Editorial of People's Journal. It's obvious that they are talking about our fave bad MNC, Nestle.

The buck stops here

Wednesday, 25 August 2010 18:55

There are numerous instances when erring employees make appalling decisions that put the reputation of the entire company in jeopardy. Even worse, there are instances when embezzlement or fraud is committed while serving in an official capacity. During times like these, it would be so easy for a company to put the entire blame on the erring employee. But those who value “relationships more than contracts” — as the world’s greatest investor, Warren Buffet, put it — take command responsibility and find ways to rectify the situation. Often, this comes at their own expense, but the welfare of their customers and business partners comes first. There is actually a legal principle which applies to situations such as these, namely the rule of “apparent authority.” Apparent authority states that a principal is responsible for the acts of an agent where the principal, by his words or conduct, suggests to a third person that the agent may act on the principal’s behalf, and where the third person believes in the authority of the agent (for instance, by virtue of a high-ranking position, long employment history, and representations such as official calling cards, letterheads, etc.) On the other hand, there are other firms that refuse to acknowledge this doctrine, and continue to avoid accountability at all costs. One such corporation, a giant multinational engaged in food and beverage products, has gained notoriety in the business community. It finally reached a point wherein the country’s largest bank eventually sued the MNC for its passive involvement in a billion-peso scam. Unlike other cases where victims were not financially crippled by acts of fraud, the scheme perpetrated by the multinational’s regional sales manager left several of their Central Luzon distributors entirely bankrupt. Indeed, entire families found themselves mired in insurmountable debt. Conceitedly, the company has absolved itself of all blame, notwithstanding the fact that management was fully aware of the problem yet still urged banks to lend money to the Central Luzon distributors (thus the lawsuit). More disturbingly, a very similar case occurred not too long ago, wherein another one of their sales managers ran away with approximately P100 million and left the distributor holding the bag. Let us recall that one of the cornerstones of President Aquino’s economic agenda is to boost the growth of small and medium enterprises and promote entrepreneurship. Accordingly, companies need to be reminded that the buck does not always stop before it reaches them.

On Apparent Authority for Cebu Pacific and Nestle Philippines: Repost from Emil Jurado, Manila Standard January 26 2010

After making headlines for more than a week, the news item about two children with special needs and their mothers who were forced to disembark from a Cebu Pacific plane is quieting down.

The story had all the ingredients of a perfect storm. It drew the kind of attention that it deserved. More than basic consumer rights, it touched on human rights, especially the rights of children.

Not surprisingly, various groups scored Cebu Pacific for its discriminatory actions. But what surprised me was the airline’s reaction to the scandal. It would have been so easy for the airline to put the entire blame on the erring employees—the Filipino colloquial term “laglag” being the perfect word to describe the action. They could have had a team of lawyers and spokesperson to mouth the worn-out argument that the individual actions and lapses in judgment of our staff cannot be held against the company. But they chose not to. Cebu Pacific actually owned up to its employees’ fault, apologized for it, and took conciliatory measures.

At least, some companies understand the legal principle of apparent authority as a rule that applies to situations such as the Cebu Pacific gaffe. Apparent authority states that a principal is responsible for the acts of its agents.

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Sad to say, some firms cannot seem to grasp this concept of apparent authority either out of ignorance or malice. Recently, a hornet’s nest the size of Switzerland was stirred when a top multinational was assailed by its Central Luzon distributors for failing to prevent a billion-peso scam perpetrated by one of its high-ranking officials.

My gulay, what makes matters worse is that the architect of the foul scheme seems to have operated in plain sight, acting in her capacity as the regional sales manager of the multinational.

This manager allegedly instructed her distributors to give preferential discounts to the tune of 12-percent in favor of one particular reseller, Company X. The distributors were stumped on how they could possibly do that, since the maximum discount they could give was only 4-percent. Not to worry, the manager said, who wrote them letters using the company’s letterhead, promising that the multinational would cover the difference. And since the manager was a well-decorated and high-ranking employee, they complied.

Company X’s goods now acquired at an illogically cheap rate, all it had to do was go to a consumer area in Metro Manila and undersell all other distributors. Pretty soon, retail outlets were almost exclusively ordering from Company X at the expense of other Metro Manila distributors. Santa Banana, don’t forget that all these distributors were supposedly part of the same team!

The Metro Manila and Central Luzon distributors felt antsy. The multinational refused to investigate, and after months of reassurances, not a single centavo of discount reimbursements came.

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They say hindsight is 100-percent accurate, but even the smallest of due diligence could have prevented the financial collapse of countless distributors.

My gulay, didn’t the multinational wonder how a previously-unheard of reseller could have come to Metro Manila and taken royal customers away from existing distributors? Based on figures submitted, didn’t the multinational question how a company could sell items for so low?

Ultimately, I feel that it is the legal principle of apparent authority that will put the case to rest. Even if the manager acted on her own as claimed, the law doesn’t favor the cop-out (palusot). The distributors are set to file a class-action against the multinational, where the buck should stop.