The Osi Group Scandal

Executive Summary

        The OSI Group is a US-based privately-held company that is solely owned by Sheldon Lavin (CEO). The OSI Group has subsidiaries all over the world with decentralization business model. However, in July 2014, the company had to deal with such a big ironical scandal of distribution of expired meat to giant food retailers and suppliers in Shanghai, China. This also results in the decreasing sales and profits in the food industry mainly in China and also in other countries which have relationships with the OSI Group.

        The scandal seemed to happen mainly because of the poor corporate governance of subsidiary company in China by the parent company in Illinois. They handled the meat processing with very bad care and therefore captured by one of the reporters going undercover in the Shanghai plant. The aftermath resulted in the OSI subsidiaries all over Shanghai and China being investigated whether this behavior was also done in other plants. After a while, the OSI Group then decided to take corrective actions including a change in the business model and the restructuration of the company.

        As a result, writers propose some alternatives that can be done and implemented by the OSI Group in order to prevent such a case to occur again in the future. The proposed alternatives are evaluated and elaborated by writers later in the report and finally come to a conclusion of choosing one of the alternatives which seems to be the best and the most feasible one.

Problem (Issue) Statement

        Sheldon Lavin, the CEO of OSI Group LLC, once said that OSI was an entrepreneurial company that was operated under the family-like culture and it worked. As for OSI Group, indeed, the family-like culture means giving the autonomy to the subsidiaries to operate and make decisions on their own. However, it does seem to fall short of the goal in this case. On July 20, 2014 the OSI subsidiary suffered from a scandal which seemed to be the biggest irony for the company. The main issue concerning this article is the distribution of expired or rotten meat from Shanghai Husi (the subsidiary company of OSI Group LLC) to major food retailers and suppliers in China such as McDonald’s, Yum, Starbucks, Burger King, etc. The underlying root of this problem, after having been further investigated, was the poor governance of the international subsidiary company by the parent company in Illinois. Moreover, the problem needed to be addressed aside from the main issue is the ineffectiveness of the vertical organizational structure (decentralization) which caused this to occur in the first place.

        It is very important to overcome this issue because it affected the profitability of the OSI Group and caused it to lose hundreds of millions of dollars which seemed to be a steep fall for the OSI Group. It also affected the company culture in terms of the worsened employee morale. Last but not least, it will then decrease the customer satisfaction and faith in the meat-processing industries in specific and food suppliers in general.

        Therefore, this report is written to address the underlying problems and help solve the problems as well as to give recommendations on what can be improved in the company to prevent such a case to reoccur in the future.

Data Analysis

        First thing first, we need to know the very root cause of the problem which was the misuse of the authority given to the subsidiary companies of the OSI Group. Within the framework of the core components of the organization, such as the resources, people, and processes, it is clear enough for everyone to see that the “people” component is the biggest cause whereas the “resources” component is also the contributing component to this problem. The processes being done were completely fine and therefore, this analysis will very much focus on the two core components.

        An organization, as we see on an organizational chart, always contains people owning and managing it. These “people” have to, at the very least, comply with the codes of ethics and the established policies of an organization of how they must manage the companies. If, say, a parent company confirms that a decentralized model will be used to manage its subsidiaries, then the management, all of the people in it, has to stick to this policy in conducting the managerial operations. This is not violated in this case. However, as the operation is ongoing, the management has to ensure that the companies are operating effectively under this method and this seems to be the issue here. The OSI Group did not put enough attention to the international subsidiaries. This suggests that the OSI Group gave too much autonomy to the subsidiary company. On the other side, the subsidiary company also did not really foster the culture and behavior of complying with the stated policy which then was taken lightly and neglected by the employees. Had the American managers frequently visited the subsidiary companies to monitor the activities in the plant, something like this would have not happened. These “people” govern the companies and if they cannot have their job well done, it is not impossible to face risks and failures. This case serves as a wake-up call to the corporate governance rules and policies, especially to company groups and foreign subsidiaries. As for the “resources” component, it refers to the expired meat that was used in assisting the act. This has really permeating effects because it was the food consumed by the consumers and supplied by the retailers. These two components, because of the poor governance and management, have caused a complete fiasco to the group.

        This paragraph will discuss which laws and regulations that were violated by the Shanghai Husi (OSI subsidiary). The laws will all be referred to the food safety law in China. The first law violated was the one in Chapter 3 about food safety standards which was in Article 26 (VII), “Food safety standards shall include .......; food inspections methods and specifications relating to food safety;” Here, Shanghai Husi did not specifically make clear what kind of protocols it used to do the food quality screening and therefore it is concluded here that it is one form of violation. The second law that the OSI violated was in Chapter 4 about food production and distribution in Section 1, Article 33 (I), “....... They shall keep such premises clean and tidy, and maintain it at a certain distance away from premises containing poisonous and harmful materials and other pollution sources.” The OSI Group was believed to have handled the meat processing with a manner in which was deemed dirty by putting back the meat that had fallen down to the processors. The third law is actually the main violation which is stated clearly in Chapter 4, Article 34 (III), “No following food, food additives, or food-related products may be produced with expired raw materials”. This was obviously done by the OSI Group by using the several-decade-old meat for the meat processing. The OSI Group also go against the law in Chapter 4, Article 34 (VIII), “No following food, food additives, or food-related products may be produced or distributed: ......... meat and meat products that have not been inspected or quarantined or have failed to pass such inspection and quarantine.” In spite of the indirect correlation to the loose regulation, the OSI Group had, in fact, distributed the expired meat after the lack of inspection by the Shanghai Food and Drugs Administration (FDA) regulators.