the Ethiopian Government -
How Nestle tried to rescue itself from yet another PR disaster
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
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
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
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.
Guardian on 19th December, a Nestlé spokesman claimed
that pursuing the extra compensation was a "matter of principle"
"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
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:
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
And commenting on Nestlé's
handling of the Ethiopian 'affair' as follows:
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."
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 whistleblowers 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
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".
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:
do think its 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.
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 meeting...to 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).
the Red Cross/Crescent
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:
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)."
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).
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:
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
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:
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.
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
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
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.
The view from Africa:
Nation (Kenya) 8 January 2003
The view from the Middle
News 20 December 2002.
The Third Sector Magaine
reported on 15 January 2003:
it would be inappropriate to accept donations from the company....
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.'
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
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."
January update - Nestlé caves in and history is rewritten
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
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