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Nestlé and the Ethiopian Government -
How Nestle tried to rescue itself from yet another PR disaster

7th January 2003 (27th January update - Nestlé caves in and history is rewritten)

2002 closed with Nestlé being exposed by an Oxfam campaign for pursuing the Ethiopian Government for US$6 million as the country attempts to tackle a famine affecting 11 million people. Nestlé has rejected US$1.5 million offered by the government following the nationalization of a company in 1975. Nestlé did not even own the company at that time.

Following the Public Relations (PR) disaster, Nestlé Chief Executive Officer, Peter Brabeck-Letmathé, is attempting to distance Nestlé's Swiss Headquarters from the scandalous lack of sensitivity for the people of Ethiopia and has pledged to donate the proceeds of its claim to famine relief efforts. Yet his attempt to extract Nestlé from yet another round of critical headlines has exposed once again Nestlé's contempt for the truth and appalling lack of business ethics. Here we describe how the story unfolded and Nestlé's bungled attempts at news management.

The famine continues, as does Nestlé's claim against the Government. Yet another reason for boycotting Nestlé.

The long history of the negotiation

Oxfam launched its campaign for Nestlé to accept the sum offered by the government with a press release and a demonstration at Nestlé (UK) Headquarters in Croydon on 19th December 2002. However, negotiations between Nestlé and the Ethiopian government had been going on for some time, with the World Bank acting as intermediaries, something Mr. Brabeck fails to mention when claiming the issue was sprung on an unsuspecting Nestlé.

Read Oxfam's briefing paper, available by clicking here.

Following elections in 1995, the Ethiopian Government attempted to improve its relationship with international business and aimed to resolve the issue of compensation for rationalizations conducted under past regimes. Nestlé was contacted as the present owners of Schweisfurth Group, a German company which had been the major shareholder of the Ethiopian Livestock Development Company, nationalized in 1975.

Nestlé was offered the value of the initial shareholding, with compound interest of 6%. The basis of Nestlé's claim against the Ethiopian Government is that it wants the settlement valued in US dollars at the exchange rate in force at the time of the nationalization, as this gives it a far greater sum. (Why Nestlé should require payment in dollars rather than the Ethiopian currency is unclear - Nestlé operates in Ethiopia today and could presumably make use of the Ethiopian currency - the Birr - particularly as it claimed it would invest the money in Ethiopia. Nestlé's home country is Switzerland and its accounts are presented in Swiss Francs. The subsidiary more directly involved is German, operating in Euros. It appears that Nestlé is selecting a currency and a time to set the exchange rate to maximise its income).

Nestlé slammed in the headlines again

Nestlé is no stranger to headlines exposing its malpractice, be it relating to its aggressive marketing of breastmilk substitutes, union busting in developing countries, tax evasion or paying less than cost price for coffee beans. Faced with another scandal, it reacted in typical manner, claiming that it was doing nothing wrong, it was following the laws that are in place and its actions actually benefit the people it is accused of harming.

In The Guardian on 19th December, a Nestlé spokesman claimed that pursuing the extra compensation was a "matter of principle" and stated:

"In the interest of continued flows of foreign direct investment which is critical for developing countries, it is highly desirable that conflicts are resolved according to international law and in a spirit of fairness,"

The bad headlines kept on coming and past spin came back to haunt Nestlé. Earlier in the year economics journalists at The Guardian published an article suggesting that the boycott should be called off after being fed untrue information by Nestlé (see Your Questions Answered). This article was used by Peter Brabeck-Letmathé at the 2001 shareholder meeting when Nestlé's baby food marketing malpractice again dominated proceedings. It is also used by Nestlé's Head of Corporate Affairs, Hilary Parsons, as she desperately tries to break support for the boycott at universities and amongst trade unions. The authors of that article returned to the issue on 21st December noting Mr. Brabeck's use of their earlier article:

"Nestlé's chief executive, Peter Brabeck, chose to project a blown-up copy of the article across the podium at the company's annual meeting, goading all the activists present. It was deeply embarrassing stuff..."

And commenting on Nestlé's handling of the Ethiopian 'affair' as follows:

"Most importantly for Nestlé, this distasteful affair exposes blind incompetence at the top of the company. If its executives are not alive to the sensitivities and subtleties required to run a modern multinational, they need to be replaced. If Mr Brabeck wants a display for his next shareholder meeting, we'll happily forward our thoughts in PowerPoint format."

Swiss headquarters pours petrol on the flames

At times of crisis, Nestlé often dispatches its Communications Director, Francois Perroud. He is well known to the baby milk campaign. For example, in 1999 he succeeded in halting a German television programme about a Nestle whistleblower’s exposé of Nestlé's malpractice in Pakistan, including evidence implicating staff at the highest level of bribing of doctors. Mr. Perroud claimed to have an "illegally obtained" tape recording of a telephone conversation implicating the whistleblower in attempting to blackmail the company. Despite repeated requests the tape has still not been released by Nestlé. The respected investigative programme, on air for 30 years, that had produced the investigation into Nestlé in Pakistan was axed shortly afterwards. (For more on this story see Update 27).

Mr. Perroud was interviewed on the BBC Today programme on 19th December 2002. Speaking on behalf of Nestlé Swiss Headquarters he attempted to justify the claim, stating that international laws must be respected as "I do believe it is in the interest of developing countries to have a continued flow of foreign direct investment... ".

He stated: "We are in a negotiation process that started in 19.."

Interviewer John Humphries interrupted to ask: "And you are going to get this money whether people starve as a result of it or not? That's the long and the short of it, right?"

FP: "That is not at all the case"

JH: "But it is. You are saying you won't accept US$1.5 million, you are demanding US$6 million and that's the end of it, isn't it?"

FP: "I can't quite understand your hostility."

JH: "But there are starving people in Ethiopia. That's where the hostility, as you put it, comes from."

FP: "If you let me finish my sentence I might point out that this negotiation process is long from being concluded and it would be totally presumptuous now to say what the outcome will be and if, as it happens, in many cases before there is an appeal by the Ethiopian authorities for help for the problems they are facing now, Nestlé will, as always, be ready to help and to help significantly."

Point of interest: Mr. Perroud demonstrated his flair for media management to a journalist from The Independent just a few days later when he described a report highlighting the impact of Nestlé's milk business in Pakistan in exacerbating rural poverty as "bovine excrement". See The Independent 22 December 2002.

Mr. Brabeck steps in - and supports the claim

Nestle was forced to hold an emergency meeting and Chief Executive Officer, Peter Brabeck-Letmathé, issued a statement, published on the Nestlé website on 23rd December 2002. Mr. Brabeck defends the claim and indicates that it will continue. He states:

"First, we do think it’s important for the long-term welfare of the people of Africa that their governments demonstrate a capacity to comply with international law, but we are not interested in taking money from the country of Ethiopia when it is in such a desperate state of human need.

"We will therefore devote any money received from this settlement to both public and private efforts to relieve hunger in Ethiopia. This will take the form of both short-term relief aid and longer term food security.
"As the Ethiopian government has already offered US$1.6 million, we will immediately make this sum available upon receipt for famine relief in Ethiopia. We will do the same with any additional sums resulting from a final settlement."

The final settlement may well be US$6 million, if Nestlé succeeds with setting the currency and exchange rate it wishes.

In the past Nestlé has had no qualms about threatening to disinvest from a country if it dislikes the stance taken by its politicians. When Zimbabwe was introducing regulations for the marketing of breastmilk substitutes in 1998, "[Nestlé] called a try and tell Parliamentarians that if we went ahead with putting the Code into regulation they would remove themselves from Zimbabwe. We knew this to be an idle threat." Timothy Stamps, then Minister of Health, Zimbabwe in an interview with Mark Thomas (see Boycott News 26).

Nestlé and the Red Cross/Crescent

Mr. Brabeck’s statement implies that any money obtained from its claim will be routed for famine relief via the International Federation of Red Cross and Red Crescent Societies:

"We have recently initiated inquiries with the representatives of the International Federation of the Red Cross/Red Crescent Societies (IFRC) as to how best to direct these funds (Nestlé has a relationship with the IFRC through being the founding corporate sponsor of the IFRC Africa Health Initiative, aimed at fighting HIV and other life-threatening diseases in Africa)."

The IFRC has said that no decision about such involvement has yet been taken (see Media Watch). (For information on Nestlé's exploitation of the HIV crisis to promote infant formula, see the Campaign for Ethical Marketing).

Nestlé has a long history of invoking the name of the Red Cross/Crescent when faced with a Public Relations disaster. In 1999 the UK Advertising Standards Authority upheld all of Baby Milk Action's complaints against a Nestlé anti-boycott advertisement in which the company claimed to market infant formula "ethically and responsibly". PR experts Saatchi and Saatchi suggested that Nestlé should counter the bad publicity by advertising its contributions to charities, particularly those involving children. Shortly afterwards Nestlé donated £250,000 to the British Red Cross in a deal specifically linked to Nescafé, the principal target of the boycott, and later signed a substantial deal with the IFRC.

Marjorie Thompson of Saatchi and Saatchi explained the strategy in Marketing Week (11 February 1999), where she said: "You are building a surplus account for the times when you have a crisis."

While its use of the Red Cross name now and in the past may have benefited the company, the British Red Cross is widely viewed to have been harmed by its link with the company and has not renewed its deal with the company. The UK Charity Commissioners recently warned that charities should be extremely careful about how they link with commercial enterprises (see Update 32).

Nestlé and Oxfam

Mr. Brabeck was critical of Oxfam for publicising the company's activities in Ethiopia and attempted to distance himself from Mr. Perroud's knowledge of the negotiations, stating:

"Last Wednesday morning, our Nestlé United Kingdom headquarters was confronted by a surprise demonstration at its front door. The demonstrators charged that Nestlé was pressuring the Ethiopian government for US$6 million in compensation for a business owned by Nestlé Germany that had been seized by a previous regime in Ethiopia (we are one of many companies involved in the case). The point of the demonstration was that this was a heartless act at a time when Ethiopia, a very poor country, is in a state of famine.

"We in Switzerland were also taken by surprise, as the charges were simultaneously spread in a pre-planned media campaign before we were given any opportunity whatsoever to investigate and discuss the situation with the NGO involved. This made things especially difficult for us to respond immediately, as an external Ethiopian lawyer engaged by a small subsidiary of Nestlé Germany is handling the sporadic negotiations and with whom neither we in Switzerland nor in the UK have any direct contact."

It is ironic that while Mr. Brabeck goes on the offensive against Oxfam, Nestlé's Head of Corporate Affairs, Hilary Parsons, has claimed in presentations to students, attempting to convince them to drop their support for the Nestlé boycott, that Nestlé is working in partnership with Oxfam. Ms. Parsons misleading claim refers to her participation in a public meeting targeting the poor prices Nestlé and its competitors pay for coffee beans. Nestlé misuse of Oxfam's invitation to take part in the meeting reveals the need for extreme care in dealing with Nestlé management.

Nestlé's Communications Director, Francois Perroud, undermined Ms. Parsons spin on the coffee campaign in an interview in the Canadian Globe and Mail (20 December 2002), which reported:

"Mr. Perroud said Oxfam is trying to smear the company as part of a separate campaign to force Nestlé and other multinational food companies to boost the price they pay for coffee from Ethiopia.

"'Oxfam has been well known for not having a lot of tender feelings for large multinational companies,' he said from company headquarters in Vevey, Switzerland."

Mr. Brabeck's search for trust

Mention has been made in media reports of a booklet called "The Search for Trust", the text of a presentation Mr. Brabeck made at Oxford University, published with the University seal on the cover. The booklet does not mention that only 20 students where in the audience as the presentation was conducted in secrecy to avoid demonstrations. Mark Thomas, the comedian/investigative journalist, managed to gain access to the presentation and filmed the event for one of his television programmes on Nestlé baby food marketing malpractice.

At the time of the publication of "The Search for Trust" Baby Milk Action made 10 suggestions, which unfortunately Mr. Brabeck has yet to heed. See Boycott News 27.

Media watch

The view from Africa: Daily Nation (Kenya) 8 January 2003

The view from the Middle East: Arab News 20 December 2002.

The Third Sector Magaine reported on 15 January 2003:

"Oxfam... says it would be inappropriate to accept donations from the company....

"Patti Rundall, policy director of Baby Milk Action, said: 'We wouldn't touch anything from Nestlé and neither should the Red Cross. Nestlé is undermining human rights on a vast scale across the world and anyone who touches it is doing it a favour and helping its marketing strategy.'

"'Nestlé is trying to drag itself out of a hole and the Red Cross is being drawn into this murky world of debt relief. It's dirty money.'

"McClean [of the International Red Cross] stressed no firm offer has yet been made and a decision on each corporate donation was made on a case-by-case basis."

27th January update - Nestlé caves in and history is rewritten

Campaigning works! It was reported on 24th January that Nestlé would accept the US$1.5 million compensation offered by the Ethiopian Government, drop any further claims to compensation, and immediately give that money to famine relief efforts in Ethiopia (Yahoo News).

Without the Oxfam campaign it is almost certain that Nestlé would have walked away with US$6 million while people starved in Ethiopia. Now that public outrage has prompted a change, it appears that Nestlé is attempting to suggest it was always its intention to settle for US$1.5 million and give this to famine relief.

A report in the Seattle Post states: "In December, Nestle denied reports it was demanding $6 million from Ethiopia in compensation for a local company that was forcibly nationalized in the 1970s." Yet in reality in December Mr. Brabeck and Francois Perroud were defending the US$6 million claim.

Other media such as Business Day, South Africa and Austin American Statesman have exactly the same phrase suggesting this is a coordinated attempt to rewrite the history of the dispute.

This strategy of rewriting history to portray grudging changes as ethical behaviour, is familiar from the baby milk campaign. For example, when attempting to deflect criticism of the company, Nestlé's Senior Policy Advisor, Beverley Mirando, refers to the three languages appearing on baby food products in her home country of Sri Lanka. She does not reveal that Nestlé opposed the government's requirement to have three languages. Campaigners exposed Nestlé's double-standard as it labels products in three languages in Switzerland, where its head office is based. The Sri Lankan authorities pressed ahead with their demand for three languages. Products are now labelled in three languages despite Nestlé's best efforts, not because of them.

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