Fined! Nestlé gets what it deserves in Ecuador

In June 2017, the regulatory body on free markets in Ecuador imposed a fine exceeding USD 157,000 on the local Nestlé branch. This sanction was imposed for the unauthorised use of the name and emblem of the Ministry of Health of Ecuador on a leaflet about breastmilk substitutes.

report from Elcormercio.com

The leaflet entitled “Nestlé – Principos y Responsibilidad” (Nestlé – Principles and Responsibilities) was provided to hospitals and other health centres in Ecuador to show health professionals that Nestlé is an ethical company and Code compliant. First distributed in October 2012, the company did not stop blowing its own trumpet.  It also displayed the name and emblems of WHO and the Ministry of Health of Ecuador in an obvious attempt to show that it is a health partner of both institutions and has their endorsements.

The unauthorised use of the name and logo of WHO raised the ire of the organisation and warnings were issued by its country office and from its headquarters in Geneva for Nestlé to immediately cease all use of the institutions logos.  In his letter to Nestlé dated 2 August 2013, Gian Luca Buci, Legal Counsel from WHO said, “… the documents represented gives the impression that WHO is in agreement with Nestlé ‘s business approaches. WHO does not support the business approaches or products of any individual company, including Nestlé …we do not wish to see our name used in a manner that implies WHO’s endorsement of your company’s business approaches.”

In response, Nestlé Ecuador was most contrite. It apologised to WHO for the unauthorised use of its name and emblem. It promised to take steps not to repeat the mistake but denied that the leaflet was aimed at promotion of Nestlé formula products.  The company asserted that the leaflet was exclusively used for the purpose of explaining to health professionals “which is the legal international brand for breastmilk substitutes”.

Lame excuse but if Nestlé was forgiven by WHO, it was not as lucky with the Government of Ecuador.  Regulators viewed the  wrongful use of the Ministry of Health emblem to be a sales strategy for breastmilk substitutes, which violates Article 27, para 2, of the Basic Law on Market Freedom Regulation and Control.

Nestlé Ecuador learns that “Principles and responsibilities” can translate into liability.

(L) Emblems that got Nestlé Ecuador into trouble; (R) Putting the wrong foot forward with certification from FTSE4Good.

According to the Office of Investigation of Unfair Practices, this “act of deception induces health professionals, consumers and the general public into error and leads to the perception there is approval, authorisation, trust, accreditation or endorsement by the public health authorities”. The Office considers this fact “undermines general welfare and breaches the rights of consumers or users, distorts competition and diminishes economic efficiency”.

In addition to the fine, Nestlé Ecuador is ordered to carry out corrective measures, an advertising campaign which explains the consequences of “the improper use of the logo or insignia of a state or international entity without proper authorisation.”

“This act of deception induces health professionals, consumers and the general public into error and leads to the perception there is approval, authorisation, trust, accreditation or endorsement by the public health authorities”.

-Ecuadorian Office of Investigation of Unfair Practices.

Nestlé expressed disagreement with the sanction and has announced its intention to appeal against decision. In the meantime, the company is probably regretting its excessive need to publicise its FTSE4Good certification.

What is FTSE4GOOD

FTSE4Good is an ethical investment index that aims to provide investors with a means of measuring the performance of companies meeting good standards in terms of environmental and social responsibility. It encourages improved practices by setting standards for each sector based a set of fixed criteria.[1]

For breastmilk substitutes, companies undergo a verification assessment (certification) as part of a broader process to determine their inclusion or exclusion from the FTSE4Good Index series. If a BMS manufacturer meets the criteria and is included in the index, verification assessments of the company’s practices are commissioned as an ongoing requirement. Funding for the whole process comes from the GAIN (Global Alliance for Improved Nutrition) and The Bill and Melinda Gates Foundation.

When the index was first launched, all companies that marketed breastmilk substitutes were excluded from the infant food sector as they were all alleged to breach the International Code and subsequent resolutions. Consequently, the inclusion criteria were lowered, as FTSE believed they could not engage with any companies if none were included in the index. Serious flaws in the FTS4Good inclusion criteria are highlighted in Box 1.

Box 1 – What’s wrong with FTSE4Good Criteria
FTSE4Good made several concessions in order for Nestlé to become the first company to qualify into the index. 4 issues with the weakened criteria are:

Companies do not have to demonstrate full compliance with the International Code and subsequent resolutions to qualify for entry into FTSE4Good.

FTSE4Good assesses company activities in country against the company’s own policies, rather than the International Code and resolutions.

FTSE4Good assessment criteria only applies to high-risk countries (higher rates of child malnutrition and mortality). The Code makes no geographical distinction and is a universal minimum. (FTSE4Good states they aim to eventually align requirements for lower risk countries with those for higher risk countries, as more companies move to meet the entry criteria.)

[1] FTSE Russell. Providing Context to the FTSE4Good BMS Verification Process. Available from http://www.ftse.com/products/downloads/Providing-Context-to-the-FTSE4Good-BMS-Verification-Process.pdf