PepsiCo's Ethical Dilemmas and Social Responsibility Strategy

Introduction: PepsiCo's Ethical Landscape

PepsiCo is a global provider of various drink and food products, ranging from Pepsi and Mountain Dew to Frito-Lay corn chips and Honest Tea. It holds market share in diverse communities around the world. The main ethical challenge it faces is how to remain socially responsible and culturally sensitive. This paper applies the Trevino and Nelson (1995) model of ethical decision making to examine this issue, its meaning, its impacts on stakeholders, and how it can be resolved.

The first step in Trevino and Nelson's model is to gather the facts. Since the 1960s, PepsiCo has been appealing to younger generations both domestically and abroad. Its aim has been to capture market share by endorsing activities and trends popular among the new generation. For example, in the 1960s it introduced Diet Pepsi to appeal to the emerging "fit" lifestyle of young consumers; in the 1980s it enlisted celebrity pop stars like Michael Jackson to garner brand loyalty among the pop generation.

While PepsiCo has solidified its image among the young, it has faced a number of ethical obstacles. In the 1960s, it offended Mexican-Americans through its use of the Frito Bandito, a cartoon character that robbed people at gunpoint of their Fritos corn chips. In India, PepsiCo has been accused of selling beverages containing elevated levels of toxins (Ferrell, 2010). In Burma during the 1990s, the company faced outrage from Free Burma activists who objected to its doing business with a military junta accused of human rights violations. A more recent ethical concern arose when PepsiCo attempted to promote an AMP phone app that critics called misogynistic because of its goal of helping users "score" with women. Other concerns have centered on the health profile of the company's products, with critics claiming that PepsiCo has contributed to obesity in America—a concern that has prompted the company to acquire more health-oriented food brands (Ferrell, 2010, p. 8).

As part of an effort to meet these ethical challenges, PepsiCo adopted a corporate social responsibility strategy called "Performance with Purpose," which focuses on products, environment, and employees (Ferrell, 2010, p. 9).

Identifying the Ethical Issue

The second step is to identify the ethical issue. At the heart of the PepsiCo case is the company's need to be more socially aware in terms of cultural sensitivity, political correctness, product health, and environmental awareness. It is a multi-faceted ethical issue that stems from serving a multicultural global consumer base.

On one hand, PepsiCo wants to remain relevant and "hip" at the forefront of generational trends—using, for example, phone apps and the edgy appeal of brands like AXE—but this desire has caused the company to come across as culturally insensitive, politically incorrect, and ultimately out of touch. PepsiCo's challenge is to remain relevant among younger consumers by understanding what matters to them, while simultaneously maintaining a high degree of environmental awareness, cultural sensitivity, and social responsibility.

Stakeholders Affected by the Dilemma

Identifying stakeholders is the third step. The main stakeholders are employees, consumers, and corporate leaders. Employees are affected by PepsiCo's ethical dilemmas because they must operate within corporate guidelines while navigating local conditions. For instance, bottlers in India may find access to pure water more difficult, which can result in elevated toxin levels in the product. PepsiCo wants to protect employees from pressures such as bribery or coercion that might lead to disregarding water purity standards, and so the company has needed to implement strategies to address this issue directly.

Consumers are also directly affected: drinking PepsiCo products projects a social image as much as it satisfies a demand for beverages, so consumers are conscious of how the company presents itself. Health-conscious consumers want to avoid risks associated with obesity, making PepsiCo's management of health concerns especially important. Corporate leaders, finally, are affected because they bear ultimate responsibility for the decisions that determine how the company will respond to these ethical challenges—their reputations and positions depend on the company's ability to grow while remaining respectable.

Consequences of Ethical and Unethical Action

A consequentialist analysis reveals that the symbolic consequences of different courses of action are significant for each party. PepsiCo's code of conduct represents the most important first step toward a positive course of action. It instructs employees to avoid bribery and to uphold organizational standards; it educates consumers about the health attributes of its products; and it promotes cultural and environmental awareness through initiatives such as its "going green" and "Performance with Purpose" campaigns. These measures also enable corporate leaders to act ethically and responsibly in response to social activists, health advocacy groups, consumer watchdogs, and communities around the world.

The negative consequences of failing to adopt these measures would be significant: employees might disregard the company's ethical priorities; consumers might distance themselves from PepsiCo products, causing a loss of market share; and corporate leaders would bear the blame for declining sales, damaging their reputations and potentially costing them their positions.

The adoption of a virtuous "tone at the top" of the corporate ladder (Lamberton, Mihalek, & Smith, 2005, p. 37) would benefit all parties. It would relieve pressure on lower-level employees to cut corners—whether by compromising product safety to meet local demand, as in India, or by producing potentially offensive marketing content in pursuit of younger audiences. By setting a consistently positive and virtuous example, leaders would strengthen the corporate-consumer relationship, reinforce brand loyalty, and establish clear norms of responsible behavior throughout the organization.

References

Ciulla, J. (2005). The state of leadership ethics and the work that lies before us. Business Ethics: A European Review, 14(4), 323–335.

Ferrell, O. (2010). PepsiCo's journey toward an ethical and socially responsible culture. University of New Mexico: Daniels Fund Ethics Institute.

Jennings, M. (2006). The seven signs of ethical collapse. European Business Forum, 25, 32–38.

Lamberton, B., Mihalek, P., & Smith, C. (2005). The tone at the top and ethical conduct connection. Strategic Finance, 3, 37–39.

Trevino, L. K., & Nelson, K. A. (2011). Managing business ethics: Straight talk about how to do it right. Hoboken, NJ: John Wiley & Sons.