Corporate Governance @ Production(Additives)-Nestle India Ltd

In 2014, Indians consumed more than 400,000 tons of the instant noodles—marketed in 10 varieties, from Thrillin’ Curry to Cuppa Mania Masala Yo!—and Maggi accounted for roughly a quarter of the company’s $1.6 billion in revenue in the country. That year Maggi was named one of India’s five most trusted brands. Nestlé, the world’s largest food and beverage company, began doing business in India in 1912. The Swiss parent company owns 63% of Nestlé India(2015), which trades separately on the Indian stock exchange. Nestlé’s operations in India encompass eight factories, an R&D facility focused on developing products for the Indian palate, and more than 7,000 employees. People hardly even ate noodles in India when Nestlé introduced Maggi in 1983.

Sanjay Singh, Food-safety officer of Utter Pradesh state govt first collected a Maggi package for testing in March 2014, from the Easyday store in Barabanki. His daughter liked to eat the instant noodles, which are sold in a plastic bag containing two components: a patty of deep-fried noodles, plus the “tastemaker” packet of spices (the same basic components as the ramen noodle packs that are a staple of the diet of college kids in the U.S.). Per standard procedure, Singh sent off one of the four Maggi packages to a laboratory across the state in Gorakhpur for testing.

The results, which arrived a few weeks later, surprised the inspector. The Maggi sample had tested positive for MSG, or monosodium glutamate, a controversial ingredient that’s legal in India but requires disclosure and a warning that the product is not recommended for children under 12 months old. A flavor enhancer often associated with Chinese food, MSG has for decades been blamed for everything from bad dreams to cancer—all claims that research has failed to substantiate. The fact that the Maggi sample contained MSG when its packaging said it didn’t was a violation punishable with a fine of up to 300,000 rupees—or about $4,500. Had Nestlé paid the penalty, this story might have ended there. Hindi language newspaper had reported the news about the health notice. More alarming: The article suggested that state officials would soon recommend that the Food Safety and Standards Authority of India (FSSAI), the country’s central regulator, should ban Maggi nationwide. It was May 11, 2015. Food Safety and Standards Authority of India, Delhi (FSSAI) is an autonomous statutory body established under the Food Safety and Standards Act, 2006 (FSS Act). Ministry of Health & Family Welfare, Government of India is the administrative Ministry of FSSAI.

But when Nestlé India was notified, the company denied adding MSG and appealed the finding. As a result, in June 2014, a second Maggi sample was sent to a different government laboratory more than 600 miles away in Kolkata. Nearly a year later, in April 2015, Singh was at the office when the lab report on the second sample finally came back from Kolkata. In a very Indian twist, it had somehow gotten lost in the mail on its way to Kolkata for a period of months—in the process taking a 1,200-mile detour through the Himalayas—and once at the lab, it had apparently ended up at the bottom of a pile.

Singh skimmed the first page of the report and noted that despite the long time gap, everything appeared to be in order. The sample had arrived with the packet seals intact, and the test results were signed and stamped by the director of the lab. He flipped ahead to see whether MSG had shown up again. And, yes, there it was. “MSG: Present.”

This report was far more comprehensive than the first one. Singh, an organic chemistry Ph.D., continued methodically down the page until his eye landed on “Lead: 17.2 ppm.” According to the report, the Maggi sample contained more than seven times the permissible level of lead—over 1,000 times more than the company claimed was in the product. Lead is naturally present in small concentrations in air, water, and soil, and so it’s expected that trace amounts show up in the food supply. And significant exposure to lead causes wide-ranging and serious health effects, particularly in children.

On June 5, 2015, India’s central food regulator announced a temporary ban on the manufacture, sale, and distribution of Maggi noodles. In its order the FSSAI pronounced Maggi “unsafe and hazardous for human consumption,” a designation supported by 30 government lab tests showing Nestlé’s noodles contained excess amounts of lead. Within a week the first national news story about a Maggi health scare appeared in the Times of India. A couple of days later the hashtag #MaggiBan surfaced on Twitter. India has nearly 400 news networks, and the country’s news debate programs often feature up to eight talking heads on a screen at once.

The Centre had on Tuesday (Aug 17, 2015) filed a first-of-its-kind “class action” complaint against Nestle India, a subsidiary of Nestle SA, Switzerland, of promoting noodles containing excessive lead as healthy with the sole aim of enhancing profits.“…the opponent (Nestle India) has deliberately misled the consumers of the quality, standard and accreditation/approval of Maggi noodles,” it said.The government accused the company of advertising the popular instant snack as “taste bhi, health bhi (it is tasty as well as healthy)” despite the product containing lead and MSG (monosodium glutamate). Nestle India violated consumers’ right to life by endangering their health, it said. The money — more than Rs 640 crore — claimed by the government will be deposited in consumer welfare fund. The government has demanded Rs 285 crore for unfair trade practice for selling “defective and hazardous goods” and Rs 355 crore in punitive damages.

Enraged consumers wasted no time venting their anger. In some cities protesters in the street smashed and set fire to packs of noodles and photos of Bollywood stars who were paid Maggi endorsers. One prominent newscaster compared the situation to Bhopal, the worst industrial accident of all time, in which a toxic gas leak at a Union Carbide pesticide plant in central India killed thousands of people.

“We are yet to receive official notice about the complaint filed before the NCDRC. Our current knowledge on this issue is only based on media reports. We shall be able to provide a substantive response after we receive the official papers,” a Nestle India representative said. The National Consumer Disputes Redressal Commission (NCDRC), India, headquartered at Delhi is a quasi-judicial commission in India which was set up in 1988 under the Consumer Protection Act of 1986. A bench of the National Consumer Disputes Redressal Commission comprising Justice VK Jain and BC Gupta directed Nestle India to respond to the notice by September 30 and allowed the government to send samples of Maggi noodles to an accredited laboratory for tests on lead content and MSG. To outsiders, too, Nestlé appeared paralyzed—or worse, guilty. Many Indians took the company’s silence as a sign of wrongdoing. The bigger the story got, the more scattered the coverage became.

The FSSAI based its ban on test results for 72 samples of Maggi done by various state labs, 30 of which were found to have elevated levels of lead, though none nearly as high as the report that kicked off the crisis. But Nestlé argued that the government had ignored overwhelming evidence—the roughly 2,700 lab reports Nestlé had submitted from internal and external labs at that point—that indicated lead levels were under the permissible limit.

An Uttar Pradesh government order recalling Maggi noodles for containing excessive lead in May triggered a chain reaction across the country. On June 4, 2015 the company announced withdrawal of the Maggi noodles, incurring a one-time removal cost of Rs 451.6 crore. A day later, FSSAI ordered the company to recall its products. Nestle India withdrew about 30,000 tonnes of popular instant noodles from the market. Nestlé lost at least $277 million in missed sales. Another $70 million was spent to execute one of the largest food recalls in history. Add the damage to its brand value—which one consultancy pegged at $200 million—and the total price tag for the debacle could easily be more than half a billion dollars. And the fallout continues.

Questions

1.      Define
a.       Additive
b.      Business Ethics
c.       Corporate Governance
d.      Stakeholders
2.      List the Stakeholders of Nestle India Ltd
3.      Name the regulatory authorities which took action against Nestle, India and the Laws in this respect.
4.      What made Nestle India challenge the findings in the first incident of finding MSG in the sample at Easyday outlet in Barabanki, UP? What is the total cost in rupees incurred by Nestle India finally?
5.      According to you how should have Nestle, India dealt with the situation? Substantiate your decision.