[SOLVED] On July 16, 2008, it was announced

On July 16, 2008, it was announced that several Chinese producers of baby milk powder had been adding melamine, a chemical usually used in countertops, to increase the “richness” of their milk powder and to increase the protein count. Shockingly, the melamine-tainted milk powder was responsible for the deaths of four infants and the sickening of an additional 6,200.1 Milk manufacturers had been using melamine as a low-cost way of “enriching” their product in both taste and protein count.
Melamine, a toxic chemical that makes countertops very durable, damages kidneys.2 This fact came to world attention on March 16, 2007, when Menu Foods of Streetsville, Ontario, Canada, recalled dog and cat foods that it had mixed in Canada from Chinese ingredients that were found to include melamine.3 Very quickly thereafter, pet owners’ claims and class action lawsuits threatened to put the company into bankruptcy until settlements were worked out.4 A subsequent investigation by the U.S. Food and Drug Administration (FDA) led to the recall of pet food by major manufacturers, including Del Monte, Nestlé Purina, Menu Foods, and many others.5 On February 6, 2008, “the FDA announced that that two Chinese nationals and the businesses they operate, along with a U.S. company and its president and chief executive officer, were indicted by a federal grand jury for their roles in a scheme to import products purported to be wheat gluten into the United States that were contaminated with melamine.”6 It will be interesting to follow what penalties are ultimately paid by the Chinese manufacturers. Although the story of melamine-tainted ingredients broke in mid-March 2007, the similarly tainted milk powder link did not come to light in China until sixteen months later. Governmental follow-up has not been speedy even though unmarked bags of “protein powder” had probably been added to several other products, including baking powder and feed for chickens, thus contaminating eggs and meat.7 On October 8, 2008, the Chinese government stopped reporting updated figures of infant milk powder sufferers “because it is not an infectious disease, so it’s not necessary to announce it to the public.”8 Knowledgeable members of the Chinese public, however, have been using the suitcases of their visiting relatives to import U.S.- and Canadian-
made milk formula for their children.
It is also fascinating to consider another aspect of life in China—rumored control of online news. Although there is no proof of the rumors, which might have been started by competitors, the Wall Street Journal’s online service has reported that Baidu.com Inc., the company referred to as the “Google of China,” is under attack for accepting payments to keep stories containing a specific milk manufacturing company’s name from online searches about the tainted milk scandal even when the manufacturer was recalling the product. Local government officials also declined to confirm the milk manufacturer’s problem during the same period.
Baidu.com “said it had been approached this week by several dairy producers but said that it ‘flat out refused’ to screen out unfavorable news and accused rivals of fanning the flames.” 9 In a statement, it said, “Baidu respects the truth, and our search results reflect that commitment.”
Currently, there is no evidence that Baidu. com did accept the screen-out payments as rumored, but it does face some challenges of its own making in trying to restore it reputation. For example, unlike Google, which separates or distinguishes paid advertisements from nonpaid search results, Baidu.com integrated paid advertisements into its search listing until critics recently complained. In addition, companies could pay more and get a higher ranking for their ads. According to the Wall Street Journal article, a search for “mobile phone” generates a list where almost the entire first page consists of paid advertisements. Also, competitors fearing increased competition and new products from Baidu.com, which recently increased its market share to 64.4%, have begun to restrict Baidu’s search software (spiders) from penetrating websites that the competitors control.
Baidu. com’s profit growth had been strong, but for how long? Baidu.com Inc. is traded on the U.S. NASDAQ under the symbol BIDU. Since the rumors surfaced in late August to early September 2008, BIDU’s share price has declined from $308 to almost $110 on November 20, 2008.
Questions
1. Given strong profit growth, has there been any damage to Baidu.com’s reputation?
2. What would future reputational damage affect, and how could it be measured?
3. What steps could Baidu.com take to restore its reputation, and what chal- lenges will it have to overcome?
4. Governments throughout the world have been slow to react publicly to serious problems such as SARS, mad cow disease, and now melamine contamination. Who benefits and who loses because of these delays?
5. In some cultures, a “culture of secrecy” or manipulation of the news is tolerated more than others. How can this be remedied by other governments, corporations, investors, and members of the public?
6. Many other companies with long sup- ply chains, including subcontractors in far-off lands, have found themselves in difficulty. For example, in 1995, Nike was accused of employing child labor in Pakistan and Cambodia through its subcontractors and subsequently changed its policy and practices with respect to the minimum age of employees working in contract factories. However, it is very difficult to verify age when people do not have birth certificates or when they can be bought cheaply on the black market.
7. Under such conditions, what are a firm’s responsibilities with respect to checking that each stage in the supply chain is complying with company policy?
8. Are there organizations that can help companies set standards and confirm adherence to them? If so, what are the organizations’ mandates and website addresses?
9. Should Menu Foods be held responsible for the melamine found in its products?
10. Would your response be different if it were the lives of people that were at stake rather than the lives of animals?
11. How and why does Nike disclose its policies and practices with regard to supply chain responsibility, and what are the major factors covered?

Question: On July 16, 2008, it was announced