
associations, and the Office of the Inspector General,
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public to re-emphasize safe handling procedures for
hazardous materials,” continued the Postmaster General.
To allay fear of the unknown, a fact list with questions and
answers about hazardous materials and specifically
anthrax is attached. Additionally, the public can get further
information at www.usps.com. Customers who have
concerns about specific suspicious items of mail should
contact local law enforcement agencies. The Postal
Service is coordinating its efforts with the FBI, Postal
Inspection Service and the Department of Health and
Human Services.
“We understand the importance of America’s mail to its
people and the economy and we will continue to deliver
our promise of safe and secure mail services,” concluded
Potter. “As always the security and safety of the mail is of
the utmost importance and we will continue to prosecute
those who violate these principles to the fullest extent of
the law.”
Source: http://www.usps.gov
along with safety and medical specialists and members of
the mailing industry.
The problem of contaminated mail does not belong solely
to the Postal Service, said Potter. It is a concern for
mailers and shippers nationwide. And, while the level of
risk is relatively small, it is a problem that compels
everyone in the nation to be vigilant.
“If we in the mailing industry can spend time now
educating and bringing a commonsense perspective to
what’s happening, we will provide a valuable service to
the nation, our customers, our employees, and the U.S.
Mail,” he said.
What should people do if they receive something in the
mail that seems out of the ordinary or raises suspicion?
“Don’t open it. Don’t shake it. Don’t smell it. Instead, keep
others away from it, put it in a plastic bag and seal it. Then
wash your hands with soap and water and call 911,”
advised Potter. “Law enforcement authorities will take it
from there.”
“The U.S. Mail is too important to this nation to allow
confidence in the mail to erode,” said Potter.
The Postal Service, he added, delivers 680 million pieces
a day; 208 billion pieces of mail a year; represents an
industry that drives American commerce; and still
provides universal service for every family in the nation.
“With additional vigilance — and with additional work
with our customers and the public — we won’t let that
confidence erode,” said Potter. “Americans value what’s in
the mail.”
Source: http://www.usps.gov
 Exhibit 6: Press Release October 23, 2001
USPS News: Press Releases
FOR IMMEDIATE RELEASE
The United States Postal Service:
What We Can Do to Make the Mail Safe
Tuesday, October 23, 2001
To make the mail safe, the Postal
Service is taking four important steps:
EDUCATE, INVESTIGATE, INTERVENE and
PREVENT
The Postal Service is EDUCATING EMPLOYEES,
BUSINESSES and THE PUBLIC
EMPLOYEES:
• 800,000 Postal Service employees are now part of the
front line of defense against terrorism
• Like police officers and firefighters, Postal Service
employees have given their lives in the war on terrorism
• We will not be defeated. We will not surrender. We will
do everything humanly possible to make the mail safe
and keep it moving.
• Our employees are a formidable force: 800,000 strong,
located on every street and in 38,000 post offices and
facilities
• We have directed our employees to exercise extreme
vigilance and caution in handling and delivering the mail
• We are providing our employees with up-to-the-minute
information about the risks associated with anthrax
and the best methods for handling mail
• Information and vigilance are our employees’ best
weapons in the fight to keep the mail moving and
defeat terrorism
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
BUSINESSES:
• More than 90 percent of America’s mail originates with
businesses, which can make the mail safe by
employing heightened scrutiny and security measures
• In the past week, we have produced videos explaining
safe mail room procedures and provided them to
15,000 businesses
• We are educating people who handle mail at high-
profile organizations that could be potential terrorist
targets; they can take special precautions to protect
themselves and others where they work
• This is not a one-size-fits-all program; we encourage
businesses to assess their individual situations and
tailor their mail handling accordingly
THE PUBLIC:
• The best tools the public can use to make the mail
safe are CAUTION and COMMON SENSE
• The Postal Service has mailed postcards to every
address in the nation explaining how to identify and
isolate suspicious mail; FOLLOW THESE COMMON
SENSE DIRECTIONS
• The proper steps are simple: Don’t open or shake
suspicious mail; Isolate it; Call the appropriate
authorities
• We are consulting the foremost public health experts to
get the best advice for dealing with medical issues
• We are committed to providing the public with the
best, most current information we have about the
state of the mail
• Stay informed; the news media are providing up-to-
the-minute information about the state of the mail
• Send a card or letter to someone you know or love;
don’t be defeated by terrorism
• Use the new “United We Stand” stamp that the Post
Office is issuing Wednesday 10/24/01
The Postal Service is INVESTIGATING The Postal Service is PREVENTING potential problems
to see that justice is done by adopting tough new safety measures
• The Postal Inspection Service has 1,900 inspectors • We are taking CONCRETE STEPS to assure
who are working night and day to bring the the safety of the public:
perpetrators of this attack to justice
o We are adopting and IMMEDIATELY deploying
• While we don’t provide details of our investigation, we new technology that will fight anthrax that might
have gathered significant information that can help us move through the mail
trace the origins of this attack and the originators
o This new technology is already being used
• We are offering a $1 MILLION REWARD for information successfully to fight bacteria in the food supply
leading to the capture of the terrorists who attacked
o This new technology will not be cheap but we are
the mail; you can provide tips by calling 800 CRIME-TV
committed to spending what it takes to make the
• We will not tolerate any act that spreads fear through mail safe
the mail
• We are taking CONCRETE STEPS to assure
• We are dealing harshly with hoaxes that falsely invoke the safety of our workers:
the threat of anthrax; they divert resources away from
o We are providing all our employees who process
fighting real threat and needlessly spread fear
mail with masks and gloves for their protection;
The Postal Service is INTERVENING if the public though there is no definitive public-health answer
or our employees are put at risk by terrorism about the level of protection these devices
provide, we are leaving no stone unturned
• We have now lost members of the Postal Service
family to this attack; nothing could be more painful or o We are directing all our employees to notify us if
more serious to us they seek admission to a hospital, so we can
quickly detect any pattern of medical problems
• We are doing EVERYTHING HUMANLY POSSIBLE to
that might develop
assure the safety of our workers and the public
o We are changing the procedures we use to clean
• We are consulting the foremost public health
mail sorting equipment; we are no longer using
authorities and basing our decisions on the up-to-the-
air gusts to scatter dust and other particles, and
minute information they provide
instead are vacuuming equipment in a way that
• This is a new day and we are dealing with a new threat; absorbs dust and other particles
we are moving quickly and decisively when new
o We are directing postal facilities to use stronger,
information becomes available
antibacterial cleaning chemicals as part of their
• We have taken CONCRETE STEPS to react when routine maintenance
workers are threatened:
o When we have evidence that a postal facility has
been contaminated, we have closed it
immediately
o When we have evidence that postal employees
have been put at risk, we provide the appropriate
testing or medication, depending on what health
authorities advise us to do
o We are working closely with union leaders to help
communicate safety procedures to our workers
and ensure they are followed

Source: http://www.usps.gov

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 WINNING ENTRIES – COMMUNICATIONS/JOURNALISM SCHOOLS
 
Megan Perry, Laura Chia, Meredith Stevens and Rupa Rajagopalan
Faculty Adviser: Yan Jun
School of Journalism
University of Missouri
Managing the Tide, Marketing
to Controversial Demographics
I. A Cultural Evolution
The year is 1946, Susie Homemaker dons her freshly starched apron,
excited to try out Procter & Gamble Co.’s new laundry care wonder
product, Tide® on this week’s wash. The aroma of Folger’s® brewing
in the kitchen wafts up the stairs, signaling the start of another busy
day for her husband, Mr. Homemaker. Little Timmy’s sniffles seem
to be healing, thanks to a healthy dose of Vick’s Vaporub®, and baby
Molly is cooing in her fresh Pampers® diapers. All is well in this
picture perfect American home, thanks to Procter & Gamble.
Fast forward to the year 2000, a pile of tousled shirts, sport coats,
dress slacks, ties and freshly polished shoes lying on the bedroom
floor. The remnants of a night of passion lay strewn haphazardly
over the foot of the bed, and in the background is a blurred image of
two men in an intimate embrace. Thanks to Procter & Gamble’s new
Downy Wrinkle Releaser, ironing is the last thing on this couple’s
agenda.
Over the years, the company that has its foundation in quality
products for the house and home has made several efforts to keep
up with the ever-progressing American culture while maintaining its
traditional family appeal. Four years after its publication, this latest
advertisement is stirring up some controversy. It is part of the latest
addition to a series of attacks on P&G’s reputation. In this case
study we pose the question: “In this climate of continuous cultural
progression, how can a single company cater to all demographics
tactfully, especially when controversies arise?”
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II. Procter & Gamble Co:
strength and susceptibility
Founded in 1837, Procter & Gamble has built its business on its
brands and family oriented reputation, (www.pg.com). The
distribution giant surged to the forefront of consumer product
divisions with its cutting edge technology, research, and marketing
techniques. Basing its business on the strength of its brands
including billion dollar items Tide®, Pampers® and Pantene Pro
Vitamin® shampoo, P&G leads the industry in building strong
brands and maintaining the reputations of its products and
company, (www.pg.com).
P&G’s name and reputation add to the strength of the company’s
marketing efforts. However, in some instances that strong
reputation serves as a double-edged sword, leaving P&G vulnerable
to highly publicized attacks from critics. In the early 1980s, rumors
circulated about P&G’s logo secretly concealing the demonic
notation, 666, “the mark of the beast,” in its depiction of 13 stars,
(See Appendix, Figure 1). This claim was then altered, warning
consumers to look out for the 666 mark appearing in the logo’s
depiction of what looks like a ram’s horn:
“If you are not sure about the product, look for a Procter &
Gamble written on the products, or the symbol of a ram’s
horn, which will appear on each product beginning on April.
The ram’s horn will form the 666, which is known as Satan’s
number.” (Emery, 1998)
This allegation was followed by tales of a P&G official appearing on
the Phil Donahue television talk show and pledging loyalty and
financial support to the Church of Satan, (Emery, 1998). An e-mail
said to have been circulated around the globe outlined this claim
stating:
“The President of Procter & Gamble appeared on the Phil
Donahue Show on March 1, 1994. He announced that due to
the openness of our society, he was coming out of the closet
about his association with the church of Satan. He stated that
a large portion of his profits from Procter & Gamble Products
goes to support this satanic church. When asked by Donahue
if stating this on TV would hurt his business, he replied,
‘THERE ARE NOT ENOUGH CHRISTIANS IN THE
UNITED STATES TO MAKE A DIFFERENCE.’” (Emery,
1998).
This statement was quickly refuted by Phil Donahue in a letter to
P&G. Donahue stated, “The president of P&G has never appeared
on my show, nor has any other P&G executive.” (Emery, 1998)
These “urban legends,” while ludicrous, still brought replies and
inquires from several P&G consumers. E-mails bearing this
information continue to circulate evoking over 200,000 customer
replies, (Emery, 1998). P&G responded with lawsuits against Amway
Corporation and 11 other competitors whom the company accused
of spreading these false claims. In defense of the company’s actions,
a P&G spokesperson spoke out in an online urban legends
publication saying, “[The lawsuit] involves our company’s
reputation and loss of business. We know consumers around the
world have been diverted from buying our products.” (Emery, 1997)
Procter & Gamble has expanded into a global community of nearly
98,000 employees working in almost 80 countries worldwide,
(www.pg.com). With this kind of exposure, the company has made
a commitment to diversity and inclusion, attracting an employee
base that more accurately reflects its target market demographics.
Listing its core values as leadership, integrity, trust, ownership and
passion for winning, the company strives to recruit bright, creative
young minds to tap into new trends and movements in product
development and advertising, (www.pg.com). P&G outlines its
commitment to diversity by stating on its Web site, “We Show
Respect for All Individuals. We believe that all individuals can and
want to contribute to their fullest potential. We value differences. We
inspire and enable people to achieve high expectations, standards,
and challenging goals. We are honest with people about their
performance.” (www.pg.com)
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These efforts by P&G to appeal to a variety of demographics as well
as be on the edge of creative advertising have landed the company in
its latest reputation scandal. Procter & Gamble targets the “high
potential shopper,” or the middle to upper class consumer who
would rather spend a little extra cash for the highest quality
products that will save them time and preserve their belongings.
Consequently, 80 percent of the company’s business comes from
only 20 percent of the consumer population at large, (Procter &
Gamble Company Profile, 2004). While P&G has traditionally
catered to conservative middle-upper class stay-at-home mothers,
the emerging gay market plays directly into P&G’s target audience as
well. According to the Scarborough consumer research Web site, gay
and lesbian consumers account for $450 billion in buying power and
this market is still relatively untapped, (http://www.scarborough.
com/opus.htm).
III. The American Family Association:
holding on to tradition
The American Family Association (AFA) is a non-profit Mississippi-
based organization concerned with preserving traditional American
family values. Founded in 1977 by ordained Methodist minister Don
Wildmon, the AFA is not specifically a Christian organization,
although a significant portion of its members are Christians, and the
language and practices used by the AFA show heavy Christian
influence, (www.afa.net). The organization blames the decline of
American values on the media, particularly the entertainment
industry. Its Web site states:
“AFA believes that the entertainment industry, through its
various products, has played a major role in the decline of
those values on which our country was founded and which
keep a society and its families strong and healthy. For
example, over the last 25 years we have seen the
entertainment industry ‘normalize’ and glorify premarital sex.
During that time we have suffered a dramatic increase in teen
pregnancies, sexually transmitted diseases such as AIDS, and
abortion as a means of birth control,” (www.afa.net).
Consisting of over two million members, the organization keeps a
close watch on media outlets and frequently updates members on
hot button issues through e-mails and letters, which urge members
to take action, (www.afa.net). As a media watchdog, the AFA claims
its efforts have led to changes in the American entertainment
industry. A few changes the AFA claims to have affected include
advertiser pull-outs of TV shows like Ellen, a sitcom with
 homosexual characters, and radio shows like the Howard Stern radio
show, a racy radio talk show with adult themes, (www.afa.net). ABC
did eventually drop Ellen, citing low ratings as the reason for the
show’s departure. However, there is no direct evidence linking any
of these events to the AFA’s efforts. The AFA’s most recent campaign
is a highly publicized boycott on three Proctor & Gamble products:
Pampers®, Tide® and Crest®. The headline, “P&G Comes Out of
Closet During Prime Time” occupies the very top of the
organization’s homepage. The Web site also provides links to related
stories, including details of P&G’s support for the “homosexual
agenda,” (www.pgboycott.com/promotion.asp). The AFA created a
separate Web site devoted to this campaign at PGBoycott.com. The
site urges members to print P&G petition forms and distribute these
forms to their friends, church and Sunday school members.
IV. Back to the Beginning: events
leading up to the boycott
In 2000, as part of continuous attempts to gain a foothold in the gay
market, P&G released an ad for Downy® Wrinkle Releaser in Xtra, a
Toronto gay newspaper, (See Appendix, Figure 2). The double
spread ad stated “You were more concerned with taking them off
than folding them up,” (Commercial Closet, 2004). The background
of the ad pictured a blurred image of two men in bed in what
appeared to be an intimate embrace. The foreground featured a pile
of men’s clothes and shoes scattered over the bedroom floor. The
second page of the ad laid out the story plot: “It’s 10 a.m. Saturday
morning. You’re meeting friends for brunch in an hour. And your
khakis – which spent the night crumpled on the floor – are looking a
little too ‘casual’...Now for the good news,” (Commercial Closet,
2004). The tagline read: “So if you want to reduce wrinkles – the fast
and easy way – try Downy® Wrinkle Releaser. You’ll never be scared
to face the “morning after” again,” (Commercial Closet, 2004).
This ad ran exclusively in Toronto and was not considered
controversial by Canadian viewers at the time of its release.
However, four years later the ad started gaining attention in the
United States after being brought into the spotlight by the AFA.
Former Downy® brand manager Jeff Straker described the process
the ad went through in order to be published in gay publications in
Canada. “We launched [Downy® Wrinkle Releaser] targeted
partially to gay men and their finicky clothing habits. The ads were
focus group tested with gays, lesbians, and bisexuals and were
thought to be rather breakthrough...It’s interesting that this ad I did
a few years ago, which raised no neck hairs then, is apparently
controversial now,” (Commercial Closet, 2004). The AFA targeted
this ad in September 2004, when the organization decided to boycott
Procter & Gamble products, (Crary, 2004).
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
V. The Boycott
In September 2004, in the midst of an election season that included
a highly controversial debate over gay marriage, P&G was criticized
by the AFA for attempting to advocate its own political agenda. This
criticism centered around P&G’s position on an article that was up
for repeal in Cincinnati, the home-base for P&G operations. Article
12, which was passed in 1993, was placed on the November 2004
ballot for Cincinnati voters to decide whether it should be repealed
or remain as a charter amendment, (Crary, 2004). Article 12 stated
that people with gay, lesbian or bisexual orientation should be
excluded from seeking protection from discrimination based on
sexual orientation, and that the city of Cincinnati may not endorse
or implement laws also based on sexual orientation, (Nolan, 2004).
On August 23, 2004, P&G executives sent a statement to Cincinnati
employees discussing Article 12 and affirming P&G support for the
repeal of Article 12, (Antoine and Otto, 2004). The letter stated
P&G’s position, which was that all people deserve protection from
discrimination, that Article 12 was outdated, that the article
negatively affected the city and the region’s image, and that the
article was the only law in the U.S. that allowed discrimination
against certain groups of people, (Antoine and Otto, 2004). P&G
explicitly maintained that in supporting the repeal, it was not
promoting any specific lifestyle, but instead was “supporting values
of respect and tolerance,” (Antoine and Otto, 2004). P&G also
donated nearly $40,000 to the repeal effort, which was also backed
by Cincinnati mayor, Charlie Luken, (Nolan, 2004). The AFA
disagreed with P&G’s ongoing support of what it called a
“homosexual agenda,” and believed a boycott would send P&G a
message that America’s families did not support homosexual activist
groups who promote homosexual marriage, (Wildmon, 2004). The
boycott included all P&G products, but especially Tide® detergent,
Crest® toothpaste, and Pampers® diapers. The AFA encouraged
members of like-minded communities, including the Christian
ministry Focus on the Family, to spread the word about the boycott
and asked people to sign petitions stating: “Yes, I support the boycott
of Crest®, Tide® and Pampers® because of P&G’s support of the
homosexual agenda, including homosexual marriage,”
(www.afa.net).
The top story on the AFA Web site for the past few months has been
updates on the latest information concerning P&G and its stance on
various issues, (www.afa.net). The AFA’s list of grievances against
Procter & Gamble include: P&G’s support of the repeal of Article 12,
the company’s required employee diversity training that “promotes
the acceptance of homosexuality,” the ad in Xtra, the company’s
sponsorship of television programs such as Will & Grace and Queer
Eye for the Straight Guy, the naming of the company by
PlanetOut.com as one of the top 20 places to work because of its
support and benefits for gay employees, the company’s pull-out of
all advertising for television talk-show host Dr. Laura Schlessinger
for her anti-gay remarks, P&G’s policy of domestic partnership
benefits, and the list goes on, (www.pgboycott.com/promotion.asp).
Though many corporations joined the coalition to defeat Article 12
and providing domestic partnership benefits is a rather common
corporate policy, P&G was singled out for the boycott because of its
high national profile, (Crary, 2004).
In an article in the Associated Press, Doug Shelton, a spokesperson
for P&G, stated that the boycott would not affect the company’s
position on the repeal of Article 12, (Crary, 2004). He said, “We
believe Article 12 is bad economic policy for Cincinnati,” (Crary,
2004). As for the AFA’s charge that P&G supports gay marriage as
part of the “homosexual agenda,” Shelton said that the company has
made no such endorsement nor has it taken any position on the
issue (Crary, 2004). Shelton did say, though, that the controversial
ad in Xtra should not have been published saying, “We freely admit
it was a mistake. Even if the ad had featured heterosexuals, it never
should have run – it was in violation of our advertising guidelines,”
(Crary, 2004).
VI. What this means for Procter & Gamble Co.
The AFA claimed that, to date, around 300,000 people have signed
on to its boycott, (Holmes, 2004). However, the impact on P&G
sales has been minimal. Profits have been more or less stable over
the past 10 months, and the company has seen an 18.5 percent
revenue growth over the past year, (Procter & Gamble Company
Profile, 2004). This lack of financial damage to P&G has not slowed
the campaign by AFA and its supporters. Focus on the Family’s vice
president for public policy, Tom Minnery, said that his organization
along with the AFA would not end the boycott anytime soon. He
said, “We don’t measure the success by decline in sales – we measure
it by the rise in controversy,” (Crary, 2004). If wanting significant
financial impact, the AFA/Focus on the Family boycott may have
serious implications for P&G’s reputation management. The AFA
has had considerable success in effecting change through increased
publicity for its causes in the past, and the P&G boycott is no
different. The story was picked up by the New York Times and the
Associated Press on September 17, 2004, a few weeks after the boycott
began, (Kirkpatrick, 2004). The Associated Press story was then
covered by several newspapers around the nation, along with two or
three follow-up stories in the following months (Crary, 2004). AFA
spokespersons have appeared on several television talk shows, and
the organization has been actively recruiting conservative religious
organizations around the nation since September, (www.afa.net).
This substantial media attention forces P&G to respond not only
back to the AFA and national news media, but also to other
important stakeholders on whom the situation may have bearing.
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These stakeholders include P&G’s consumers, who support a wide
spectrum of beliefs and values, employees, who because of P&G’s
efforts are equally diverse, advocacy groups on both sides of the
issue, and finally, P&G stockholders, who must be considered when
any company issue arises. To date, P&G has chosen to field
consumer concerns and inquiries through personal communication.
Company spokesperson Doug Shelton, asked P&G’s consumers to
call the company to clear up any questions or misconceptions,
(Crary, 2004). A few consumer groups have begun debating the
issue among themselves, however, as evident in recent posts to the
Tide® Fabric Care Network message board. The online message
board, usually used to post questions or comments about P&G’s top
selling product, Tide® laundry detergent, has recently been used to
share opinions about the AFA’s allegations against the company,
(www.tide.com/messageboard). These messages represented
supporters of both sides of the issue with one consumer saying,
“Because of the strong support of the homosexual agenda, I am
boycotting ALL Procter & Gamble products, which is unfortunate,
because there are so many great products that I have used for years,”
(www.tide.com/messageboard). Another consumer responded, “I
not only will purposely buy Procter & Gamble products, I will also
tell everyone I know to buy the products. It’s nice to have an
American company that is so enlightened,”
(www.tide.com/messageboard). Like these consumers, advocacy
groups on both sides of the issue worked to make their voices heard.
As mentioned before, several organizations, including many
religious groups, have joined the AFA in condemnation of P&G’s
actions, (www.afa.net). On the other hand, several gay advocacy
organizations have encouraged members to support P&G for its
progressive policies. GayToday, a website providing daily news
updates for the gay community, posted a bulletin asking all its
members to “contact Procter & Gamble one more time and thank
them profusely for standing up for equal rights for all Americans,”
(www.gaytoday.badpuppy.com). The bulletin provided contact
information for P&G as well. Employees and stockholders are two
more groups that include members who support either side of the
issue, or who do not understand the matter at all.
Cultural evolution is an unavoidable phenomenon that corporations
have faced since the beginning of industrialization. Leading global
companies, like P&G, have the added stress of catering to a wide
spectrum of publics. In many cases, these publics fall on opposite
ends of a polarizing debate. Such is the case for P&G. Traditionally
a family-oriented company, P&G is now in a cultural climate where
the definition of the word, “family,” is constantly changing. The
question then arises: How can a company balance the fine line
between progression and tradition? How does a corporation
accommodate one economically viable market without offending an
opposite, yet equally valuable one?
 VII. Works Cited The Procter and Gamble Co. Company Profile. (2004, December). Yahoo! Finance.
http://biz.yahoo.com/ic/11/11211.html
The Tide Fabric Care Network Message Board. (2004, December).
“Action Alert: Procter & Gamble & Dr. Laura”. (2004, December). GayToday: World.
http://www.tide.com/messageboard/readcomment.jhtml?messageId=402028
http://gaytoday.badpuppy.com/garchive/world/061400wo.htm
Wildmon, Donald E. (2004, September 20). “Personal Statement”. The American Family
Antoine, D., Otto, C. (2004, August 23). Letter from Procter & Gamble.
Association Online. www.afa.net
“Conservative groups call for boycott of 2 P&G products”. (2004, September 17). The
Associated Press. Business News section
Crary, David. (2004, October 26). “Conservatives vow lengthy boycott of Procter &
Gamble over gay rights; company disputes their claims”. The Associated Press. Business VIII. Appendix
News section.
Emery, David. (1997, August 4). “Sympathy for the Devil”. Urban Legends Online. Figure 1: The old P&G logo involved
http://urbanlegends.about.com/library/weekly/aa080497.htm
in the demonic notation claims
Emery, David. (1998, June 10). “Trademark of the Beast”. Urban Legends Online.
http://urbanlegends.about.com/library/weekly/aa061098.htm
Holmes, Paul. (2004, November 15). “Friendly Companies Face Harsh Realities of US
Life as Christian Groups Wield Influence”. PR Week (US). p13.
Kirkpatrick, David D. (2004, September 17). “Conservatives Urge Boycott of Procter &
Gamble”. The New York Times. pA18.
Nolan, John. (2004, November 2). “Cincinnati ban on gay rights laws back on the ballot”.
The Associated Press State and Local Wire. Political News section.
Osbourne, Kevin. (2004, November 3). The Cincinnati Post-Online Edition .
http://www.cincypost.com/2004/11/03/cincygay110304.html
PGBoycott.com. (2004, December). “A short track record on P&G’s promotion of
homosexuality”. The American Family Association.
http://www.pgboycott.com/promotion.asp
Procter & Gamble company website. (2004, December). www.pg.com
Scarborough Research Co. (2004, December). “Gay/Lesbian Consumer Study”.
http://www.scarborough.com/opus.htm
The American Family Association Online. (2004, December). www.afa.net
The Commercial Closet. (2004, December). “Bed Clothes: Downy Wrinkle Releaser ad.”
http://www.commercialcloset.org/cgi-bin/iowa/portrayals.html?record=732 http://en.wikipedia.org/wiki/Image:P%26glogo.jpg

Figure 2: P&G ad for Downy Wrinkle Releaser in Xtra, a Toronto gay newspaper.

http://www.commercialcloset.org/cgi-bin/iowa/portrayals.html?record=732

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  
Alison Fors, Brandie Gonzalez, Elizabeth Hawkins, Brittney McLaws
Faculty Adviser: Brad Rawlins
College of Fine Arts & Communications
Brigham Young University
Boeing Co.: Government Contracts and Conflicts of Interest
The Challenge of Being Ethical
and Competitive
“Because we dared to dream, dared to work hard, we have
turned dreams into realities, to leave some huge footprints on
every aerospace frontier. Now it is time to create some new
footprints!” ~ Phil Condit, CEO, 1996
Boeing Chief Executive Phil Condit stared blankly at the road early
Saturday evening as he drove to Boeing Headquarters. He drummed
his fingers on the steering wheel, contemplating the crucial decision
at hand. The Boeing Board of Directors was to gather that night to
decide whether or not to fire Chief Financial Officer and Executive
Vice President Mike Sears and Darleen Druyun, the vice president of
missile-defense systems. Recent events had caused executives to
question the appropriateness of the hiring of Druyun by Sears. Sears
offered Druyun a job last year while she was employed as an
acquisition official for the U.S. Air Force. At the time, she was
reviewing a $21 billion proposal for the Air Force to lease 100
Boeing 767 air-borne-refueling tankers. Boeing assigned external
and in-house lawyers to review Sears and Druyun’s conduct more
than a month ago. In the initial stages of the investigation the
lawyers did not find any impropriety; two weeks ago, however, the
fate of Boeing changed when the lawyers uncovered improper
contact between Sears and Druyun. The lawyers discovered evidence
from e-mails and interviews that Sears contacted Druyun about
employment with Boeing in October 2002, while she was reviewing
the tanker contract. This directly violated Boeing’s hiring policies.
Condit grew weary recalling that these events have surfaced only
months after Boeing lost $1 billion in government contracts and was
suspended from new space contracts, following the scandal
involving stolen Lockheed Martin documents.
As Condit sat at the head of the table with other board members,
they discussed the most recent developments of the case, including
statements by Defense Secretary Donald Rumsfeld and Senator John
McCain that indicated further investigations and possible
suspensions of government contracts. The board realizes that the
current situation could hamper the positive relations recently gained
with the Pentagon. These positive relations are based on renewed
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emphasis on ethics at Boeing, but the Sears-Druyun scandal seems
to give fuel to Boeing critics and an edge to its competitors.
History And Culture
From the Battlefields to the Moon
William Boeing left Yale University to seek a life out West in 1903,
the same year the Wright brothers made aviation history with their
first flight in North Carolina. William Boeing expressed his vision
when he said, “We are embarked as pioneers upon a new science and
industry in which our problems are so new and unusual that it
behooves no one to dismiss any novel idea with the statement, ‘It
can’t be done’.” Soon after the Wright Brothers’ achievement,
William Boeing began his career of building aircrafts. In 1916,
Boeing constructed his first two twin-float seaplanes and started his
airplane manufacturing company, Pacific Aero Products Company.
Two year later, the business became Boeing Airplane Company.
World War I was the beginning of the nation’s aviation involvement
in combat. During this conflict, the United States began its first use
of airplanes in battle. Boeing Airplane Company received its first
production order when the U.S. Navy ordered 50 of Boeing’s Model
C planes. This Navy order, combined with an international aviation
evolution, jumpstarted the rapid growth of the Boeing Airplane
Company.
From 1922 to 1925, the U.S. Navy awarded Boeing with a contract to
build primary trainer airplanes and subsequently bought 71 of those
trainers. In 1923, Boeing began a race with the Curtiss Aeroplane
and Motor Company to design the best pursuit fighter. Although
they lost the race, six months later Boeing became the leading
producer of fighters, a position they retained for the next decade.
William Boeing resigned in 1934 following the Depression that left
Boeing Airplane Company broken into three entities. Additionally,
Claire Egtvedt became president and began focusing the company
engineering and production toward large commercial planes and
army bombers.
 By the early 1940s, Boeing was prepared to contribute to another
war. During this time, Boeing was rapidly producing B-17 bombers
for World War II. As men went to battle, women took over the
workforce and boosted production up from 60 planes to 362 planes
a month in Boeing’s Seattle manufacturing center.
Immediately following the war, the military stopped buying planes
and Boeing took a huge blow once again. Factories shut down and
70,000 people lost their jobs. Boeing scurried to find a new niche in
the market. They began focusing on commercial jets and in 1962,
manufactured two planes specifically for the U.S. President tactfully
named “Air Force One.”
Throughout Boeing’s history, the company has consistently
maintained a vital relationship with the government. This
relationship encouraged the company to venture beyond that of
warfare aircraft and contribute in the race to space. In 1961, when
President John F. Kennedy committed to Americans that the United
States would land a person on the moon, Boeing was an avid
supporter of space technology. At this time, Boeing loaned NASA
2,000 executives to assist in the race.
In the early 1970s, Boeing experienced a third crisis. Boeing went 18
months without a single order for a commercial jet due to the
recession in the aviation industry. In Seattle alone, the workforce
was cut again from 80,400 to 37,200. There even appeared a
billboard in Seattle that read: “Will the last person leaving Seattle
turn out the lights.”
As a member of the volatile aviation industry, Boeing experienced
repeated ups and downs. This consistent swing from success to
struggle was difficult for employees and company executives. “T”
Wilson, the CEO of Boeing in 1969 candidly described Boeing’s
orientation during times of feast or famine. He said, “When we’re
flat on our backs, nobody else looks so bad because we’re so big. But
when we get moving, watch out. The momentum is tremendous.” To
combat this decline in business during the ’70s, Boeing turned to
innovation to remain alive. Once again, Boeing decided to diversify
its production offerings. This time, Boeing began selling computer
products, irrigating an Oregon desert, managing housing projects,
producing light-rail vehicles, constructing a desalinization plant to
convert sea water to fresh water and building wind turbines.
The company again experienced improved growth in the early
1990s. Boeing began work on B-2 stealth bombers and merged with
Rockwell International Corporation and McDonnell Douglas
Corporation. In 2000, Boeing bought Hughes Electronics
Corporation, Jeppesen Sanderson, Inc. and Hawker de Havilland.
After the September 11th attacks at the World Trade Center, Boeing’s
planes were used in battle in Afghanistan restoring positive press
coverage and public opinion. President George W. Bush recognized
Boeing on November 9, 2001 as one of four recipients of the 2001
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Employer Support Freedom Award for their assistance and
donations after the national crisis.
Despite a flip-flopping reputation, Boeing has continued to be the
world leader in missile defense, battle space management and space-
based communications. They serve customers in 145 countries,
employ workers in over 60 countries and operate in 26 states. Sales
in 2003 were $50.5 billion, 30 percent of which were international.
Eighty percent of sales in Europe and 90 percent in Asia are from
commercial airplanes. A smaller percent of international sales
comes from Integrated Defense Systems, which acquires 50 percent
of the sales domestically.
Employees: the Lifeblood of Boeing
Boeing’s strength and competitive advantage in the marketplace
resulted largely from the strong emphasis placed upon the
importance of company employees. Boeing invests a great deal of
capital into its employees’ lives and relies upon their work ethic and
strong capabilities. Frank Shrontz, Boeing’s CEO in 1986, described
employees as one of the company’s most valued resources. He said:
“To ensure our continued success, we support our most
critical resource: the people of Boeing... At Boeing, we inspire
and recognize individual talent, provide job security based on
performance, and foster a team spirit and the feeling of
personal satisfaction that comes from a job well done. “
The company strives for continual quality improvement and
encourages a balanced work and life culture through their benefits
programs.
Boeing’s Lifelong Learning program gives employees the
opportunity of advanced education and career development. This
program allows employees to finish a college education with full
benefits while at Boeing. The company attributes its high-caliber
workforce and production to its dedication in the continual
improvement and education of their employees. Boeing has invested
over $73 million in the Lifelong Learning Program and saw more
than 1,400 Boeing employees obtain degrees in 2003.
However, Boeing’s sudden announcement to move headquarters
from Seattle to Chicago in June 2001, stirred up strong feelings
throughout the corporation. The hasty announcement left Boeing
employees and the community in Seattle outraged and uncertain of
the future. Tom Buffenbarger, president of the International
Association of Machinists and Aerospace Workers (IAM), which
embodies 63,800 Boeing workers worldwide, said,:
“The Seattle community has invested billions of dollars in
highways, schools, and other services to help Boeing
succeed...If this move indicates any lessening of Boeing’s
commitment to this city or to the domestic aerospace
 industry, if Boeing thinks they can run and hide, we have
news for them. We will follow Boeing to the ends of the earth,
if need be.”
A similar comment came from IAM District Lodge 751 president
Mark Blondin:
“We are outraged at this decision, not to mention the fact that
Boeing gave this Union, as well as our Governor and
Congressional delegation, only five minutes’ advance notice
before announcing it to the world. It is a sign of disrespect for
the workers, the Union and this community. As a Union, we
fear this is a sign of things to come and will fight with all our
resources to protect every 751 job.”
The most recent employee setback was the announcement in July
2003 of a 5,000 job cut by the end of the year, due to the worst
downturn in airline industry history. This notice again left
employees and the public weary of Boeing and its leadership.
A Rocky Past: Scandals at Boeing
Boeing has experienced tremendous success throughout its history.
Though much of this success is attributed to employees, the
company prides itself on the success of other assets, values and
philosophies. In addition to a strong commitment to employees,
Boeing focuses on running a healthy business by leveraging
strengths into new products, actively seeking growth opportunities
and opening new frontiers. Many of these opportunities are
connected to acquiring government contracts. The co-dependent
relationship with the Pentagon has led to several publicized
scandals.
Government spending on defense in mid-1980s placed the Pentagon
and its military contracts in a fishbowl. There were reports of the
Pentagon paying outrageous prices for spare parts: $659 for an
ashtray, $640 for a toilet seat, $400 for a claw hammer, and $748 for
a pair of pliers. Although Boeing wasn’t the only defense contractor
guilty of the overcharges, it did receive special media attention for
the $748 duckbill pliers. When a government engineer reported the
price tag of the pliers to a Senate subcommittee, Boeing slashed the
price of the pliers to $90. The engineer testified that similar pliers
could be purchased at a hardware store for $7.61. Boeing dropped
the prices of nearly 50 other tools included in the same Air Force
contract, which was worth $557,500. But, Boeing also tacked on a
“support equipment management” charge of $95,307 that pushed the
cost of the tools to the exact amount of the original contract, $557,500.
During this same period, government contracts were suspended and
fines levied at General Electric, General Dynamics, Sperry
Corporation, Honeywell, McDonnell Douglas, Lockheed, and
Boeing for price gouging, fraud, and use of classified documents.
The use of Pentagon documents to gain a competitive edge in
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contract bids was a somewhat common practice prior to the Senate
investigations of 1984-1985. Frank Shontz, CEO of Boeing in the
1980s and early 1990s, said that numerous defense contractors were
obtaining classified budget documents from the Pentagon without
the required authorization, until the 1985 indictment of a
consultant for GTE Corporation. It was common for companies to
receive the documents and place them in a classified documents
control log that contractors were not supposed to see. According to
Dan Pinick, then president of the Boeing Defense and Space Group:
“People acquired documents from the government, and the
government knew it. They never stole any of them. The
government gave them those documents, as far as I know.”
Two investigations into inappropriate use of classified documents by
Boeing employees surfaced in 1984 and 1985. The first case, known
as the Park Service case, involved a $5.9 million contract with the
National Park Service to provide a nation-wide computer network.
Boeing won the contract in 1984, then gave it up when a competitor
complained about the bidding process. This began a federal
investigation that found two employees had used leaks and
unauthorized inside information to develop the bid. The Boeing
Computer Services staff in Vienna, VA, wrote nearly 40 percent of
the proposal for bids, including the evaluation criteria. Willis
Winder, a salesman, obtained part of the draft from Boeing’s
competitor, and it was used for a “training exercise” in the bid effort.
With such competitive advantages, it was no surprise that Boeing
won the bid. Two employees involved in the Park Service case were
investigated but never criminally convicted for their behavior. The
statute of limitations ran out on the criminal charges. However,
Boeing fired the two employees, Winder and Robert Gerard, took
resignations from two others, suspended six, and reprimanded seven
more. Because of these actions, the Interior Department lifted its
suspension of contracts after 16 days, and threats of suspended
defense contracts were dropped. In response to the firing, both
employees told the press that they were “scapegoats” for higher-ups
in Boeing. They didn’t deny that the information Boeing had was
unauthorized, but “the fact that we had it was known and was
encouraged by our top-level management, and when the
(competitor’s) protest came in, they denied it.” Boeing denied any
cover-up, and cited its outstanding ethics programs to prevent
further problems. Joyce Ann Fleischman, deputy inspector general
for the Interior Department at the time, said Boeing’s degree of
cooperation was moderate. “They didn’t throw up huge major
roadblocks, which can be done at times, but they were not ready to
roll over and play dead.”
The second case resulted in the conviction of a Boeing marketing
executive on 39 counts related to possessing secret Pentagon budget
documents. Richard Fowler, who worked for Boeing from 1978 to
1986, was accused of obtaining more than 100 classified documents
from the Pentagon. Prior to his employment with Boeing, Fowler
was a civilian budget analyst at the Air Force. The case arose from
an investigation begun in 1984 of how military contractors were
 obtaining access to classified Pentagon planning documents. Fowler
said his actions had been approved by superiors in the company. He
said he had been asked by officials at ‘’management levels’’ to obtain
the documents but said they were not vice presidents or directors.
‘’That’s what I was hired to do,’’ he said. Fowler also said that
procuring these documents was common practice in the industry
until the GTE investigation. During his federal trial, employees
from several military contractors testified of a nine-company
network whose Washington representatives traded Pentagon budget
documents in the late 1970s and early 1980s. Boeing also pleaded
guilty to receiving classified documents from Fowler, and paid fines
of $5.2 million.
After each of these scandals, Boeing attempted to beef up its ethics
programs and to educate all employees about the legal and ethical
ramifications of using insider information to procure federal
contracts. Despite these efforts, Boeing continued to deal with
federal investigations of overcharging and obtaining classified
information throughout the 1990s. The next decade included one of
the most damaging cases involving insider information, with a
competitive bid against Lockheed Martin resulting in a suspension
from Pentagon contracts.
Lockheed Martin Scandal
The Evolved Expendable
Launch Vehicle Program
The U. S. Air Force began a program in the 1990s to find a low cost
rocket launching technology. Known as the Low Cost Concept
Validation (LCCV) the Air Force awarded two $60 million,
17-month contracts to Lockheed Martin Astronautics and Boeing
Defense and Space Group in the second phase of the project. This
money was granted for the pre-engineering and development of
their LCCV designs. Following the success of two LCCV phases, the
Air Force announced plans for the Evolved Expendable Launch
Vehicle Program (EELV). The objective of the EELV program was to
take the nation’s space launch system into the next century by
increasing operability and making the system more affordable.
In November 1997, the Air Force introduced competition to the
EELV program between the two companies. At this time, the Air
Force awarded Lockheed Martin Astronautics and Boeing Defense
and Space Group $500 million each for development costs, with the
possibility of future contracts worth up to $2 billion. Due to the
potential financial success of an improved launch system, the Air
Force also expected Boeing and Lockheed Martin to invest personal
funds into the EELV project. In addition to receiving the $500
million in development funds, both companies agreed to invest.
The Air Force also hoped the competition would stimulate and
strengthen the rocket industry’s commercial infrastructure.
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With $500 million in development funding, Lockheed Martin and
Boeing began individual planning strategies. The two companies
would be competing for future contracts of 28 missions, scheduled
to occur from 2002 to 2008.
Kenneth Branch – Lockheed Martin
or Boeing Employee?
Prior to 1996, Kenneth Branch was an engineer working on the
EELV project for Lockheed Martin. Reports confirm that in 1996,
Branch began conspiring with Boeing EELV engineer Kenneth
Erskine. According to Erskine’s affidavit, while still working at
Lockheed Martin, Branch approached Erskine in 1996 with an
under-the-table offer to provide Boeing with the entire Lockheed
Martin EELV proposal presentation. This proposal presentation
contained confidential plans and financial information detailing
Lockheed Martin’s monetary estimates and costs necessary for the
EELV projects. With this information, Boeing could under-bid
Lockheed Martin’s projects to the Air Force, increasing their chances
of winning the contracts. For more than a year, Branch purportedly
traveled to and from Lockheed Martin’s EELV headquarters in Cape
Canaveral, Florida and Boeing’s EELV headquarters in Huntington
Beach, California to provide Erskine with the proprietary
information. In January 1997, shortly after the alleged conspiracy
talks and visits, Erskine recruited Branch from Lockheed Martin
under the agreement that Branch would receive a higher salary while
working at Boeing in return for Lockheed Martin’s EELV proposal.
Boeing Wins Proposals
On July 20, 1998, approximately nine months after the Air Force
announced Boeing and Lockheed Martin’s participation in the EELV
competition, both teams submitted proposals for 28 Initial Launch
Service contracts worth over $2 billion. On October 16, the Air
Force awarded Boeing with 19 of the 28 projects and $1.38 billion .
Lockheed Martin was awarded the other nine and $640 million.
Short-Lived Success
Boeing’s success, however, was short-lived. Shortly after the
announcement of the awards, an anonymous Boeing employee
unveiled startling evidence to management. This employee revealed
information about stolen papers from Lockheed Martin’s EELV
project. Following the report, Boeing initiated an internal
investigation of the allegations.
During the investigation in June 1999, a Boeing attorney searched
the offices of William Erskine and Kenneth Branch. The attorney
found many documents labeled “Lockheed Martin
Proprietary/Competition Sensitive” in the employees’ offices. In
August, not long after discovering the documents, the two men were
terminated from Boeing.
Following the termination of Branch and Erskine, the Air Force
conducted an investigation of the issue. The documents found in
the offices of Branch and Erskine made up more than 3,800 pages
belonging to Lockheed Martin. Thirty-six of those documents were
labeled “Lockheed Martin Proprietary or Competition Sensitive.”
Sixteen of the documents were related to manufacturing costs of
Lockheed Martin’s EELV project proposals, seven of which the Air
Force believed gave Boeing a significant chance to win the
proposals. After the recovery of the stolen documents, United States
Air Force analysts claimed that had it known about the stolen
documents in 1997, the organization would have suspended the
EELV competition and conducted further investigations with the
possibility to terminate the project.
In September 2002, Boeing learned of a US Attorney investigation of
the company. As a result of this investigation, United State Attorney
Debra W. Yang exemplified the feeling of disappointment felt across
Washington. “The charges against Mr. Branch and Mr. Erskine
allege that they violated the fundamental rules of fair play,” Yang
said. “By covertly using a competitor’s secret information, they
caused harm not only to Lockheed Martin, but also to the Air Force
and taxpayers who finance government operations. Their improper
conduct had huge ramifications because of the value of the contract.”
Corporate Ramifications
Following the United States Air Force investigation, Boeing felt the
ramifications of the issue. On June 25, 2003, the Justice Department
charged former Boeing employees Branch and Erskine with criminal
charges of conspiring to steal proprietary documents from Lockheed
Martin. The two men were charged for “conspiring to conceal and
possess trade secrets”. According to the Defense Department, both
men faced up to 10 years in prison and over $250,000 in fines.
Earlier that month, Lockheed Martin filed a lawsuit with Boeing
claiming that 37,000 documents were stolen.
In addition to facing lawsuits, Boeing lost its entitlement to the
EELV contracts. Following an in-depth inquiry into Boeing, the Air
Force announced on July 24, 2003 that Boeing had committed
serious violations of federal law and, therefore, it would be
reallocating previously awarded EELV contracts.
Undersecretary of the Air Force Peter B. Teets stated the results of
the inquiry and ramifications surrounding the event: “Our inquiry
into Boeing found that they were in possession of thousands of
pages of Lockheed Martin proprietary EELV documents during the
1998 source selection. As a matter of policy we do not tolerate
breaches of procurement integrity and we hold industry accountable
for the actions of their employees. We believe the suspension is
necessary and we hope all contractors will take note and strive to
enforce the highest integrity standards in their organizations.”
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Teets also announced Boeing would lose up to 10 of its scheduled
launchings with the EELV project. These changes boosted Lockheed
Martins EELV contracts to 14 and lowered Boeing’s to 12. Boeing’s
total estimated loss of funding from the Air Force was in the
ballpark of $1 billion. In addition to the lost contracts, three Boeing
Integrated Defense Systems units were suspended from competing
for new Government Issue competitions. The suspension was
indefinite until the government felt Boeing was ready to operate
ethically. The Air Force also granted Lockheed Martin a permit to
develop a west coast launching capability by updating the existing
facilities at Vandenberg Air Force Base in California.
This blow to future financial prospects and space and defense
technology development hit Boeing at the worst possible time. The
ramifications of the corporate scandal hinder Boeing’s decisions to
focus on government work due to the decrease in demand of their
commercial projects.
Ethics at Boeing
The Defense Industry Responds
After the Senate probes into defense contracts revealed extensive
fraud and insider information in the mid 1980s, the defense
industry responded with increased ethics training and a stronger
commitment to ethical and legal conduct. General Electric
Chairman John F. Welch Jr. initiated a massive employee education
and training program on ethics after GE was indicted on fraud and
suspended from bidding on government contracts. The program
included a 20-minute video, and the creation of a government
contracts review board and ombudsman. GE also set up a hotline
that employees could use to blow the whistle on unethical activities.
Sperry Corporation distributed a 10-page booklet on ethics
guidelines that employees not only had to read but certify they had
read it. Sperry CEO Gerald G. Probst – “a Mormon described by
colleagues as a stickler for integrity” personally walked around
Sperry’s facilities informing employees that they really meant what
they said. McDonnell Douglas provided one-day workshops for
employees and managers, appointed ombudsmen, and distributed
videotapes. General Dynamics responded by installing formal ethics
training courses, distributing a 20-page handbook, and establishing
a corporate ethics office, ethics program directors in each division,
and a Committee on Corporate Responsibility at the board level. As
a result of these efforts, contract suspensions were lifted and
competitive bids began anew.
Boeing also replied by setting up “one of the industry’s best ethics
programs” in the late 1980s according to then Senior Vice President
Douglas Beighle. Beighle said the Park Service case led to a whole
new approach to ethics. “I think it started the ethics revolution here
at the company.” Beighle gave a speech to 300 top employees, telling
them to follow strict rules in dealing with the government, and
hotlines were set up for anonymous complaints. An outside review
 team interviewed more than 5,000 Boeing employees to ensure they
understood the rules of conduct with the government. He said
more than 1,200 problems were found and corrected. Over a two
and one-half year period, Boeing sent 15,600 managers through
training on dealing with the government.
Following the Lockheed Martin scandal, Boeing realized it needed to
push business ethics like never before. Senior management asked
the Ethical Leadership Group (ELG) to review the company ethics
program. ELG found that employees at all levels felt betrayed by the
individuals responsible and saw the media coverage as “a kick in the
gut” and “a stunning blow.” Despite negative sentiments, the ELG
also found Boeing employees believed the company had integrity
and were proud to work for such a successful endeavor. Despite this
optimism, ELG said changes needed to be made, including increased
training, greater monitoring, and more open communication.
While Boeing employees already received yearly ethics training, the
Integrated Defense Systems unit stopped work for all 75,000
employees and conducted a four-hour refresher course. The training
began six days after the U.S. Air Force announced the temporary
suspension resulting from the EELV issue, and emphasized enhanced
awareness and understanding of Boeing’s ethics policies. It also
aimed to reinforce the high values Boeing hoped to place on integrity
and reputation. During the training, employees were instructed on
proper ways to acquire and use third-party information. IDS
President and CEO Jim Albaugh told St. Louis employees, “Nothing
is more important than our reputation as an ethical company. And
this event is about refocusing our attention on ethics and the values
that have made Boeing what it is today.” Bill James, a senior manager
with IDS in Long Beach, Calif. said, “We all have the same
responsibility: Be ethical in everything we do.”
Boeing also implemented a new program in an attempt to make
training more interesting and effective throughout the year. The
2003 Ethics Challenge was put forth to emphasize to employees the
affect ethical decisions can have. This challenge attempted to show
accountability in a culture of openness. The Challenge was built on
a story line that involved employees in several ethical decision-
making dilemmas aboard a hypothetical space station of the future.
Employees were required to make decisions and experience the
consequences, with the decisions complicated by business pressures,
loyalties and friendships. To encourage employees to be ethical
throughout the year, the Web-based training was given in sets of three
20-minute segments instead of a one-hour block, as it was in the past.
In the most important ethical audit of the year, CEO Phil Condit
asked former Senator Warren B. Rudman to lead an independent
review of the company’s policies and procedures regarding ethics
and the handling of competitive information. Condit announced
Boeing’s intentions to make public the results of his review. “There is
no doubt that our standards of behavior were violated; that is
unacceptable. Boeing has a valued legacy of high ethical standards
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
and we do not want this hard-earned reputation to be harmed by
the actions of a few,” said Condit at the time of investigation.
The Boeing Rudman report came out on Nov. 3, 2003 and contained
16 recommendations to improve the ethics program at Boeing. The
recommendations encompassed structural issues, hiring and
training, staffing and investigations, and internal oversight. “In our
review, we concluded that Boeing has gone to great lengths to
establish, maintain and continually improve upon an ethics program
that is impressive in its scope and detail,” Senator Rudman said. “We
do not believe that any of the alleged ethics breaches involving
competitors’ proprietary information represent either fundamental
flaws or a systemic failure. Clearly, however, there are areas requiring
improvement and our recommendations address these with the
objective of strengthening the entire program.”
Finally, on Nov. 11, the company established a new Office of Internal
Governance that would report directly to Condit. The office was to
conduct internal audits and monitor ethics and governance. Boeing
Senior Vice President Bonnie W. Soodik was selected to lead the
organization. “Today’s action reflects the full agreement of our
board and our senior management team that the commitment to
these important areas must be set at the very top,” Phil Condit said.
Though huge company-wide efforts had been made, less than two
weeks later Boeing was once again on the ethics alert. The Sears-
Druyun controversy has been revealed to stakeholders and media
and the company who had gone great lengths to make amends is
once again knocked on its back. Despite public relations efforts to
publicize revamped ethical standards, Druyun and Sears have
increased Boeing’s struggle to build and maintain an image of an
ethically responsible corporation. The new issue also jeopardizes the
ability of Boeing to compete for military contracts. The suspension
following the Lockheed Martin case was close to being suspension
for bidding on military contracts (and) was near to being removed
following Boeing’s efforts to enhance ethical practice. Now it
doesn’t look good.
Biographies
Phil Condit: Boeing Chief Executive Officer
Philip (Phil) M. Condit was elected to be the chief executive officer
and chairman of Boeing in 1997. He is the seventh chairman since
the company was founded in 1916. Before holding his current
position, he served Boeing for 30 years in several different capacities.
When he first joined Boeing in 1965, he did so as an aerodynamics
engineer on the Supersonic Transport Program. Although he started
as a regular employee, he quickly moved up the chain of command
to his current position.
Under Condit’s management, Boeing became the largest exporter in
the United States, with revenues of more than $54 billion as of 2002.
Large companies rely heavily on the leadership of management and
Condit takes great pride in holding such a prestigious position.
While managing the company’s current finances, he worked to bring
several mergers and acquisitions to Boeing. These mergers are
responsible for taking Boeing from a U.S. company to a major world
leader in the aviation industry. Boeing currently has strong defense,
space, information technology, communications and commercial
airplane programs.
Along with his success as CEO and chairman of Boeing, Condit has
experienced personal success with his own innovations. Condit’s
love for aviation and airplane technology led him to receive his own
pilot’s license at age 18. Because of his personal interest in airplanes,
Condit has written several papers on commercial aircraft technology,
many of which have been published. Condit also holds a patent for
the design of a flexible airplane wing, known as the Sailwing.
While at Boeing, Condit helped launch a new design of 777 Boeing
airplanes featuring a wide-bodied design and integrated the design
team that built the 21st-century jet. To build this jet team, customers,
suppliers and employees were brought to design a product that
would suit the needs of all parties involved. This mission to build a
21st-century jet with a qualified team of experts paid off for Condit.
The team has won several awards including the Collier Award, which
celebrates the success of cooperation and teamwork.
Mike Sears: Boeing Chief Financial Officer
Mike Sears joined Boeing in 1997 when Boeing merged with
McDonnell Douglas, another leader in aerospace technology. Sears
brought to Boeing over 27 years of experience.
Before joining forces with Boeing, he served as president of
McDonnell Douglas for six months prior to their merger. Sears
started his career with McDonnell Douglas as a senior engineer for
avionics technology. One of his major accomplishments while at
McDonnell Douglas was the development and production of the
F/A-18E/F Super Hornet program. This design is now the U.S.
Navy’s front-line strike fighter.
When Sears first joined Boeing, he managed the development and
production of military aircraft and missile systems. While working
with this division for three years, he held the positions of senior vice
president and president. In May 2000, however, Sears turned over his
position as president of the development and production of military
aircraft and missile systems to become the chief financial officer of
The Boeing Company and executive vice president.
Sears had no prior training in finance before becoming CFO. When
it was announced he would be taking over the position, mixed
feelings about the decision circulated among investors and
management officials at Boeing. CEO Phil Condit however, was
confident in his decision to place Sears in the position. Condit
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made several statements in an attempt to assure investors and
management. He said, “We have built a team that allows someone
like Mike, with real drive for change, to come in and do that job
without the deep financial background.”
According to analysts and other company officials involved, Sears’
lack of financial background was his only negative downfall. Sears
had an amazing track record in the industry of aerospace technology
and Condit felt this would be his greatest asset to the company. In
another statement, Condit spoke of Sears’ capabilities and the
valuable assets he would bring to the company. He said, “Mike will
add fresh operational thinking to the aggressive target-setting efforts
we have put into place. He also will bring vital strategic thinking to
the corporate office as we pursue growth initiatives.”
Darleen Druyun: Deputy General Manager
for Missile Defense
Darleen Druyun joined Boeing on January 3, 2003 to work on the
missile defense program. Prior to her current position with Boeing,
she worked as the principal deputy assistant secretary for the United
States Air Force acquisition and management. Druyun became a
member of the Boeing staff shortly after ending her career with the
Air Force, and her extensive history with the missile program
allowed her to assist with the company’s missile defense program.
Because the government was the major purchaser of Boeing’s
defense products, Druyun had interacted with Boeing officials
regularly in her previous position.
It was believed Druyun’s valuable experience and long history with
the Air Force and her passion for the defense program were key
factors in her acquiring a position at Boeing. One Boeing executive
explained how Druyun was a valuable asset for the company.
“Darleen Druyun helped drive acquisition reform within the Air
Force. Her ‘Lightning Bolt’ initiatives, which jump-started the
reform process, have saved the U.S. Air Force and taxpayers more
than $20 billion to date,” said James Evatt, senior vice president and
general manager of Boeing Missile Defense Systems. “Her personal
passion and drive are well known within the defense industry, and
we expect her to be a key player in our future success.”
Current Situation
Pressure is rising all around Condit as members of the Board of
Directors cast their vote; he wondered how this issue would be
resolved. Reflecting on the events, Condit recalled how Senator John
McCain was the first to raise questions about the tanker proposal. In
July of 2003, McCain alleged that when Boeing was battling to
secure the tanker deal, Druyun improperly gave Boeing details of a
competing bid from Airbus, Boeing’s European rival. McCain
demanded thousands of internal Pentagon documents pertaining to
the tanker deal, which only served to reinforce his opposition on
the project.
 As McCain began raising questions and concerns in Washington,
Boeing implemented their own investigation of the deal. Early in
November, the investigation produced compelling evidence showing
that not only did Sears and Druyun behave inappropriately, but they
took great measures to conceal their actions. The investigation also
revealed a possible third party. Druyun’s daughter Heather McKee,
who works for Boeing’s military division in St. Louis, may have been
involved in inappropriate actions as well. McKee reportedly
communicated with Sears last year about her mother’s plans to leave
the Air Force and Sears told McKee about possible positions for her
mother at Boeing. Boeing’s internal investigation into this issue is
ongoing. Since the investigation showed that Druyun gave an unfair
advantage in the tanked deal, further investigation may reveal that
she tainted other deals as well.
Discussion Questions
1. Should Phil Condit also resign? What would be accomplished by
this action?
2. Can Boeing expect to have 100 percent compliance with its ethics
policy? Most of the employees are following the guidelines, but it
only takes a couple of employees to have an enormous impact on
the company’s reputation and relationship with the Pentagon.
3. Other than the Pentagon, who are the key constituents that
should be addressed in this issue? What communication
strategies should be used to repair relationships with these
constituents?
4. How can Boeing do more to increase employee commitment
to ethics?

Secretary Donald Rumsfeld has announced the Pentagon’s 5. Is it fair to punish a whole company because of the actions of a
intentions to investigate whether or not to suspend the tanker deal. few individuals? Does it matter if the individuals are upper
“We are the custodian of the taxpayer dollars. We have an obligation management or line employees?
to see that things are done properly,” Rumsfeld said during a
Pentagon press briefing. “Certainly, when something of that nature Charts
occurs, one has to step back and say, ‘What is it we ought to be Year ended December 31 2003 2002 2001
thinking as responsible managers of this department?’ “. Asia, other than China $6,887 $7,614 $7,112
China 749 1,442 1,504
These recent events combined with Boeing’s history have made for a
Europe 3,835 5,871 8,434
very complicated situation. Any action the board members decide to
take will have multiple side effects, predictable and unpredictable, Oceania 1,944 1,813 895
controllable and uncontrollable. Steven L. Schooner, an associate Africa 675 525 573
professor with the Government Procurement Law Program at Western Hemisphere,other
George Washington University predicted that if Boeing fires Druyun than the United States 1,271 669 875
and Sears it would cause defense companies and officials to question 15,361 17,934 19,393
if the 1980s campaign for higher ethical standards was replaced by a United States 35,124 36,127 38,805
fight for more flexibility in government contracting. Total sales $50,485 $54,061 $58,198
Chart found at: http://www.boeing.com/companyoffices/financial/finreports/
As this issue has gained public attention, the government has annual/03annualreport/f_ncfs_10.html
become increasingly concerned about Boeing trustworthiness. Not
only are they questioning Boeing’s ethical practices but the Pentagon A bumpy ride Boeing share price, $
Inspector General’s Office is investigating communications between
Druyun and Boeing surrounding the tanker deal. In addition, the 70
Air Force said it “deplores behavior that jeopardizes the integrity of
government procurement activities.” Its statement added the Air 60
Force may ask an “appropriate authority to investigate the alleged
impropriety.” 50

After all the Board members’ votes were tallied, the unanimous 40
decision to fire Sears and Druyun was announced. However, the
Board also knows that firing Sears and Druyun may not be enough 30
to regain the trust of the government and other key stakeholders.
They may not be so forgiving this time around. In order to preserve 20

Boeing’s future, Condit will have to take unprecedented measures to

1999 2000 01 02 03
regain stakeholder trust.
Source: Thomson Datastream
Chart found at: http://www.economist.com/printedition
/displayStory.cfm?Story_ID=2246411

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
  
Jounghwa Choi, student
Faculty Adviser: Teresa Mastin
College of Communication Arts & Science
Michigan State University
How Dumplings Became Garbage? 1 The Korea Food
and Drug Administration’s Handling of a Food Scare
Introduction
In early June 2004, South Koreans were shocked by news reports that
they had been eating dumplings’ filling made of trashed pickled
radish remnants. All media outlets were reporting on the so-called,
“garbage mandu (dumpling) scandal,” graphically displaying
disgusting pictures of manufacturers processing dumpling filling.
The police were initially in charge of the case, which was eventually
handed over to the Korean Food and Drug Administration (KFDA).
Since such spoiled food cases happen nearly every summer, the
KFDA thought the handling of the dumpling issue was a routine
case. However, tremendous public outcry moved the case from
routine to a situation that placed the entire dumpling industry at
risk. Contrary to initial news reports, it was later revealed that many
companies were accused unjustly and the KFDA had not followed
proper procedures. Once the KFDA’s role in the debacle became
known, opinion shifted against the KFDA. Consumers’ distrust
extended beyond dumplings to governmental agencies and the food
safety as a whole. The primary tasks for the KFDA were helping the
devastated dumpling industry and restoring the public trust.
Background
Organization and functions of the KFDA
The Korea Food and Drug Administration (KFDA) is the
governmental agency responsible for food and drug safety systems in
Korea. Its main functions include surveillance for food
contamination and adulteration, approving of manufactured or
imported drugs and biologics, controlling safety, reviewing standards
and specifications for foods, drugs and medical safety and devices,
and research (KFDA, 2003a). The KFDA acquired the status of
administration under the Ministry of Health & Welfare on February
1998 (KFDA, 2003b). Compared with the Food and Drug
Administration of the United States, the KFDA’s administrative
authority is relatively weak since significant parts of the food-related
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administrative tasks are divided among local governments and other
governmental ministries, such as agriculture and forestry, and
maritime affairs and fisheries. About 850 staff (members) work in the
KFDA.
The KFDA consists of a head office, a safety evaluation office, a
national institute of toxicological research, and six regional offices.
The head office consists of General Services Division, Planning &
Management Office, Food Safety Bureau, and Pharmaceutical Safety
Bureau (KFDA, 2003a). Like most of the governmental agencies, the
public information office (PIO) was directly governed under the
commissioner of the agency, but in February 2004, the KFDA
restructured the organization and located PIO under the Planning &
Management Office for the purpose of providing a synergistic effect
by combining the planning and public relations functions
(Hwajanpoom Shinmun, 2004; refer to Appendix 1). However, this
increased the layers of approvals for information release and there
were complaints that timely press releases became difficult
(Sikpoomilbo, 2004).
The chief public information official at that time was assigned to the
position in August 2003. Prior to joining the PIO, he worked for
other management divisions in the KFDA (KFDA, 2003c). Generally,
in Korea, once one becomes a governmental official, he/she moves
across positions within the organization several times during his
tenure. Therefore, usually public information officials are trained on
the job about public relations, rather than having a communication
background. While this rotation system allows officials to gain a
better understanding of diverse organizational functions, in a sense
it hinders specialization. In June 2004, PIO in the KFDA had four
public information officials (The Ministry of Health & Welfare,
2004) and each regional office has one officer who was in charge of
media relations as well as other assignments. With four information
officers, the PIO were producing about 25 press releases per month
on average.2 PIO’s responsibilities include press release writing and
dissemination, communication of public policies, news page
management, briefings, and managing risks (KFDA, 2003d).

Dumpling, Consumers and Media
Dumpling (Mandu). Dumpling, called Mandu in Korea, is Koreans’
favorite snack often enjoyed as meals. Mandu is prepared by filling
seasoned minced meat and vegetables inside a flour-based ‘‘skin.’
Dozens of dumpling brands are on the market by big food
companies and small to mid-sized companies who mass produce
frozen dumplings. While big companies have numerous product
lines and dumpling is only a fraction of the sales, small and mid-size
dumping manufacturers depend on the sales of dumplings. “It has
been a growing trend among food companies to invest in the
dumpling business as the market has been experiencing growth over
the past few years” (Korea Herald, 2004a). In addition to the mass
production companies, there are many privately owned dumpling
shops on the streets, which sell their own hand-made dumplings.
“Industry sources estimate that the local market for mandu amounts
to over 300 billion won per year” (Korea Times, 2004).
Consumers. Recently, in Korea, the concept of “well-being,” a trend
toward living a healthier lifestyle has become fashionable. People are
much more interested in health issues and food safety. One of the
driving forces of the well-being wave may be attributed to people’s
concerns about the food safety. Relaxed restrictions on agricultural
produce import increased the circulation of cheap and low-qualify
imported produce in the market, especially from China. Sometimes
imported produce was sold illegally labeled as domestic produce.
The public’s distrust about the government’s ability to supervise
such illegal acts and prevent potential risks increased accordingly. In
this context, the Korean public was sensitive to media reports about
health risks. In the case of the bird flu outbreak in the late 2003,
while experts reported that poultry was safe to eat when fully
cooked, chicken consumption plummeted dramatically. Even, a fried
chicken shop owner committed suicide. Similar results occurred
when the mad cow disease case surfaced. That is, although no mad
cow disease case was reported in Korea, beef consumption decreased
drastically.
Media Practices. In 1989, the prosecutors reported that some
instant noodle manufacturers fried noodles with industrial-
use beef oil. The media picked up the story with sensational
titles. However, it was found not to be true. The alleged oil
was lower grade oil but good enough to use for human
consumption when purified. After the long court battle, the
prosecuting authority ruled not guilty but the leading instant
noodle manufacturer at that time was unable to restore its
reputation even after more than 10 years. A similar case
occurred in 1998. In this case, the prosecutors reported that a
portion of formalin, a 10 percent solution of formaldehyde in
water which is used as a disinfectant or to preserve biological
specimens, was found in the canned golbangi (bai-top shell).
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
The media reported the stories under the title of “canned
golbangi mixed with formalin” (Hankyoreh 21, 2004a). It was
later reported that formalin can form naturally from
golbangi. Since these two cases, Korean journalism has been
criticized with as possessing the following characteristics.
• Sensationalism: The media often take up sensational
words to exaggerate the case. They have been blamed for
fostering people’s fears.
• Hot-pot journalism practices: The media flock to the issue
for a short period and turn away from the issue without
enough follow-up reports.
• Negligence of investigative reporting: Journalists respond
to government press releases rather than conducting
investigation. News reporters rely on government agencies’
press releases and do not engage in their own investigation
and analysis.
• Practices of scoop competition: Because of harsh
competition for scoops, inaccurate information is often
released.
How the issue unfolded
Pre-Phase
In early March, the National Police Agency was investigating
Euddum Foods, a dumpling filling manufacturer. The police were
suspicious of the hygienic conditions of the dumpling filling
manufacturing process, and found that the company had used the
remnant of pickled radish as filling ingredients. The pickled radish
used was in part imported from China but the company did not
state this on labels. In March, 2004, the police requested an appraisal
of the harmfulness of the dumpling filling from National Institute of
Scientific Investigation (NISI) of Korea and the KFDA separately.
Two types of bacteria were reported (Hankookilbo, 2004).
Meanwhile, in early May, the KFDA inspected several pickled and
dried radish manufacturers, and learned that the police were
investigating Euddum Foods. At this point, the KFDA handed over
the documents collected from other companies and asked the police
to investigate those manufacturers.
Crisis Event
On Sunday, June 6, the National Police Agency issued a public
announcement that local food firms including Euddum Foods made
dumpling filling with rotten ingredients. The police reported that
for five years the companies had supplied spoiled dumpling stuff to
25 dumpling manufacturers including some big food companies
(only the English initial of the name of companies were disclosed).
It was claimed that, to make dumpling filling, the companies used
remnants of pickled radishes imported from China, which were
supposed to be trashed (National Police Agency, 2004). The
remnants of pickled radishes were described as ‘garbage’ or ‘trash’
four times in the police press release (Seoul Shinmun, 2004). The
police also provided news reporters with video that contained
pictures of the filling being manufactured in factories.
On the same day, most TV stations reported the story in the evening
news under the title “garbage pickled radish found in dumplings of
famous food firms (KBS)” or “bad dumplings, mass circulated
(MBC).” The news reports showed the pictures received from the
police, which contained images of radish remnants in dirty baskets
on the floor, radish remnants disposal process, and the desalting
process of pickled radishes (Refer to Appendix 2).3 The next
morning, the story was picked up by newspapers. Until that time,
the issue was not advanced as a main story but stigmatized as
“garbage dumplings” scandal. Newspapers used the titles such as
“rotten radish in dumplings” (Seoul Newspaper), “bacteria-mixed
dumplings” (Hankook Daily), “garbage consciences sell garbage
dumpling filling” (Hankyoreh Newspaper), “garbage dumpling
fillings, mass circulated” (Kyunghang Newspaper), etc. While the
police reported that Euddum Foods took 80 percent of market share
in dumpling filling market, it was presented in the media as 80
percent of dumplings in the market used the spoiled dumpling
filling.4
As a result of the vivid television news images, public outcry
increased enormously throughout the next day. For example, people
flocked to dumpling firms’ Web sites demanding that apologies be
made. To the police, media, and the KFDA, there were massive calls
from the public, asking to disclose the name of dumpling
manufactures which used the spoiled dumpling filling. The public
mood can be seen in a quote printed in the newspaper: “this kind of
crime should be accused of murder, not of the food sanitation act,”
some citizen argued (Hankookilbo, 2004b). Consumers also blamed
the government for letting the spoiled dumplings out in the market.
They protested in front of the KFDA head office throwing out
dumplings, and asked the organization to disclosure the name of the
alleged dumpling manufacturers. From that day forward, dumpling
consumption dropped rapidly.
The KFDA’s Initial Reaction
After the police made the first public announcement about the case,
the KFDA informally acquired the documents from the police on
June 7, the day after the first police press release (Hankyoreh
Shinmun, 2004a). Now, the handling of the case and the
investigation were placed in KFDA’s hands. The list of accused
companies, which was made by the police, was based on Euddum
Foods trade records. Therefore, until that time, many of the alleged
companies did not know they were being accused (Hankyoreh
Shinmun, 2004c). It was necessary to confirm facts with the
companies involved but the KFDA hastily posted the list on its Web
     .        
site on June 7. Although the KFDA took it off one hour later,
Internet users picked up the information during that hour and it
spread rapidly through personal Web sites. Meanwhile, the KFDA
took off the list because of the pressure by the accused companies.5
(Naeil Shinmun, 2004). As this story spread among Internet users,
they flocked to the KFDA Web site and protested saying “Is the
KFDA the lawyer of dumpling companies (Naeil Shinmun, 2004)?”
At the same time, some of the accused companies, such as
Chewyoungroo, heard the fact that they were accused from the
Internet.
On June 8, the KFDA held a press conference and announced that it
would investigate 25 companies on the list and release the name of
companies after the investigation. In the press conference, Mr.
Chang-Goo Shim, the commissioner of the KFDA, reported that a
revised food sanitation act would be introduced in September at the
earliest, and would include stronger punishments for spoiled food
cases. He added that the KFDA would include dumpling and pickled
radish in the monthly inspection list and enact a food safety law to
response swiftly to the food safety incidents (KFDA, 2004a).
During June 8 and 9, the KFDA committed 38 staff members for
overnight investigations of the 25 companies on the list. Many of the
companies proclaimed their innocence and it seemed more time was
needed to perform the investigations fully. If the list was released
and they were found to be innocent, litigation would follow. It was
also important to protect the public from the spoiled food by
informing people not to buy the substandard products. Therefore,
the decision about the information disclosure was a critical issue.
Meanwhile, because of the shortage of information regarding which
dumpling brands were accused, the stigma of “garbage” were
extending to dumplings as a whole, causing people to avoid even
hand-made dumplings sold in privately-owned shops. The media
also blamed the KFDA for not releasing the information.
Forced by increasing public pressure, on June 10, the KFDA held a
press conference and reported the list of the dumpling manufactures
which were presumed to use the spoiled dumpling stuff produced by
Euddum Foods. At that point, the investigation was not fully
conducted. Mr. Shim, the commissioner, presented the list of 25
companies and urged consumers to watch out for five brands which
were still circulating in the market. In the press release, it was
reported that hand-made dumplings were not related with this
dumpling case (KFDA, 2004b). Mr. Shim noted that the KFDA did
not know about the case before the police announcement. At the
end of the press conference, a consumer activist asked Mr. Shim
“why there is no apology in the press release even though the
public’s outcry is so great like this?” Mr. Shim left the place without
answering the question (Hankyoreh Shinmun, 2004a).
 On the same day, Mr. Shim visited a TV program to discuss the
dumpling scandal. One of the issues in the discussion was whether
the alleged dumpling filling was harmful to human. For this issue,
Mr. Shim addressed “since there is problem in the hygienic
condition, I judge that there is an issue of harmfulness in this case.”
In advocating the position, Mr. Shim said that “... in this case,
considering the evidence provided by the police and presented on
TV, it seems there is at least the issue of hygiene, clearly...” The
anchor asked Mr. Shim, “Can’t KFDA make its own judgment? Is the
situation such that you have to make judgments from the media?”
Mr. Shim made excuses saying that the KFDA does not engage in
cases that are being investigated by the police and it could not do it
since the police had already seized the necessary documents (MBC,
2004). It appeared that the KFDA was not aware of the details of the
case and simply depended on the information by the police and the
media. On the other hand, other experts argued that it was difficult
to say that the dumplings would be harmful because dumplings are
steamed, boiled or fried before intake. To date, no official cases of
disease caused by dumplings have been reported.
Consumer response to the list disclosure was enormous because
some prestigious companies were included. Consumers’ skepticism
about food safety was widespread. The public attitude was “there is
nothing to eat without doubt” (Kyunghyang Shinmun, 2004b). Some
consumer organizations announced they planned to request
compensation from the companies and the governmental agencies
involved in the case for their civil and criminal responsibility
(Segyeilbo, 2004).
From June 11 to 15, follow-up investigations were conducted by the
KFDA. As a result of the investigation, it was found that 14 out of 25
companies were innocent. On June 14, an owner of small dumpling
company committed suicide. In his suicide note, he claimed his
innocence and criticized the government’s problematic food system
management (Kyunghyang Shinmun, 2004c). Moreover, for many of
companies the KFDA alleged to be guilty, local governments ruled
that it was unfair to place administrative measures on those
companies because no proof for the harmfulness of the dumplings
was found (YTN, 2004). These events provided a turning point
regarding the issue. Now the blame shifted from the business to the
police, the KFDA, and the media, with the bulk of the blame on the
KFDA because it was believed that food-related issues are ultimately
within the KFDA’s responsibility. The KFDA was accused of
conducting the investigation in a rough and ready way. The media
was also blamed for making sensational and inaccurate reports.
Communication Problems in the
KFDA’s handling
As behind-the-scene-stories began to be disclosed, many
communication issues arose.
     .        

Communication breakdown with the police
The police argued that two types of bacteria were found in the
dumpling filling by National Institute of Scientific Investigation of
Korea (NISI). The police also reported that the other government-
affiliated research institute told that the products containing those
bacteria are not eatable (Hankookilbo, 2004c). Later it was revealed
that in the police report, the NISI raised the possibility that the
sample of dumpling filling was contaminated by the process of
picking and delivering the evidence (Hankookilbo, 2004c). However,
the information was not shared with the KFDA, contributing to
KFDA’s misjudgment of the situation. Also, it turned out that
neither the KFDA nor the police communicated with each other
after the police took charge of the case.
Failed to shape accurate perception
about the issue
While the critical point in this case was whether the remnant of
pickled radish was real garbage or edible food material, the KFDA
was not actively involved in shaping accurate perception about this
issue. In the initial police report, the remnants itself were described
as garbage and the media simply picked it up. In people’s
consciousnesses, pickled radish remnants was perceived as garbage
that should be trashed. However, it was found that the use of
remnants from the process of pickling radish is legally allowed by
the KFDA and even the technique was patented (Ddanjiilbo, 2004).
Also, it was later learned that when the KFDA inspected the sample
of dumpling filling in March, as the police requested, it concluded
that the bacteria found were non-disease-causing germs or has little
potential to cause disease, because those bacteria die when
dumplings are cooked with heat over a certain temperature
(Hankookilbo, 2004c). Further more, bacteria inspection had not
been required in the hygiene inspection for dumpling filling because
it is meaningless in the fact that dumpling filling undergoes several
processes such as boiling (Donga.com, 2004b). While the KFDA had
insisted that the case is about hygienic problems, it was unclear what
was meant by ‘hygienic.’
With the lack of information, lay people held inaccurate perceptions
about the issue. According to a national survey conducted by
Hankyoreh newspaper on June 12, the majority of the people, 64.3
percent, believed that ‘the dumpling scandal was caused because
some food firms used trashed remnants of pickled radish to make
dumpling filling.’ Only 32.2 percent answered that ‘some food firms
used remnants of pickled radish in unhygienic way to make
dumpling filling,’ which is more in line with the truth.
Denying and excuses
From the beginning, the KFDA consistently argued that it did not
know about the case before the police announcement. However, this
claim was refuted by the police. The police argued that the “the
KFDA knew about the case because it conducted crackdowns on
remnants of pickled radish in 2001 and 2003” and “we asked the
KFDA to accompany when we went out for investigations on March
9, but the KFDA refused it” (Hankyoreh 21, 2004b). In fact, it was
found that the police had asked the KFDA to inspect the sample of
dumpling filling in March (Hankookilbo, 2004c) and the KFDA
knew that the police were investigating Euddum Foods in May. As
for this allegation, a KFDA officer made an excuse saying that he
thought that the police’s investigation was about imported foods,
not about dumplings (Kyunghyang Shinmun, 2004a). In addition, it
also became known that KFDA regional offices had asked the local
government to take administrative measures on three separate
occasions regarding Euddum Foods. However, the head office did
not take any further action. As these details were disclosed, KDFA
appeared to be lying, neglecting, and denying its responsibilities.
Failed to be a reliable and responsible
information source
While there were many issues regarding KFDA’s mishandlings,
minimal official comments were available from the KFDA, which led
the media to rely on informal sources. For example, the KFDA did
not responded to the reporters’ question about whether it knew
about the reports on Euddum Foods by regional offices. As a result,
what has been quoted in the newspaper were unofficial comments
such as; “It is uneasy for me to confirm the facts. Please, don’t ask
me any more (by a high official of KFDA),” or “It was a normal case.
We did not expect the case would become serious like this, so that
we did not take any action” (Kyunghyang, 2004d). The impression
from these quotes might be that the KFDA was hiding something or
irresponsible. Also, as many facts turn out to be different from what
the KFDA argued, public trust in the KFDA as an information
source decreased.
As the KFDA failed to communicate in an accurate and appropriate
manner, public opinion toward the KFDA became increasingly
negative. According to an opinion poll on June 12, only 11 percent of
the sample answered that they trust the governmental agencies
which are responsible for the food safety. About 62 percent of the
participants answered that foods are ‘not safe to eat’ while 11 percent
answered ‘safe.’
Ripple Impacts of Dumpling Scandals
During the crisis, the KFDA did not take an active role. The case
caused significant social impacts, including direct impacts on the
accused companies as well as an indirect ripple effect on the
society at large.
     .        
Impacts on dumpling industry: All small and mid-sized dumpling
manufactures fell into severe financial crisis. To the big food
companies, dumpling is just a fraction of their business but to small
and mid-sized companies, it is their entire business. Public distrust was
extremely high; the turnover of the dumpling industry production was
just at the level of 10 percent of the normal level a month after the
initial event. Some dumplings companies went into default and
hundreds of employees lost their job (Dongailbo, 2004). For other
companies, recent active investments on the facilities became
burdens, because, without sales, paying the interest on bank loans
was impossible. Also, small restaurant businesses that sell their own
hand-made dumpling were severely harmed. The companies, which
were not involved in this scandal, also had difficulties, as consumers
asked for refunds and traders cancelled orders. (Refer to Appendix 4)
Impact on other industries: Not only dumpling manufactures, (but)
related industries, i.e. farmers who supply meat and vegetables for
dumpling, pickled radish manufacturers, frozen food industries,
were also affected.
International relationships: The issue went beyond a domestic issue.
On June 9, Japan, the largest importer of Korean dumplings,
imposed a ban on the import of Korean dumplings. Although the
ban was receded on June 22, the dumpling scandal also became a big
issue in Japan and left a bad image about Korean foods in the minds
of the Japanese (KBS, 2004). Following Japan’s example, subsequently
other countries, (including) United States, Australia, and South
Asian countries, also banned the import of Korean dumplings. It can
be said that the dumpling spoiled Korea’s image across the globe.
Being Responsible or Blame-Shifting?
On June 15, in a meeting for an operational report to congressmen,
Mr. Shim, the commissioner of the KFDA, admitted that the
investigation of the dumpling case was conducted in a hasty manner
because of the public pressure. He also admitted that the KFDA
should not have released the list until the investigation had been
completed (Hankookilbo, 2004d). It was the first time that the KFDA
admitted its mistakes, but it was not done in the form of public
announcement or apologies to the public. Meanwhile, according to a
local newspaper on June 18, the KFDA said there had been and was
nothing wrong with its way of conducting the investigation. An
official, who declined to give his name, at the KFDA’s food
management department, explained that “we have been doing our
best, and the two companies that have been cleared is not a result of
being careless; they were on our list of companies, which we believe
needed additional probing” (Korea Herald, 2004b)
Meanwhile, on July 12, the KFDA announced that from June 12 to
July 6, the KFDA conducted a national special sanitation inspection
on manufacturers of dumplings, dumpling filling, and pickled
radish. In the press release, the KFDA assured that it is okay to buy
dumplings and told that it would do its best to help the dumpling

industry to restore their business (KFDA, 2004c). On July 13, the
KFDA and the Ministry of Health & Welfare placed a one-third-page
newspaper advertising to promote dumpling consumption
(Appendix 3).
On July 15, a column by KFDA Commissioner Shim, appeared in a
newspaper. In the column, he addressed that “previous food safety
accidents were amplified by the non-expert organization’s hasty
announcement and media’s exaggeration” (Seoul Kyungje, 2004). On
the same day, another column by another KFDA official appeared in
another newspaper. He apologized for not preventing the scandal
and argued that “there was a misunderstanding that the KFDA
hastily announced the list of the accused companies and resulted in
damages on those companies.” He explained that “the frustrated
public forced the KFDA to release the list” and, “regardless of the
public’s frustration, the KFDA released the list to take its
responsibility of preventing circulation of the spoiled dumpling”
(Hankyoreh Shinmun, 2004d). Responses to these columns were
cold. In response to Commissioner Shim’s column, a newspaper
noted that the KFDA was shifting its blame to the media and the
public (Kyunghyang, 2004e). Some Internet users also responded
negatively to the columns and advertising, saying that the KFDA was
attributing the responsibility to public misunderstanding.6
In early July, eight small and mid-size dumpling companies formed
the Korea Dumpling Producers Association to collectively file a
compensation claim against major media and government bodies –
namely, the National Police Agency and the Korea Food and Drug
Administration. Because of tremendous loss of public trust, it
seemed there would be a long way for the KFDA to go to rebuild
trust with the public, media, and companies.
Problem Questions
1. Should the KFDA have released the list of the companies before
its investigation had been completed? How should such decisions
about the information disclosure be made? How can one balance
between the public’s right to know and potential damage of the
companies?
2. How had the issue been amplified? What were the factors which
contributed to the amplification process? What is the significance
of effective communication in the issue amplification process?
What kind of precautions should be taken to deal with such
media environment?
3. Think about the barriers of effective communication in the public
sector, especially when it involves other governmental agencies.
4. How would you evaluate the KFDA’s media relations? How was
the relationship between reporters and the public information
officer?
5. What was the status of the public information office in the
organization? What were the organizational factors which might
have an influence on the effectiveness of communications?
     .        

6. Considering the constraints, how could the KFDA actively have
dealt with the post-crisis situation? What kind of information
and strategies might be necessary to assure the public and
minimize the damage of the innocent companies? If you were the
chief official of the public information office, what would you do
at this point?
Post-script
Before the scars from the dumpling scandal had been healed,
another public relations fiasco erupted involving the KFDA. On July
31, the KFDA disseminated a press release. It was about prohibition
of sales of cold medicine containing phenylpropanolamine (PPA).
Since many cold medicines with PPA had been commonly taken
without prescription and the issue was directly related to public
health, it was an important issue which needed to be handled
carefully. Although the prohibition of drugs is wholly KFDA’s
responsibility, it was necessary to report the Ministry of Health &
Welfare, the upper governmental administration, to minimize
potential public confusion or inconvenience. However, the new chief
official of PIO, who was the chief official of general affair division in
a regional office, had been assigned just a week earlier and none of
the staff in PIO including the chief recognized the importance of the
case. So, the information was released without discussing the matter
with the upper Ministry (The Ministry of Health & Welfare, 2004).
Moreover, the press release was handled in an unprofessional
manner. First, the press release was disseminated by e-mail on
Saturday which is not a business day for the most newspapers. There
was no pre-notification about the press release, briefing, or
supplemental information. After sending the e-mail, the staff of PIO
made calls to confirm whether reporters received the message, but
only 14 out of 25 were contacted (The Ministry of Health & Welfare,
2004). This mishandling led the media to suspect that the KFDA
intentionally delayed the announcement and released the press
release on Saturday to reduce the impact of the case on behalf of the
pharmaceutical companies. The suspicion came from the fact that
the research to investigate the harmfulness of PPA had been funded
by pharmaceutical companies. Furthermore, these types of
medicines had been banned in the United States since November
2000 (KDFA, 2004d).
Pharmaceutical companies were also frustrated with how the
KFDA dealt with the case. Although 70 percent of the
products, which were prohibited, were already off the market,
the KFDA simply provided the whole list containing the
name of 167 products without asking the firms to distinguish
them (Dailypharm, 2004). Consequently, for consumers, it
was confusing to tell which ones were prohibited. In addition,
the decision should also have been delivered to many other
organizations, such as local governments, consumer
organizations, pharmaceutical associations, and hospital
associations. However, because of an electronic system
malfunction, most of the organizations did not learn about
Appendix 1. Organization Chart
Source: The Korea Food and Drug Administration
General Services Division
Food Safety Bureau
Pharmaceutical Safety Bureau
Planning & Management Office
• Planning & Budget Office
• Innovation Management Office
• International Trade and Legal
Affairs Office
• Public Information Office
Customer Support
Appendix 2. Pictures from TV news reports
     .        
The Commissioner
The Vice Commissioner
Audit & Inspection Office
Reported in the
broadcasting
“Here is a factory of pickled
radish manufacturer in Paju
City in Kyung-gi Province.
On the ground, there are
boxes which contain radish
remnant from radish pickling
process.”
“Dumplings made of bad
filling went into the mouths of
consumers through discount
shops and restaurants
chains.”
“The local government, Paju
City, uncovered this dumpling
filling made of garbage, but
only imposed a fine.”
Source: Donga.com (Jun. 18,, 2004)
Safety Evaluation Office
National Institute of
Toxicological research
Regional KFDA
• Seoul
• Busan
• Gyeong-in
• Daegu
• Gwangju
• Daejeon
Report
Classification
“This is not the material for
dumpling filling. They took
the picture of garbage on the
ground.”
“This is not bad dumpling
filling but trash.”
“This is the process of
desalting. Since air bubbles
are rising, the water looks
dirty but it is clean water
which is purified and
sterilized.”
 the decision until after August 2 (The Ministry of Health &
Welfare, 2004).
As a matter of fact, the KFDA received the final report of the research
one month before the press release. This was a relatively quick
decision compared to the United States’ and the study conducted in
the United States was also funded by the pharmaceutical companies
(KDFA, 2004e). Therefore it would be fair to say that KFDA’s
mishandling of public relations created a great deal of attention and
aggravated the relationship with the media as it was so close of the
heels of the dumpling filling scandal. The public followed the
negative stories and criticized the KFDA strongly. The drug and the
dumpling filling cases led to Commissioner Shim’s resignation on
August 9 (Hankyoreh Shinmun, 2004e).
Going through the dumpling scandal and PPA sandal, the weakness
of public relations function in the KFDA was exposed and
recognized. The Ministry of Health & Welfare ordered the KFDA to
reinforce human resources in PIO and the KFDA assigned two more
staff (members) to PIO, now having six staff (members) (at the date
of Dec. 31, 2004). The KFDA also developed new policies for
effective public relations: establishing that public relations manage-
ment system that includes the chief of bureau, the director, the vice
commissioner, and PIO officers participate; holding a briefing
session before releasing the information (Shikpoomilbo, 2004). On
the other hand, these scandals made the public realize the role of the
KFDA and experts argued that the food safety systems should be
centralized in the KFDA, with more budget and human resources.
The dumpling scandal news reports were recorded as one of top 10
worst reports of the year in Korea (Hankyoreh Shinmun, 2004f).

Appendix 3. Advertising by the KFDA and the Ministry of Health & Welfare

Now you can eat dumplings without concern.

• We examined the hygienic and managerial condition of all dumpling

manufactures. (2004.6.12-7.6)
Uncovered 28 companies out of 297 and ordered correction or asked
administrative measures.

• We conducted an inspection on dumplings on the circulation. (2004.6.12-7.6)

For two items out of 542, which were below the standards, we ordered
production suspension and exhaustion.

• From now, we will exhaustively supervise dumplings.

We will conduct the inspection on dumpling every month.
We will conduct the inspection on manufactures every quarter, cooperating with
local governments.

From now, we will try to keep food safety with modesty and sincerity.

Source: Chosun Daily Newspaper (Jul. 13, 2004)

     .        

 Appendix 4. Dumpling Sale Trend in the Discount Shop
*Assuming the sales before the scandal is 100,
29
25

15

0% 0%
June 7–13 June 14–20 June 21–27 June 28–July 4 July 4–11

Source: Chosun Daily Newspaper (Aug. 9, 2004)

Appendix 5. Dumpling Scandal Time Line

February 22 The police found clues for bad dumpling in Euddum food company.
May 4–7 The KFDA conducted inspections on pickled radish and dried slice
radish manufacturers.
May 19 The KFDA asked the police to investigate those manufacturers.
May 19/20 The police filmed the factories of pickled radish manufacturers.
June 6 The police briefed the media about the dumpling scandal.
June 9 The Japanese government announced a ban on import of Korean
dumplings.
June 10 The KFDA announced the list of the accused dumpling manufacturers.
June 13 The owner of Vision Food committed a suicide.
June 15 The commissioner of KFDA admitted mistakes in the investigation.
June 23 Five food companies were cleared of suspicion.
July 7 The Korea Dumpling Producers Association filed a suit to the Press
Arbitration Commission against three broadcasting companies
requiring they make report corrections.

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dumpling was done in a rough-and-ready way]. Retrieved January 7, 2005, from
http://www.kinds.or.kr.
Hankyoreh 21. (2004a, June 15). Ildan Hanbun Toetrigo Boja [Let’s just blow it out?]
Retrieved January 8, 2005, from http://h21.hani.co.kr/section 021003000/2004/
06/021003000200406150514034.html

     .        
 Hankyoreh 21 (2004b, June 15). Bulryang Mandu, Bulryang Susa, Bulryang Bodo! [Bad
dumplings, bad investigation, bad reporting]. Retrieved January 8, 2005, from
http://h21.hani.co.kr/section-021003000/2004/06/021003000200406150514021.html
Hankyoreh Shinmun (2004a, June 10). Shim Chang Gu Sikyakcheongjang Ilmunildap
[Q&A with Chim Chang Gu, the commissioner of KFDA]. Retrieved January 8, 2005,
from http://www.hani.co.kr/section 005000000/2004/06/0050000002004
06101329001.html.
Hankyoreh Shinmun (2004b, June 11). Bulrayang Sikpoom Maknun Systemdo
‘Bulrayang’ [Bad dumplings, bad food safety system]. Retrieved January 7, 2005, from
http://www.kinds.or.kr.
Hankyoreh Shinmun (2004c, December 26). Bulrayang Mandu Numyungeh Beorang,
Jickwonduli Hwoesa Salrioltjio. [At the cliff pushed by the false charge of bad
dumplings, it was the employees who made the company revive]. Retrieved January 8,
2005, from http://www.hani.co.kr/section-005000000/2004/12/0050000002004
12262005148.html
Hankyoreh Shinmun (2004d, July 15). Mandu Upgae Taguk Antakkaum Koe [Feel
greatly sorry for the devastated dumpling industry]. Retrieved January 8, 2005, from
http://www.hani.co.kr/section-001042000/2004/07/001042000200407151645237.html
Hankyoreh Shinmun (2004e, Augist 9). Shim Chang Gu Sikyakcheongjang Saim [Shim
Chang Gu, the commissioner of KFDA regined]. Retrieved January 8, 2005, from
http://www.hani.co.kr/section-005000000/2004/08/005000000200408090955001.html
Hankyoreh Shinmun (2004f, December 29). Allhaeyui Nappun Bodo 10gajinun? [10 bad
reporting in this year?]. Retrieved January 8, 2005, from http://www.hani.co.kr/
section-001037000/2004/12/001037000200412291510001.html
Hwajangpoom Shinmun (2004, February 6). Shikpoom Euyakpoom Anjeoncheong
daedaejuk jojik gaepeon[The Korea Food and Drug Administration, reorganized in
large scale], Retrieved January 8, 2004, from http://www.hjp.co.kr/.
KBS (2004, June 18). ShinkangKyun-eui Sasileun: Suregi mandueui Sasileun [Shin Kang
Kyun’s ‘the truth is...’; The truth of garbage dumpling is...], Retrieved January 7, 2005,
from http://www.imbc.com/
The Korea Food and Drug Administration (KFDA). (2003a). Main Function. Retrieved
January 8, 2005, from http://www.kfda.go.kr.
The Korea Food and Drug Administration (KFDA). (2003b). History and Purpose.
Retrieved January 8, 2005, from http://www.kfda.go.kr.
The Korea Food and Drug Administration (KFDA). (2003c). Insa Dongjeung [Personnel
Movement]. Retrieved January 8, 2005, from http://www.kfda.go.kr.
The Korea Food and Drug Administration (KFDA). (2004a, June 8). Jaturi Murul
Sayonghan Mandu Jejoupso Jochi, Bodo Jaryo [Measures on the dumpling
manufacturers which used radish remnant: Press Release]. Retrieved January 8, 2005,
from http://www.kfda.go.kr.
The Korea Food and Drug Administration (KFDA). (2004b, June 10). Bulrayang
Mumallangi Sayong Mandu Jejoupso Jumgumgeolgwa Mit Jochi [The results of
investigation on dumpling manufacturers which used bad dried slices of radish and
measures]. Retrieved January 8, 2005, from http://www.kfda.go.kr.
The Korea Food and Drug Administration (KFDA). (2003d). Kihweck Kwanri kwa
[Planning & Management Office]. Retrieved January 8, 2005, from
http://www.kfda.go.kr.
The Korean Food and Drug Administration (KFDA). (2004c, July 12). Anjunhan Mandu
Jepoom Youtoneul Yuihan Jochi Gyulkwa [Result of inspection for safe dumpling
circulation]. Retrieved January 8, 2005, from http://www.kfda.go.kr.
The Korean Food and Drug Administration (KFDA). (2004d, July 12).
Phenylpropanolamine (PPA) Hamyou Gamkiyak Sayongjungjwa Kwanryeonhayeo-2
[About the prohibition of cold medicine containing Phenylpropanolamine (PPA)].
Retrieved January 8, 2005, from http://www.kfda.go.kr.
The Korean Food and Drug Administration (KFDA). (2004e, July 12).
Phenylpropanolamine (PPA) Sungbun Hamyou Gamkiyak Kwanryeon Unronbodoe
Daehayeo [Corresponding to the media reports about cold medicine containing
Phenylpropanolamine (PPA)]. Retrieved January 8, 2005, from http://www.kfda.go.kr.
The Korea Herald. (2004a, July 15). Dumpling makers struggle to revive market.
Retrieved January 8, 2005, from http://www.kinds.or.kr.
The Korea Herald. (2004b, June 18). Dumpling companies try to save reputation.
Retrieved January 8, 2005, from http://www.kinds.or.kr.
The Korea Times. (2004, June 17). Dumpling promotion drive launched. Retrieved
January 8, 2005, from http://www.kinds.or.kr.
Kyunghyang Shinmun (2004a, February 11). Kyungchal Susa Balpyotekaji 4neyon
6gaewolgan Sikyakcheong ‘Bulrayang Mandu’ Mollatta [The KFDA did not know about
the bad dumpling until the police’s report]. Retrieved January 7, 2005, from
http://www.kinds.or.kr.
Kyunghyang Shinmun (2004b, June 11). Gagongsikpoom Jyeda Suregiro Boyeoyo: Ittara
Teojin Bulryang Mukgeori Simindul Buntong [All mass produced foods look like
garbage: Citizens’ outcry rush out because of successive spoiled food scandal] Retrieved
January 7, 2005, from http://www.kinds.or.kr..
     .        

Kyunghyang Shinmun (2004c, June 14). Vision Food Daepyo Jungbu Binan Youseo
Pajang [A suicide note by the owner of Vision Food, which blamed the government,
ripples]. Retrieved January 7, 2005, from http://www.kinds.or.kr.
Kyunghyang Shinmun (2004d, June 12). Jibangcheong Bulryang Manduso Jukbal 3charei
Bogo, Sikyakchung Bulil Anida Muksal [The KFDA ignored regional offices’ reports
about the bad dumpling filling three times]. Retrieved January 7, 2005, from
http://www.kinds.or.kr.
Kyunghyang Shinmun (2004e, July 16). Kija Memo: Unron Tatman Hanun
Sikyakchungjang [Reporter Memo: The KFDA commissioners only attribute the blame
to the media]. Retrieved January 7, 2005, from http://www.kinds.or.kr.
MBC (2004, June 10). 100bun Toron: Suregi Mandu Padong, Daechaekun? [100 minute
discussion: Garbage dumpling scandal, what’s the counter plans?]. Retrieved January 8,
2005, from http://www.imbc.com.
The Ministry of Health & Welfare. (2004, August 9). Shikpoom Euyakpoom
Anjeoncheong Kamsa Keolkwa: Bodo Jaryo [Press Release: The result of audit on the
Korea Food and Drug Administration: Press Release]. Retrieved January 8, 2004, from
http://www.mohw.go.kr/index.jsp.
Munhwailbo (2004, June 8). Suregi Mandu Hwoesa Balkyeora: Simindul Sikyakcheong
Upchae Homepageyeh Hangyuigul Swoedo [Disclose garbage dumpling manufacturers:
Citizens’s protests rush into the Website of the KFDA and the manufacturers]. Retrieved
January 8, 2005, from http://www.kfda.go.kr.
Nail Shinmun (2004, June 10). Ppunhi Algodo Motsunda [Can’t write the truths
notwithstanding knowing the truths]. Retrieved January 8, 2005, from
http://www.kfda.go.kr.
The National Police Agency. (2004, June 7). Boerejinun Jungguksan Danmuji Jatturirul
Sugoehayoe Pewumulro Talyeon Seichuckhayoe Mandu dung Jaeryoro Nappumhaewon
Upja 6myung Impgun, Bodojaryo. [The police booked six manufacturers who supplied
food material made of remnant of pickled radish which were supposed to be trashed,
Press Release]. Retrieved January 8, 2005, from http://www.police.go.kr/
Segyeilbo (2004, June. 12). Bulryang Mandu Jipdan Jeso Chujin [Consumers are
preparing a compensational claim to bad dumpling manufacturers]. Retrieved January
7, 2005, from http://www.kinds.or.kr.
Seoul Shinmun (2004, June 18). ‘Seuraygi Mandu’ Pyohyun Wae Nawanna [Where did
the expression of ‘garbage dumpling’ come from?]. Retrieved January 7, 2005, from
http://www.hjp.co.kr.
Seoul Kyungje Shinmun (2004). Mandu Kudetarul Yuihan Jeun, Shim Chang Ku
Sikyakchungjang [Suggestions for a dumpling coup d’etat by KFDA commissioner,
Shim Chang Gu]. Retrieved January 7, 2005, from http://www.hjp.co.kr.
Shikpoomilbo (2004, August 20). Sikyakcheong Gonbo kineung Kanghwa Pilyoseung
Daedu [KFDA, the necessity to enforce public relations function arise], Retrieved
January 8, 2005, http://www.dailyf.net/main/content.asp?idx=34970
Sikpoomeumryo Shinmun. (2004, June 16). Bansonsa Danmuji Hwamyeon Jinwui
Nonran [Controversials around broadcasting films taking pickled radish]. Retrieved
January 8, 2005, from http://thinkfood.co.kr/view.html?no=28943
YTN (2004, August 12). Bulryang Mandu Muhyumeui Sokchul. [Alleged companies
with bad dumpling are cleared of suspicion]. Retrieved January 8, 2005, from
http://search.ytn.co.kr/search_view.php?m_cd=0103&jkey=200408120735011782
ENDNOTES
1. This case was written for class discussion and based on publicly available
information, such as newspaper articles, press releases and messages in the Internet
bulletin boards. Therefore, at some points, the case described here may not agree
with the KFDA’s perspectives or position.
2. It is the 2004 average. The press releases produced by regional office were not
counted in this number.
3. Later, it was argued by the manufacturers that the pictures taken by the police were
the images of real garbage and TV news used the images taken by the police. Also,
they argued that the processes which appear unhygienic in the pictures were the
characteristics of the process which is in fact hygienic. Responding to
manufacturers’ refutation, the reporters argued that they used their own film as well
as the films taken by the police (Donga.com, 2004a).
4. It was found that dumplings affected by the alleged dumpling filling was less than
10 percent of the total market because many kinds of dumpling do not use picked
radish as ingredient (Ddangiilbo, 2004).
5. As for this happening, KFDA argued that it was a mistake by a PIO officer
(Munhwailbo, 2004).
6. Comments from Internet users were searched from the bulletin boards in the
Ombudsman of Korea and Kyunghyang Newspaper.
  .     
OFFICERS TRUSTEES Nancy A/ Hober
Grainger

President Paul A. Argenti John F. Manfredi

Thomas R. Martin Tuck School of Business at Dartmouth Gillette Company
ITT Industries Nicholas Ashooh William G. Margaritis
American Electric Power FedEx Corporation
Vice Presidents
Kristen M. Bihary Richard D. Badler W. D. (Bill) Nielsen
Eaton Corporation Unisys Corporation Johnson & Johnson

Peter D. Debreceny Ann H. Barkelew James Scofield O'Rourke IV, Ph.D.

Allstate Insurance Company Fleishman-Hillard, Inc. (retired) University of Notre Dame

David R. Drobis John D. Bergen Ellen Robinson

Ketchum Siemens Corporation Tennessee Valley Authority

Maril Gagen MacDonald Angela A. Buonocore Kenneth B. Sternad

Gagen MacDonald LLC The Pepsi Bottling Group UPS

Anne M. McCarthy Harris Diamond Joan H. Walker

SAP AG Weber Shandwick Qwest Communications International, Inc.

James E. Murphy Gregory Elliott Donald K. Wright, Ph.D.

Accenture International Truck and University of South Alabama
Engine Corporation
Secretary Dominic Fry Executive Director
Richard D. Jernstedt Scottish Power PLC
Fleishman-Hillard, Inc. Paul Basista, CAE
Matthew P. Gonring
Treasurer Rockwell Automation
J. Roger Bolton Harvey W. Greisman
Aetna Inc. IBM Global Services

Frederick Wells Hill

JPMorgan Chase

     

We are grateful to the following companies and individuals for their generous support:

Diamond ($10,000+) Gold ($5,000+)

Allstate Insurance Company Wyeth
Johnson & Johnson
UPS

     .        
   
Arthur W. Page viewed public relations as the art of
developing, understanding and communicating character –
both corporate and individual.
This vision was a natural outgrowth of his belief in
humanism and freedom as America’s guiding characteristics
and as preconditions for capitalism.
  
• Tell the truth. Let the public know what’s happening and
provide an accurate picture of the company’s character, ideals
and practices.
• Prove it with action. Public perception of an organization
is determined 90 percent by what it does and ten percent by
what it says.
• Listen to the customer. To serve the company well,
understand what the public wants and needs. Keep top
decision makers and other employees informed about public
reaction to company products, policies and practices.
• Manage for tomorrow. Anticipate public reaction and
eliminate practices that create difficulties. Generate goodwill.
     .        

The successful corporation, Page believed, must shape its
character in concert with the nation’s. It must operate in the
public interest, manage for the long run and make customer
satisfaction its primary goal. He described the dynamic this way:
“Real success, both for big business and the public, lies in
large enterprise conducting itself in the public interest and in
such a way that the public will give it sufficient freedom to
serve effectively.”
• Realize a company’s true character is expressed by its people.
The strongest opinions – good or bad – about a company are
shaped by the words and deeds of its employees. As a result,
every employee – active or retired – is involved with public
relations. It is the responsibility of corporate
communications to support each employee’s capability and
desire to be an honest, knowledgeable ambassador to
customers, friends, shareowners and public officials.
• Conduct public relations as if the entire company depends
on it. Corporate relations is a management function. No
corporate strategy should be implemented without
considering its impact on the public. The public relations
professional is a policymaker capable of handling a wide
range of corporate communications activities.
• Remain calm, patient and good-humored. Lay the
groundwork for public relations miracles with consistent and
reasoned attention to information and contacts. When a
crisis arises, remember that cool heads communicate best.
 Arthur W. Page Society
317 Madison Avenue – Suite 2320
New York NY 10017
Phone 212-400-7959
Fax 212-922-9198
www.awpagesociety.com

Paul Basista, CAE

Executive Director

Susan Chin
Executive Assistant

Arthur W. Page Society Journal

Editors: Edwin F. Nieder, Patricia K. Nieder
63 Highland Avenue, Montclair NJ 07042
Phone: 973/744-6772 Fax: 973/744-0586
E-mail: nieders@comcast.net

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