|THE ETHICAL EDGE
by Jon Entine
Intoxicated by Success:
How to Protect Your Company From Inevitable
No ethical oversight can compensate for a rupture in
Although low-chemical-use farms make up 2 percent of United States crop
acreage, that percentage is far higher in Calif. It's the fastest
growing part of the grocery business and a critical part of our local
economy. Nationwide, sales of organically-grown vegetables, dairy products,
beef and poultry are growing 20 percent a year to $4 billion annually.
That's why the Odwalla blow-up hit so hard.
In October 1996, one child died and 70 people were injured from bacteria-laced
apple juice traced to Odwalla, which had promoted its products as fresh
and healthy. The Calif. company had developed a strong brand identity
and a fanatically loyal following producing unpasteurized fresh-squeezed
juices. Founder Greg Steltenpohl was fond of saying that he was
dedicated to a Zen-like "respect for the fruit." At the
time of the crisis, Odwalla appeared to do everything right. It
responded to what it called a freak occurrence by pulling the suspect
juice and offering to pay medical expenses. The quick recall and
its warm and fuzzy image prompted favorable comparisons with Johnson and
Johnson for its handling of the Tylenol incident. "I
don't blame the company," said Christy Gimmestad of Evans, Colo.
after the death of her 16-month-old daughter after drinking her favorite
That was then. Earlier this summer, Odwalla pleaded guilty to criminal
charges of selling tainted apple juice. It paid a $1.5 million fine,
the largest ever assessed in a food industry case by the Food and Drug
Administration. Federal investigators now suggest that Odwalla had
regularly accepted blemished fruit and ignored warnings by its own safety
team. Moreover, as sales plummeted 90 percent, company officials
maintained an inside/outside strategy: covering up company malfeasance
while positioning Odwalla as a victim along with those who it had poisoned.
Growing Up Is Hard to Do
All businesses screw-up on occasion. The story behind the Odwalla
fiasco serves as a reminder of what steps companies can take to minimize
mistakes and handle inevitable crises. It's an especially important
lesson for the fragile food industry here in Ventura and elsewhere.
For Odwalla, the test of its character came when company officials learned
of the death of Anna Gimmestad. Within days of drinking apple juice,
her kidneys gave out, her brain became clogged with dead blood cells,
her heart faltered, and she died. Her juice had been contaminated
with E. coli O157:H7 bacteria.
Investigators now contend that Odwalla had significant flaws in its safety
procedures and citrus-processing equipment was so poorly maintained that
it was breeding bacteria in "black rotten crud" and "inoculating
every drop of juice." Before the outbreak, Odwalla had received
letters from customers who become violently ill, but had not addressed
Resisting industry safety standards, Odwalla steadfastly refused to pasteurize
its juices claiming it altered taste and was unnecessary. Yet, the
year before the incident, the head of quality assurance, Dave Stevenson,
who was aware of the dangers, proposed using chlorine rinse as a backstop
against bad fruit. Senior executives who feared chlorine would leave
an aftertaste overruled him. They decided to rely on acid wash although
its chemical supplier had informed Odwalla that the wash had killed the
E. coli in only 8 percent of tests and should not be used without chlorine.
By summer 1996, former company officials say production demands began
overshadow safety concerns. Safety managers were bullied.
Reportedly encouraged by management, production managers brushed aside
warnings from an
inspector that a particular batch of apples was too rotten to use.
Some were decayed, one had a worm, and special precautions against contaminants
were not taken. That batch turned out to be deadly.
Since the incident, Odwalla has publicly accepted "responsibility"
for the poisonings, although it continues to disingenuously portray itself
as a victim. "We didn't test for E. coli because we believed
evidence showed it was not found at that acid level," said founder
Steltenpohl. In other words, Odwalla pleaded guilty to the
lesser crime of ignorance and to not anticipating the health dangers of
Accountability, Not 'Good Intentions'
Could Odwalla have done anything differently? In terms of its handling
of the crisis, the answer is probably 'no.' It had dealt itself
a bad hand but played it pretty well. If it had been more forthright,
the public relations hit could have been debilitating. And for all
its past problems, Odwalla seems on the way to upgrading its food handling
standards. Whether it can salvage its brand reputation and resume
growing is an open question.
What can other businesses learn from the blow-up? For all its talk
of its socially responsible rhetoric, at the time of the poisoning Odwalla
resembled a train loose on a downhill track. With pressure to meet
production schedules, managers suspended good judgment and good manufacturing
practices. Workers who voiced concerns were intimidated into
That's what happens when a business has an insular culture without a clear
system of corporate checks and balances. At the floor level, Odwalla
had never put in place the internal oversight-- social reviews, ethical
hotlines, ombudsmen and the like--that might keep operational excesses
in check. Its board was comprised of business friends of its founder,
even though companies with strong, independent boards have proven to have
healthier corporate cultures and are more profitable.
The drooping bottom line for Odwalla is that after a screw-up, accountability
is too late. Nothing is more revealing than management's willingness
to put the broader interests of the company ahead of its own vanity.
And no ethical oversight can compensate for a rupture in personal ethics.
Mistakes are built into life; character is defined in the breach. In the
end, there is no such thing as 'business ethics,' only ethics of individual
business men and women. That's why the Odwalla saga is so troubling.
John Entine specializes in business ethics, green marketing, race and
sports. He has won more than a dozen major awards for his television
reporting with ABC and NBC News, including Emmys for documentaries on
reform movements in China and the former Soviet Union. He lectures
on business and journalism ethics. His book, "Taboo:
How Blacks Have Come to Dominate Sports and Why We Are Afraid to Talk
About It," based on his 1989 NBC documentary "Black Athletes,
Fact and Fiction," will be out later this year.