Doing the right thing can be costly and unfair, says General Mills’ sales chief

General Mills’ stated core value of “We do the right thing all the time” has led the company to recall products with no evidence of defects, abandon a health claim about one of its products that the FDA had approved, and buy up a telephone sex line, says the company’s U.S. sales chief.

The examples were part of a talk by Shawn O’Grady, the company’s senior vice president and president of consumer foods sales, on Oct. 26, 2011, at the University Notre Dame. A 1986 alumnus of the University’s engineering college, he was speaking to students of the Mendoza College of Business as part of the College’s Berges Lecture Series on the ethical dimension of business.

O’Grady said General Mills’ motto of doing the right thing all the time came from current chairman and CEO Ken Powell, but it’s long been a cherished ideal of the Minneapolis-based company, which traces its roots to two flour mills in the 1860s. Today’s $14.9 billion company markets dozens of familiar products, including Cheerios, Total, Wheaties and Lucky Charms cereals plus Green Giant, Pillsbury, Betty Crocker, Old El Paso, Nature Valley, Progresso, Yoplait and other brands.

O’Grady said the measure of one’s ethics is how you react when a situation goes against you. On this point, he quoted boxer Mike Tyson, who declared, “Everybody has a plan until you get punched in the mouth.”

The sales boss then described several examples of how General Mills reacted when “punched.”

The first came from 1994 and involved Cheerios.

General Mills learned that a single supplier of oats for the cereal had sprayed a fungicide on its crop that had not been approved for use on oats. The chemical had been approved for corn and wheat, and it had been approved for oats in Canada and in Europe, but the “paperwork” on oats had not gone through with regulators in the United States, O’Grady said.

General Mills immediately informed the government of the issue and pulled every box of Cheerios from the shelves and destroyed them, he said. Total cost: $165 million.

A more recent case involved an outbreak of e coli bacteria in Tennessee. As is normal procedure, investigators from the U.S. Food and Drug Administration asked everyone who fell ill to inventory the food in their homes and create a diary of everything they’d eaten in the past week, O’Grady said.

The agency eventually informed General Mills that its Totino’s frozen pizza was the source of the outbreak, even though only nine of the 21 people affected said they had eaten Totino’s, he said.

“We tested all the product we had – no e coli. We tested all our plants – no e coli.”

Regardless, General Mills recalled all of its Totino’s pizza at a cost of $40 million, he said.

“The cost of ethics is not free, and sometimes there is no proof,” he said. “You still have to make the right decision.”

Another run-in with the FDA involved General Mills’ long-standing claim that eating Cheerios as part of a healthy diet can reduce blood cholesterol levels. He said the company worked with the FDA and won approval for a more specific claim: that two servings of Cheerios a day as part of a healthy diet could reduce cholesterol by 10 percent in a month.

The company was all set to roll out a new promotion with the claim, including “over a million cases” of Cheerios boxes with it printed in huge letters. Then came a letter from the FDA, O’Grady said.

“It said we were against the law and Cheerios was now being classified as a drug.”

The whole promotion was cancelled. O’Grady said the FDA wasn’t opposed to Cheerios so much as it was worried that health claims about food were getting out of control.

Another story also involved a cereal promotion. As part of a New Year’s resolution campaign in 1995, the company offered a coupon for a free box of Total cereal by calling “1-800-FULL BOX.”  Unfortunately, O’Grady said, consumers remembered the number as “1-800 FREE BOX,” which turned out to be a porn line.

“Now, maybe it wasn’t an ethics call, but we had to retract that promotion,” he said. “We also actually had to buy that phone number, for an inordinate amount of money.”

O’Grady said General Mills’ core values are not merely about altruism but smart business.

“It takes decades to build a brand, but it only takes a second to destroy it,” he said.

That’s especially true in the food industry, where a mistake can put people’s lives at risk, he said.

The Berges Lecture Series is presented each fall by Notre Dame’s Center for Ethics and Religious Values in Business and Institute for Ethical Business Worldwide. The series features senior executives speaking on their experiences of the ethical dimensions of business.

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