EXAMPLE 6.4. KING CAR’S RESPONSE TO THE 2008 MELAMINE CRISIS
In August 2008, the Asian food industry experienced a widespread crisis. Chinese food companies were implicated with increasing the amount of protein in their nondairy milk products by adding melamine to inflate their apparent protein contents. The crisis originally began in 2007, when dogs and cats began to experience kidney failure after eating pet food that contained high levels of melamine. The crisis expanded when nearly 300,000 infants became ill and six died after consuming melamine-contaminated baby formula produced by Chinese dairy product company Sanlu. At this time, there was heightened uncertainty among companies worldwide regarding the safety of Chinese food ingredients. Initially, the Chinese government was slow to respond and denied any problems with their food products. This created more uncertainty and doubt about the safety of products originating from China. For instance, the USDA and the Food and Drug Administration (FDA) subjected all imported food products from China to physical examination before they could enter the United States.
Reducing Crisis Uncertainty
King Car, a Taiwanese food company, responded immediately to the melamine crisis, because it imported many Chinese-based ingredients for its milk products. At the time of the crisis, the Taiwanese Department of Health emphasized its strong food testing system in their initial communications and tried to minimize concern and reassure the public about its strong food safety regulations. However, there was considerable public unrest and uncertainty about whether Taiwanese products were safe. On Saturday, September 13, 2008, King Car called an emergency meeting and decided to hold a media conference to discuss product safety (Ku, 2009). At this time, Mr. Lee, the chairman of King Car, explained that the only way to ensure public trust was to have King Car test its products for excessive melamine levels in addition to the government testing to ensure their safety (Chen, 2008; Ku, 2009). After testing of its products was complete, King Car determined that in fact its milk products contained unacceptably high levels of melamine, even though the Taiwanese government tested these products.
A Guiding Vision for King Car’s Crisis Communication
At the outset of the crisis, Chairman Lee set a guiding philosophy for King Car’s response. He told his senior management there were no limits on the budget for fixing the crisis (Wu, Hsieh, & Peng, 2008). Chairman Lee explained that customer trust was of the utmost importance to King Car. He noted that King Car had worked for 50 years to gain the trust of its customers and that the company would do everything in its power to maintain this trust throughout the crisis.
After learning through its own investigation that its products were contaminated, King Car immediately sent these results to a second laboratory to have the results quickly checked again. King Car could have taken the word of the Taiwanese government, but it decided to take matters into its own hands and test its products independently to ensure the safety of its customers.
Initial Crisis Communication
When King Car’s second round of testing came back positive for high levels of melamine, the company immediately engaged the public with its information. First, King Car notified the Taiwanese Department of Health about the contamination it had found independently of the Taiwanese government tests. Second, the general manager for King Car personally called media reporters to make them aware of the contamination and to inform the public. In this case, the public was under the impression that government tests were adequate and Taiwanese products were safe. King Car wanted to apologize for the unsafe products and make sure that the public had information about how to protect themselves. Lin (2008) explains that King Car chose to publicize its contaminated products before the Taiwanese government’s tests had identified high levels of melamine. Without King Car’s own testing and quick communication, the crisis would have most certainly been much worse. At this time, King Car also informed all its retailers that King Car was recalling all its nondairy milk powder.
Taiwanese customers check King Car products for a new safety stamp
Source: AP Photo/Chen qianjun.
The Recall
After King Car had determined its product was not safe for consumption, they communicated to retailers across Taiwan about a recall. Over time, King Car had developed strong, positive relationships with these retailers that made communication easier and more productive. As a result, the company was able to recall over 95% of its product in three days. To help with the recall, King Car provided unconditional refunds to all its customers, even without a receipt. As a result, within a week, almost 100% of its product was recalled. King Car also announced that it would soon have safe products for consumption with a different package and a certification of safety stamp on it. The repackaging and certification enabled King Car to differentiate its products from those that were not tested or certified. King Car also set up toll-free service lines to answer any and all customer questions about the recall and the safety of the products. The company also made product tests public via its website so consumers could check to see if the products they had purchased were safe (Young, Lo, Lee, & Chu, 2008). Finally, King Car invited reporters to its plant to see the recalled products being destroyed. The cost of the recall was estimated at over $3 million dollars. These actions received widespread critical acclaim from the Taiwanese public, media, and scholars (Lin, 2008).
Critical Acclaim
King Car received widespread critical acclaim for its response to the melamine crisis. In fact, King Car was able to quickly restore trust with the public and its stakeholders as a result of its response. On the other hand, companies like Nestle and United, which refused to admit the use of contaminated ingredients until a month later, struggled for public acceptance. A Taiwanese business magazine, Business Today, explained that the melamine crisis upset everybody, yet King Car was the only organization willing to apologize and fix the problem. Their attitude makes them the model for other companies (Ku, 2009). Apple Daily, a Taiwanese newspaper, explained King Car is probably the only company that’s going to be forgiven by the public throughout this Chinese poisoned-milk crisis (Ku, 2009).
Summary
The King Car crisis is a classic case of how threat, surprise, short-response time, and uncertainty can impact decision making and communication following a crisis. Under the stress and uncertainty of the crisis, King Car made a critical mistake by shifting blame for the crisis outside the organization, when the company had not checked to make sure that it was not responsible. King Car capitalized on the uncertainty of the situation in the short term, but when an internal investigation revealed that the company’s headquarters had received the new state standard, it quickly moved to accepting responsibility and learning from the crisis.
You Make the Call
After examining this case, it is time to determine whether King Car dealt effectively with the type of uncertainty we described in Chapter 5. First, take a moment to refresh in your mind the lessons established on managing uncertainty. These lessons should help you identify the strengths and weaknesses of King Car’s crisis response. As you contemplate the questions that follow, consider whether King Car was effective or ineffective in addressing the crisis from beginning to end. We have rephrased the lessons into questions so that you are better able to address the key issues in the case.
Lessons on Managing Crisis Uncertainty
Lesson 1: Organization members must accept that a crisis can start quickly and unexpectedly.
In what ways did King Car’s crisis start quickly and with uncertainty?
Lesson 2: Organizations should not respond to crises with routine solutions.
Did King Car respond to the crisis in a routine manner? Was their response effective?
Lesson 3: Threat is perceptual.
In what ways was the threat associated with this crisis perceptual? How did perceptions differ among stakeholders?
Lesson 4: Crisis communicators must communicate early and often following a crisis regardless of whether they have critical information about the crisis.
Did King Car communicate early and often following the crisis? Were they effective or ineffective?
Lesson 5: Organizations should not purposely heighten the ambiguity of a crisis to deceive or distract the public.
Were there issues that were uncertain or ambiguous for stakeholders following the crisis? Did King Car heighten or reduce the ambiguity surrounding the crisis?
Lesson 6: Be prepared to defend your interpretation of the evidence surrounding a crisis.
Did King Car defend its interpretation of evidence surrounding the crisis? Was King Car effective or ineffective?
Lesson 7: Without good intentions prior to a crisis, recovery is difficult or impossible.
Had King Car developed good relationships with stakeholders prior to the crisis?
Lesson 8: If you believe you are not responsible for a crisis, you need to build a case for who is responsible and why.
Did responsibility emerge as a key factor in King Car’s response to the melamine crisis? Was King Car’s response effective or ineffective?
Lesson 9: Organizations need to prepare for uncertainty through simulations and training.
Is there evidence that King Car was prepared to respond to the crisis?
Lesson 10: Crises challenge the way organizations think about and conduct their business.
In what ways did King Car and the food industry change the way it conducts its business following the melamine crisis?
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