BM061-3-2-BEG

INDIVIDUAL ASSIGNMENT
TECHNOLOGY PARK MALAYSIA
BUSINESS ETHICS & GOVERNANCE
BM061-3-2-BEG
UC2F1905
___________________________________________________
Name : Teh Kai Tong (TP046239)
Intake code : UC2F1905BM (EBUS)
Module Code : BM061-3-2-BEG
Date Assigned : 23th May 2019
Date Completed : 4th July 2019
Lecturer : Farahida Binti Abdul Jaafar
Word Count : 3048

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Table of Contents
Nestle Company Background..........................................................................................................3

Unethical Business Practice by Nestle Company............................................................................4

Child Labor in Supply Chain.......................................................................................................4

Consequences of Nestle Unethical Business Practice to Stakeholders........................................5

Nestle Company Policy...................................................................................................................6

General Code of Conduct.............................................................................................................7

Alternatives Course of Action Supported with Ethical Theories....................................................8

Conclusion.....................................................................................................................................10

References......................................................................................................................................10

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Nestle Company Background

Nestle started with one person's idea and grew into a huge company. In 1866, pharmacist Henri
Nestle developed a formula for dairy products for infants and his product was successfully
created demand through Europe. As Nestle becomes more popular, more companies want to
partner with Henry Nestle. From 1866 to 1947, Nestle underwent several renamings. In 1905,
British Dairy Company merged with Farin Cheese Company under the name Nestlé & Anglo-
Swiss Condensed Milk Co. On the other hand, Peter Cailler Kohler Chocolats Suisses S.A.
merged with the company in 1929 and renamed Nestle & Aglo-Swiss Holdings Co Ltd on
November 27, 1936.

NestleS.A., a Swiss company headquartered in Switzerland is a multinational food and beverage

manufacturer. It is the world’s largest food and beverage corporation with more than 2000
brands now in 191 countries all over the world. In Nestle's business strategy, they encourage
product growth through innovation. This strategy has enabled Nestle to develop many different
products in various fields such as baby food, dairy products, breakfast cereals, ice cream,
chocolate and candy, prepared food, beverages, food services, bottled water and pet care. They
produce quality brands such as Nepresso, Nescafe, Smarties, Stouffer’s, Maggi and Kit Kat
worldwide. In recent years, Nestle Pakistan Ltd, a subsidiary of NestleS.A. had found to be
involved in issue of child labor in its supply chain, which had a negative impact on its reputation.

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Unethical Business Practice by Nestle Company

Child Labor in Supply Chain

Child labor can be defined as work performed by people under 15 years of age, which take away
their childhood, potential and dignity, and is undermining their physical and mental
development. It refers to physically, mentally, socially and morally hazards are harmful to
children. Child labor depriving the opportunities of the children to go to school, forcing them to
drop out prematurely or requiring them to combine school work with long and heavy work that
interferes their studies. The worst forms of child labor include enslaved children, children
separated from their families, children exposed to serious dangers and diseases, or children left
on the streets of large cities to support themselves, who are usually very early age. The term
“child labor” is called depends on the special form of work, the age of the child, the type and
time of work, the conditions of work and the goals pursued by various countries. The answer
varies from country to country and from department to department within the country.

Not all children's work should be classified as child labor, with the goal of eliminating child
labor. Children's participation in work does not affect their health and personal development, nor
their studies is generally considered positive. This includes activities such as helping their
parents at home, helping their family business, or earning pocket money after school. These
activities contribute to the development of children and the well-being of families as they
provide them with skills and experience and help them prepare to become productive members
of society in adult life.

In 2017, the International Labor Organization (ILO) said that about 152 million children aged
between 15 and 17 were engaged in child labor. Many of them never go to school or drop out of
school because they have to work to support their families living cost. ILO reported 70% of the
children work in agriculture, 17% in services sector and 12% in industry. Child labor happens
mainly because of poverty of the country. Children in poor conditions work to contribute to the
daily needs of the family and get ready for their future life that they are supposed to manage.
Poverty causes children to involve into paying jobs. Sometimes, there is even unpaid jobs for
domestic work yet help to reduce the burden of housing and feeding the child. Furthermore,

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Nigeria, Pakistan and Afghanistan have the largest number of child labor. This is because they
have been affected by war and conflict for many years, and most children do not go to school.
Years of war in Syria have badly increased the poverty rate of Syrian families, forcing more
children to work, especially when refugees face legal restrictions from the host government.

Child labor is common on Cocoa farms in Ivory Coast, where Nestle is supplied. The lawsuit
claimed that the worst form of child labor is found in Nestlé supply chain, because its chocolate
products do not want consumers to support this workforce with their purchasing power.
However, in the marketing and sales process of its chocolate products, Nestlé essentially
neglected and did not reveal that its chocolate products involved child labor in the chain.

Nearly 600,000 children work on Cocoa farms in Ivory Coast. According to FLA report, the
ordinary tasks for children on Cocoa farms are to pack plastic bags in nurseries, break down pods
and transport plants. Children were carrying out dangerous task, they were using knives and
machetes to crack pods. Many of them have been reported injuries from the use of machete and
knife during the work. According to 2008 government survey, approximately 89% of Ivorian
children participated in cocoa cultivation. The underlying causes of child labor in the cocoa
industry are poverty and lack of school. It is said the children who are unable to work in the farm
that supply Nestle will work in the next farm.

Consequences of Nestle Unethical Business Practice to Stakeholders

The unethical business scandal practiced by Nestle has affected their stakeholders such as
consumers, cocoa farms and child labor. Consumers are affected by all kinds of influences. Some
people notice that child labor is employed in the supply chain, while others don't. The packaging
of chocolate products did not include "child-free" label. The suit claimed that if the consumers
know the products may consists of child labor in the supply chain, they will refuse to buy or pay
as much for the products. In addition, Cocoa farms are influenced because they participate in
farm activities. Cocoa farms will be influenced if Nestlé conducts any farm evaluation or
regulation. In this case, child labors are a huge stakeholder. The children suffer when the
company's demand for cocoa at a low price gives farmers the enticement to compel children to
work free of charge in order for the owners to earn more.

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Nestle Company Policy

According to Nestle business principles, Nestle absolutely supports the United Nations Global
Compact (UNGC) that provide principles guidance on human and labor rights, as well as the
eight International Labor Organisation (ILO) fundamental conventions 3. The UN Global
Compact is a strategic initiative to support global businesses committed to responsible business
practices in the areas of human rights, labor, the environment and corruption. This United
Nations-led initiative encourage activities that contribute to the achievement of sustainable
development goals to create a better world. On the other hand, the International Labor
Organization is a United Nations (UN) agency that aims to promote respectable and appropriate
effort throughout the world.

It is stated that they uphold to the eight basic conventions of the International Labor
Organization (ILO), particularly Convention 87, Protection of Freedom of Association and Right
to Organize (1948), Convention 138, Minimum Age for Employment and Convention 182,
Worst Forms of Child Labor, which are based on United Nations Convention of the rights of the
child (Article 32). In addition, they comply to the Tripartite Declaration of Principles on
Multinational Enterprises and Social Policy (ILO) of March 2006 and the OECD Code on
Multinational Enterprises of June 2000.

Nestle declares that they support and respect international human rights protection in their sphere
of influence (UNGC Principle 1) and make sure they are not involved in human rights violations
(UNGC Principle 2). At the same time, they oppose all forms of exploitation of children and
ensure recognition of privacy as a human right. Nestle hope that each of their companies respects
and abides by local laws and regulations on human rights practices. Nestle said that a higher
standard will be applied in concerning human rights practices when their own principles and
regulations are stricter than local legislation. Moreover, Nestle also believe firmly that
companies have a responsibility to respect human rights, regardless of the ultimate responsibility
of the government to establish a legal framework for the protection of human rights within its
jurisdiction. In addition, Nestle safeguard the freedom of association and the effective
recognition of the right to collective bargaining (UNGC Principle 3). They also insist on the
elimination of all forms of forced labor and forced labor (UNGC Principle 4) together with the

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effective abolition of child labor (UNGC Principle 5). Nestle also give support to the elimination
of discrimination in employment and occupation (UNGC Principle 6).

As mentioned by Nestle, no company purchase cocoa in Côte d’Ivoire or Ghana can completely
eliminate the risk of child labor in the supply chain. Nestle is no different from others. Therefore,
this circumstance goes against their business principles which stated earlier. Nestle failed to
uphold UNGC Principle 1 and 2 as they disrespect international human rights protection and
involved in human rights violations in their cocoa supply chain. However, they fulfilled UNGC
Principle 5 as they are determined to overcome this issue as a part of the Nestle Cocoa Plan by
establishing monitoring and remediation programs in Côte d’Ivoire and Ghana.

General Code of Conduct

Nestle code of business mentioned that Nestlé and their employees are bound by the law and
comply with all applicable laws. They never compromise the regulations. Unfortunately, child
labor is still common in Ivory Coast Cocoa farm, where Nestle is supplied. According to
employment and labor law in Ivory Coast, children are not allowed to be employed in any
company before the age of 16, nor as apprentices before the age of 14, excepting that otherwise
specified by specific regulations (Article 23.2 of the Labor Code). They clearly violated the rules
as they were using children in their cocoa production.

According to a survey of American’s perceptions on child labor, 55% of the respondents stated
that they are willing to practice and make ethical buying decision when acknowledged to child
labor issue. They will stop buying garments from brands that found to be involving child labor in
the supply chains. These survey findings show Americans’ perceptions towards child labor. The
community do not accept child labor and they believe that children should only engage in light
work. The community is also aware of the dangers of child labor towards children's health.

However, there are also a portion of people that accepted child labor it is seen as a way to
supplement families' insufficient incomes. Not all countries that have children working under the
age of 18 is considered illegal. Currently, there are 46 countries do not have laws to secure the
children under 18 from hazardous work. Bovilia has become the first country to legalize child

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labor in July 2014. According to the updated legalization, children above the age of 10 is allowed
to be self-employed in condition with approval from their parents and school attendances.
Children above the age of 12 is allowed to attempt to contract work as long as with permission
from their parents and enrolled in schools. The new legislation is a part of the Bovilian
government’s plan to improve Bovilians living in poverty. The government hoped that an
additional wage increase in a family's income will ease the financial burden faced by most
Bolivians.

Alternatives Course of Action Supported with Ethical

Theories
Company should have taken to deal with this unethical business practice, child labor by showing
employees appreciation. Business company can consider on hiring for values. In order to prevent
child labor, company can find out a way on hiring educated and experience employees that
proves that they are skilled workers to help improve their company’s productivity. The question
came out that why is this related on preventing child laboring towards the company, it is because
that child laboring is not a good choice, but in this way, the company can hire skillful and
experienced workers to improve their needs of what the company aim for. Moreover, it is a win-
win situation that what the company paid for, the company will surely get their positive feedback
than child laboring.

The action suggested above can be supported by organizational ethics of system development
ethical theory. By improving the quality and standards of employee in the organization, it makes
sure that the development of the organizational process will improve and maximize the
procedural outcomes, innovation, respectful caring in ethical work culture and systematic justice
which support the action taken is a right.

Nestle declares that child laboring had offended the policy and laws of the country, Nestle can
held a press conference regarding on supporting the authority that child laboring is not a good
choice for the company. By having this press conference, Nestle can apologize on the usage of

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child laboring and the disadvantages that will affect their studies and their future. Nestle will
probably win back their loyal consumers that they are paying attention on child’s future yet
finding a better solution to overcome this problem.

This action is related to utilitarianism theory. Utilitarianism theory holds that the most ethical
decision the one that will contribute the greatest benefit to the greatest number of people.
Through press conference, Nestle will bring the greatest overall good to all stakeholders. Public
apologies and acknowledgement of mistakes can not only rebuild the company's image and
reputation, but also provide transparency into cocoa supply chains at the same time retrieve
consumers’ confidence towards the company's products.
After Nestle established a Nestle Cocoa Plan to derive cocoa continually at the same time
abolishing child labor, improving the life style of farmers and the quantity of their products
produced. They are suggested to come out with an ethics management program which
particularly reveal corporate values using company policies and code of conduct. Moreover, it
can involve considerable training and evaluation depending on the corporation. Nestle also
should provide more practical tools and information for their employees to understand their
values and the way to manage them. With a strong ethical business culture, it can successfully
prevent the company from repeating the same mistakes and committing unethical scandals in
their future entire business process.

Professional conduct standards in business ethical theory supported this course of action as not
only leaders are expected to behave with high ethical standards, all employees are obligated to
ethical codes because of the nature. High level management supposed to equipped with high
level of ethical standards will not practice the wrong did over again such as hiring workers that is
18 and above that is suitable for the company policy and laws.

Other than that, Loyal employees knows that the company put their big effort on accomplishing
and hit their daily target. As to prevent child laboring, Nestle company can consider offering
them by sponsoring them on their daily needs and institute a bonus program to appreciate their
hard work on their previous performance to the company.

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Conclusion
In conclusion, the ethical operation of a company is directly related to its short-term and long-
term profitability. The reputation of a company in the surrounding community, other businesses
and individual investors is critical to determine whether a company is worth for investment. If a
company is deemed to have no ethics, investors are less likely to buy stocks or support its
operations in other ways. With the continuous development of social responsibility and ethical
investment, companies are increasingly motivated to maintain ethics. More and more investors
are seeking to invest in ethical companies, which makes more companies take this issue more
seriously. With the consistency of ethical behavior, it creates a positive public image, and rises
important considerations for potential investors and current shareholders. In order to maintain a
positive image, enterprises must be committed to operating on an ethical basis, because it
involves the treatment of employees, and fair market practices and respecting the surrounding
environment, in terms of price and consumer treatment. Therefore, business ethics are important
in business and it is an essential part of the foundation on which a civilized society is built. As
the relevance of business ethics can not be reduced in today's business world, it is strongly
recommended that business organizations adopt ethical practices. Businesses should overcome
ethical issues in the best way, such as discrimination and child labor in the workplace.

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References

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