write one and half pages for each chapter?

ch3ch4_cases_.docx

Home >Business & Finance homework help >Management homework help >write one and half pages for each chapter?

John D. Rockefeller and the Standard Oil Trust

This is the story of John D. Rockefeller, founder of the Standard Oil Company. It is the story of a somber, small-town boy who dominated the oil industry with organizational genius, audacity, and ruthless, me- thodical execution. He became the richest man in America and, for a time, the most hated.

Rockefeller’s life spanned nearly 98 years. At his birth Martin Van Buren was president and settlers drove covered wagons over the Oregon Trail. He lived to see Franklin Roosevelt’s New Deal, watch the rise of the Nazi party in Germany, and hear Frank Sinatra and The Lone Ranger on radio.

The historical backdrop of this lifetime is an econ- omy gripped by the fever of industrial progress. Rockefeller built his fortune in an era that lacked many of today’s ethical norms and commercial laws, This is the story of John D. Rockefeller, founder of the Standard Oil Company. It is the story of a somber, small-town boy who dominated the oil industry with organizational genius, audacity, and ruthless, me- thodical execution. He became the richest man in America and, for a time, the most hated.

THE FORMATIVE YEARS

John Davison Rockefeller was born July 8, 1839, in a small village in southern New York. He was the sec- ond of six children and the oldest boy. His father, William Rockefeller, was an itinerant quack doctor who sold worthless elixirs. He was jovial, slick, and cunning and made enough money to keep the family in handsome style until he had to flee and live away from home to avoid arrest for raping a local woman. After that, he visited only in the dark of night. But he taught young John D. and his brothers lessons of business conduct, especially that sentimentality should not influence business transactions. “I cheat my boys every chance I get,” he once said. “I want to make ‘em sharp.”1

John D.’s mother was a somber, religious woman who gave the children a strict upbringing, emphasiz- ing manners, church attendance, and the work ethic. She preached homilies such as “Willful waste makes woeful want.” And she taught charity to the children; from an early age John D. made regular contributions to worthy causes.

Young John D. was not precocious in school. In high school he was an uninspired student, little in- terested in books and ideas, but willing to work hard. He grew into a somber, intense lad nicknamed “the Deacon” by his classmates because he faithfully attended a Baptist church and memorized hymns. In the summer of 1855 he took a three-month course at a business college in Cleveland, Ohio, and then set out looking for a job. In addition to his formal schooling, he carried the contradictory tempera- ments of his parents—the wily, self-assured boldness of his father and the exacting, pietistic character of his mother. He internalized both, and the combina- tion was to prove formidable. Here was a man with the precision of an accountant and the cunning of Cesare Borgia.

EARLY BUSINESS CAREER

Rockefeller’s first job was as a bookkeeper at a Cleveland firm where he meticulously examined each bill submitted and pounced on errors. He also re- corded every cent he earned and spent in a personal ledger. Its pages show that he was parsimonious and saved most of his $25-a-month salary, but that he still gave generously to the Baptist church and the poor.

In 1859 he formed a successful partnership with two others in the produce business in Cleveland and proved himself an intense negotiator, described by an acquaintance as a person “who can walk right up on a man’s shirt bosom and sit down.”2 The business boomed from supplying food to the Union army dur- ing the Civil War. Although in his early 20s at the time, the steady, unemotional lad was never touched by patriotic fervor. In those days, the law permitted any man of means to pay someone else to serve in his place, and this he did.

BEGINNINGS OF THE

OIL BUSINESS

Profits from the produce business were high, and John D. looked around for a promising new invest- ment. He soon found one—a Cleveland petroleum refinery in which he invested $4,000 in 1863. At the time, petroleum production and refining was an in- fant industry. A new drilling technology had led to an 1859 oil strike in nearby Pennsylvania, followed by a frenzied boom in drilling and refining.

Soon Rockefeller devoted himself to the oil busi- ness, and he began to apply his principles of parsi- mony. One basic principle was to avoid paying a profit to anyone. For example, instead of buying bar- rels and paying the cooper $2.50 each, Rockefeller set up his own barrel-making factory and made them for $.96. He purchased a forest to make staves from his own trees. Another basic principle was methodical cost cutting. Lumber for barrel staves was kiln-dried before shipment to the cooperage plant. Water evap- orated from the wood, making it lighter and lower- ing transportation costs.

Though obsessed with details and small econo- mies, Rockefeller also proved aggressive in larger plans. He borrowed heavily from banks to expand the refinery. The risk scared his partners, so he bought them out. In 1865 he borrowed more to build a second refinery. Soon he incorporated an export sales com- pany in New York, making the world his market.

DYNAMICS OF THE

OIL INDUSTRY

During this early period, the new industry was in a chaotic state. A basic cause was overproduction in the Pennsylvania oil regions, which were the only source of crude oil. The price of crude fluctuated wildly, but was in long-term decline. Each drop in the price of crude oil encouraged construction of new refineries and by the late 1860s refining capacity was three times greater than oil production. This caused vicious price wars. Some refiners tried to stay in business by selling products at a loss to raise cash for continued debt payments. In doing so, they dragged down profit margins for all refiners. Rockefeller had the insight to invest in large-scale refineries and, because he cut costs relentlessly, his refineries made money. Yet despite disciplined cost control, the market forces of a sick industry ate away at his net earnings. He believed it was time to “rationalize” the entire industry and stop destructive competition.3 His method for doing this would be monopoly, his tactics hard-nosed.

ROCKEFELLER’S COMPETITIVE

STRATEGIES

Rockefeller used a range of competitive strategies. He was a low-cost, high-volume producer. He used debt financing to expand. He attempted to make his refined petroleum products of high and consistent quality, since fly-by-night refiners turned out inferior distillates. Cheap kerosene with a low ignition point had burned many a home down after exploding in a wick lamp. When he incorporated the Standard Oil Company of Ohio in 1870, the name suggested a “standard oil” of uniformly good quality. He en- gaged in vertical integration by making wooden barrels. As time when on, he also bought pipelines, storage tanks, and railroad tank cars.

Critical to his success, however, was the art of strong-arming the railroads. In this, Rockefeller was the master. Transportation costs paid to railroads were important to refiners, who shipped in crude oil and then shipped out products such as kerosene or lubricating oil. In the 1860s railroads were highly competitive and often altered shipping rates to attract business. No law prohibited this, and published rates were only the starting point of negotiations.

Railroads often granted rebates to shippers; that is, they returned part of the freight charge after ship- ment. These rebates were usually secret and given in return for the guarantee of future business. Large volume shippers, including oil refineries, got the big- gest rebates. Standard Oil was no exception.

At this time, Rockefeller has been described by biographers as a prepossessing man with penetrating eyes who drove a hard bargain. He would take the measure of a person with a withering stare, and few were his match. He was formidable in negotiations, being invariably informed in detail about the other’s business. And he was still a pious churchgoer who read the Bible nightly before retiring.

Late in 1870 Rockefeller hatched a brazen plan for stabilizing the oil industry at the refining level. In clandestine meetings, he worked out a rebate scheme between a few major refiners and the three railroads going into the Pennsylvania oil regions. They gave this scheme an innocent-sounding name, the South Improvement Plan. In it, the railroads agreed to increase published rates for hauling oil. Then Rockefeller’s Cleveland refineries and a few others would get large rebates on each barrel shipped. For example, the regular rate between the oil regions and Cleveland would be $.80 a barrel and between Cleveland and New York $2.00 a barrel. It would cost a total of $2.80 per barrel for any other refinery in Cleveland to bring in a barrel of crude oil and ship a barrel of refined oil to New York for sale or export. Rockefeller and his accomplices, on the other hand, would be charged $2.80 but then get a rebate of $.90.

In addition, the refineries participating in the South Improvement Plan received drawbacks or pay- ments made on the shipment of oil by competitors! Thus, Rockefeller would be paid $.40 on every barrel of crude oil his competitors shipped into Cleveland and $.50 on every barrel of refined oil shipped to New York. Under this venal scheme, the more a com- petitor shipped, the more Rockefeller’s transpor- tation costs were lowered. While competitors were charged $2.80 on the critical route (Pennsylvania oil regions–Cleveland–New York), Rockefeller paid only $1.00. Moreover, the railroads agreed to give the con- spirators waybills detailing competitors’ shipments; a better espionage system would be hard to find.

Why did the railroads agree to this plot? There were several reasons. First, it removed the uncer- tainty of cutthroat competition. Oil traffic was guar- anteed in large volume. Second, the refiners provided services to the railroads including tank cars, loading facilities, and insurance. And third, railroad execu- tives received stock in the participating refineries, giving them a stake in their success.

The consequences of the South Improvement Plan were predictable. Nonparticipating refiners faced bloated transportation costs and would be uncom- petitive. They had two choices. Either they could sell to Rockefeller and his allies, or they could stand on principle and go bankrupt. When they sold, as they must, the flaw in industry structure would be cor- rected. Rockefeller intended to acquire them, then close them or limit their capacity. This would give him market power to stabilize the price of both crude oil and refined products. And the rebates would be a formidable barrier to new entrants

THE CONSPIRACY PLAYS OUT

In February 1872 the new freight rates were an- nounced. Quickly, the full design was revealed, caus- ing widespread, explosive rage in the oil regions. Although it broke no laws, it overstepped prevailing norms. People believed that since railroads got their right-of-ways from the public they had a duty to serve shippers fairly. Volume discounts might be justified, but this shakedown was extortionate. Pro- ducers and refiners in the oil regions boycotted the conspirators and the railroads.

Rockefeller, seen as the prime mover behind the South Improvement Plan, was vilified in the industry and the press. His wife feared for his life. Yet he never wavered. “It was right,” he said of the plan. “I knew it as a matter of conscience. It was right between me and my God.”4 As journalist Ida Tarbell noted, Rockefeller was not squeamish about such business affairs. Within a month, the weight of negative public opinion and loss of revenue caused the railroads to cave in. They rescinded the discriminatory rate struc- ture. All appearances were of a Rockefeller defeat, but appearances deceived. Rockefeller had moved quickly, meeting one by one with rival refiners, ex- plaining the rebate scheme and its salutary effect on the industry, and asking to buy them out. He offered the exact value of the business in cash or, preferably, in Standard Oil Company stock. By the time the railroads reset their rates, Rockefel- ler had bought out 21 of his 26 Cleveland competitors. Some acquisitions were simply dismantled to reduce surplus capacity. He now dominated Cleveland, the country’s major refining center, and controlled more than a quarter of U.S. capacity. In secrecy, he negoti- ated a new rebate agreement with the Erie Railroad. Of these actions, Ida Tarbell noted sardonically: “He had a mind which, stopped by a wall, burrows under or creeps around.”6

Regardless of methods, he had, indeed, corrected structural flaws in the oil industry. It would attract more capital. If any circumstance cast a shadow over this striking victory, it was that public opinion had turned against him. From then on, he was re- viled as an unfair competitor, hatred of him grow- ing apace with his burgeoning wealth. He never understood why.

ONWARD THE COURSE

OF EMPIRE

Rockefeller, now 33, was wealthy. Yet he drove on, compelled to finish a grand design, to spread his pattern over the industry landscape, to conform it to his vision.

He continued the strategy of horizontal integra- tion at the refinery level by absorbing more and more of his competitors. As the size of Standard Oil in- creased, Rockefeller gained added leverage over the railroads. Like an orchestra conductor he played them against each other, granting shares of the oil traffic in return for rebates that gave him a decisive advantage.

Some competitors stubbornly clung to their busi- nesses, partly out of hatred for Rockefeller. He made them “sweat” and “feel sick” until they sold.7 The fleets of tank cars that he leased to railroads were often “unavailable” to ship feedstock and distillates to and from such refiners. Rockefeller concealed many of his acquisitions, disguising the full sweep of his drive to monopoly. These companies were the Trojan horses in his war against rival refiners. They seemed independent but secretly helped to under- mine Standard’s competitors. Often they were at the center of elaborate pricing conspiracies involving code words in telegrams such as “doubters” for refiners and “mixer” for railroad drawbacks. The phantoms bought some refiners who refused in prin- ciple to sell out to Standard Oil. Their existence con- fronted independents with a dark, mysterious force that could not be brought into the light and fought.

THE STANDARD OIL TRUST

By 1882 Rockefeller’s company was capitalized at $70 million and produced 90 percent of the nation’s refining output. Its main product, illuminating oil, was changing the way people lived. Before the sale of affordable illuminating oil of good quality, most Americans went to bed with darkness. They could not afford expensive candles or whale oil and feared using the unstable kerosene made by early, small re- finers. With the rise of Rockefeller’s colossus, they had reliable, inexpensive light and stayed up. Their lives, and the life of the nation, changed.

Rockefeller reorganized Standard Oil as a trust.8 His purpose was to make state regulation more diffi- cult. Soon other large companies followed his lead, adopting the trust form to avoid government restric- tions. Inside Standard Oil, Rockefeller’s organizing skills were extraordinary. Working with a loyal inner circle of managers, he directed his far-flung empire from headquarters at 26 Broadway in New York City. As he absorbed his competitors, so had he co-opted the best minds in the industry and much of Stand- ard’s success is attributable to this stellar supporting cast. Though dominant, Rockefeller delegated great responsibility to his managers.

High-level committees controlled business opera- tions. He circulated monthly cost statements for each refinery, causing fierce internal competition among their managers that led to high performance. He set up a network of informants around the globe. Critics called them spies, but they functioned as a well- organized information system.

A perfectionist, he insisted on having a statement of the exact net worth of Standard Oil on his desk every morning. Oil prices always were calculated to three decimals. He was so dogged about efficiency and recycling that his Standard Oil plants might win refiners and “mixer” for railroad drawbacks. The phantoms bought some refiners who refused in prin- ciple to sell out to Standard Oil. Their existence con- fronted independents with a dark, mysterious force that could not be brought into the light and fought.

THE STANDARD OIL TRUST

8 A trust is a method of controlling a number of companies in which the voting stock of each company is transferred to a board of trustees. The trustees then have the power to coordinate the operations of all companies in the group. This organizing form is no longer legal in the United States. environmental awards were they operating today. At night he prowled the headquarters turning down wicks in oil lamps.

His management style was one of formal polite- ness. He never spoke harshly to any employee. Once, when a manager leaked information to the press, Rockefeller said to his secretary: “Suggest to Mr. Blank that he would do admirably as a newspaper man, and that we shall not need his services after the close of this month.”9 Compared with other moguls of that era, he lived simply. He had two large estates, in Cleveland and New York, but neither was too os- tentatious. He read the Bible daily, continued regular attendance at a Baptist church, and gave generously to charities.

Rockefeller’s organizing skills were critical to his success. Discussions often focus on his ethics, but the key to Standard Oil’s long-term domination lay else- where. The company was an immense, organized force opposed only by smaller, less united adversar- ies. Its success came from centralized, coordinated effort. Compromising methods, to the extent they were used, were of far less importance.

EXTENDING DOMINATION

By the 1880s Standard Oil had overwhelming market power. Its embrace of refining activity was virtually complete, and it had moved into drilling, pipelines, storage tanks, transportation, and marketing of finished products. By now the entire world was addicted to kerosene and other petroleum products, and Standard’s international sales grew.

Rockefeller’s dominating competitive philosophy prevailed. His marketing agents were ordered to de- stroy independent suppliers. To suppress competi- tion, his employees pioneered fanatical customer service. The intelligence-gathering network paid competitors’ employees to pass information to Stand- ard Oil. Railroad agents were bribed to misroute shipments. Standard Oil workers climbed on com- petitors’ tank cars and measured the contents. Price warfare was relentless. A stubborn competitor often ound Standard selling kerosene to its customers at a price substantially below production cost.

Rockefeller himself was never proved to be di- rectly involved in flagrant misconduct. He blamed criminal and unethical actions on overzealous subor- dinates. His critics thought the strategy of suffocating small rivals and policies such as that requiring regu- lar written intelligence reports encouraged degenera- tive ethics among his minions.

Rockefeller saw Standard Oil as a stabilizing force in the industry and as a righteous crusade to illumi- nate the world. How, as a good Christian devoted to the moral injunctions of the Bible, was Rockefeller able to suborn such vicious behavior in commerce? One biographer, Allan Nevins, gives this explanation:

THE STANDARD OIL TRUST

UNDER ATTACK

Standard Oil continued to grow, doubling in size be- fore the turn of the century and doubling again by 1905.12 Eventually its very size brought a flood of criticism that complicated operations. Predatory mo- nopoly was at odds with prevailing beliefs about in- dividual rights and free competition. The states tried to regulate Standard Oil and filed antitrust suits against it. Overwrought muckrakers lashed out at Rockefeller. Because of him, wrote one, “hundreds and thousands of men have been ruined.”13 He was the personification of greed in political cartoons. Pol- iticians not suborned by his bribery lambasted him.

Rockefeller, by now the richest American, was shaken by public hatred. He hired bodyguards and slept with a revolver. Pinkerton detectives were present at church on Sundays to handle gawkers and shouters. He developed a digestive ailment so severe that he could eat only a few bland foods, and upon his doctor’s advice he stopped daily office work. By 1896 he appeared only rarely at 26 Broadway. Soon he was afflicted with a nervous disorder and lost all his hair.

As attacks on Rockefeller grew, the vise of gov- ernment regulation tightened on his company. A swarm of lawsuits and legislative hearings hung about it. Finally, in 1911, the Supreme Court ordered its breakup under the Sherman Antitrust Act, hold- ing that its monopoly position was an “undue” restraint on trade that violated the “standard of reason.”14 The company was given six months to separate into 39 independent firms. The breakup consisted mainly of moving the desks of managers at 26 Broadway and was a financial windfall for Rockefeller, who received shares of stock in all the companies, the prices of which were driven up by frenzied public buying. Before the breakup kero- sene sales had buoyed the company. However, just as electric lightbulbs were replacing oil lamps, the automobile jolted demand for another petroleum distillate—gasoline. Rockefeller, who was 71 at the time of the breakup and would live another 26 years, earned new fortunes simply by maintain- ing his equity in the separate companies.

Rockefeller remained a source of fascination for the American public. As The Wall Street Journal noted, “The richest man in a world where money is power is necessarily a fascinating object of study.”15 This being so, it was his enduring misfortune that muckraking journalist Ida Tarbell turned her gaze on him.

Tarbell wrote two unflattering character studies and a detailed, two-volume biography of Rockefeller, all serialized in the widely read McClure’s Magazine be- tween 1902 and 1905. Her unsentimental words were no less ruthless than the actions of the old man himself. Although admitting that Rockefeller and Standard Oil had some measure of “legitimate greatness,” she was obsessed with his flaws. In one essay she found “some- thing indefinably repulsive” in his appearance, writing that his mouth was “the cruelest feature of his face,” and that his nose “rose like a thorn.”16 Such ad hom- inem attacks lacked merit but, in addition, Tarbell delved deeply into Rockefeller’s career, producing nar- ratives of exquisite detail. The thesis she conveyed to the public was that by his singular example, Rockefeller was responsible for debasing the moral tone of American business. She believed his story incited le- gions of the ambitious to use cold-blooded methods, teaching them that success justifies itself. Like the mas- ter, the junior scoundrels often cited biblical verse to support their actions.

Few public figures have a nemesis such as Ida Tar- bell. Her relentless pen, along with others, deprived him of some public adulation he may have craved and her scholarship permanently defined him. Her intricate period research cannot be duplicated and subsequent biographers, even more friendly ones, must go to it for insight. Rockefeller may or may not have deserved such a definitive hand. He called her a “poisonous woman.”

THE GREAT ALMONER

Since childhood Rockefeller had made charitable donations and, as his fortune accumulated, he in- creased them. After 1884 the total was never less than $100,000 a year, and after 1892 it was usually over $1 million and sometimes far more. In his mind, these benefactions were linked to his duty as a good Christian to uplift humanity. To a reporter he once said: Over his lifetime, Rockefeller gave gifts of approx- imately $550 million. He gave, for example, $8.2 mil- lion for the construction of Peking Union Medical College in response to the need to educate doctors in China. He gave $50 million to the University of Chicago. He created charitable trusts and endowed them with millions. One such trust was the General Education Board, set up in 1902, which started 1,600 new high schools. Another, the Rockefeller Sanitary Commission, succeeded in eradicating hookworm in the South. The largest was the Rockefeller Founda- tion, established in 1913 and endowed with $200 mil- lion. Its purpose was “to promote the well-being of mankind throughout the world.” Rockefeller always said, however, that the greatest philanthropy of all was developing the earth’s natural resources and employing people. Critics greeted his gifts with skepticism, thinking them atonement for years of plundering American society.

In his later years, Rockefeller lived a secluded, placid existence on his great Pocantico estate in New York, which had 75 buildings and 70 miles of roads. As years passed, the public grew increasingly fond of him. Memories of his early business career dimmed, and a new generation viewed him in the glow of his huge charitable contributions. For many years, he carried shiny nickels and dimes in his pockets to give to children and well-wishers. On his 86th birthday he wrote the following verse. He died in 1937 at the age of 97. His estate was valued at $26,410,837. He had given the rest away.

Questions

1. With reference to the levels and spheres of corpo- rate power discussed in the chapter, how did the power of Standard Oil change society? Was this power exercised in keeping with the social con- tract of Rockefeller’s era?

2. 2. How does the story of Standard Oil illustrate the limits of business power? Does it better illustrate the dominance theory or the pluralist theory dis- cussed in the chapter?

3. 3. Did Rockefeller himself ever act unethically? By the standards of his day? By those of today? How could he simultaneously be a devout Christian and a ruthless monopolist? Is there any contradic- tion between his personal and business ethics?

4. 4. In the utilitarian sense of accomplishing the great- est good for the greatest number in society, was the Standard Oil Company a net plus or a minus? On balance, did the company meet its responsi- bilities to society?

5. 5. Did strategies of Standard Oil encourage unethi- cal behavior? Could Rockefeller ’s vision have been fulfilled using “nicer” tactics?

A Campaign against KFC Corporation

Peyton Hull, a 12-year-old middle school student in Pittsburgh, loves animals and hopes to be a veteri- narian. One day while volunteering at a shelter she learned that People for the Ethical Treatment of Ani- mals (PETA) was boycotting KFC. Later, at her home computer, she watched actress Pamela Anderson nar- rate a “Kentucky Fried Cruelty” video showing man- gled, abused chickens at facilities supplying KFC.

Peyton organized a dozen friends. Helped by her mother, she stayed up all night with markers and poster paper making signs, and the next day, Satur- day, she and her friends stood vigil at a KFC restau- rant with their signs. People inside waved their chicken. Some teenagers in the parking lot yelled, “KFC is good. Get a life,” and threw chicken at them. However, one older woman approached the girls, talked to them, then decided not to go in. Peyton was pleased and told her mother: “Mom, we saved one person from going to KFC.”1

The incident is just one skirmish in a larger battle between PETA and KFC. War was declared on Janu- ary 6, 2003. In a press release, People for the Ethical Treatment of Animals announced the start of a cam- paign against KFC Corporation, the world’s largest chicken restaurant chain. PETA held KFC responsible for “cruel treatment” of poultry raised and slaugh- tered for its restaurants.2 It demanded that the com- pany force more humane practices on its suppliers. KFC responded with a statement dismissing such “allegations,” saying the birds in its meals were treated humanely.

KFC does not raise any chickens. In the United States it buys them from independent companies in the poultry processing industry, a $40 billion a year business that sells to supermarkets, restaurants, and institutions. Its pieces of fried chicken emerge from a supply chain of hatcheries, feed mills, “grow-out” farms, processing plants, and cold storage buildings. This industry is very competitive. With average net profit after tax a slim 0.8 percent, operations are highly automated and focused on efficiencies that re- duce cost.3

PETA is angry about how chickens are handled in this supply chain, but the maze of facilities, owned by more than 500 corporations, is out of public view, fragmented, and largely anonymous. In contrast, KFC is vulnerable to PETA’s basic strategy of tarnish- ing a brand by associating it with animal cruelty. By threatening the value of KFC’s brand, PETA hopes to make the company use its market power as the world’s largest buyer of chickens to force reform on growers and slaughter plants. If this occurs, PETA will have harnessed a reluctant giant to further its agenda.

Going into the chicken war, PETA had a record of success. Its initial effort was a campaign against McDonald’s in 1999. After less than a year of expo- sure to a boycott, restaurant demonstrations, and the group’s mccruelty.com Web site the company suc- cumbed, imposing stricter animal welfare standards on its suppliers as a condition for ending the assault. It forced changes on reluctant growers, including roomier cages for hens and surprise slaughterhouse inspections. After McDonald’s capitulated, its smaller rivals followed. Burger King adopted animal welfare guidelines after a five-month campaign. Then Wendy’s buckled. Safeway lasted only three months. Albertsons and Kroger were subdued by campaigns of only one week each.

INITIAL SKIRMISHES

KFC learned of PETA’s intentions in 2001, when Cheryl Bachelder, its president, received a letter from Bruce Friedrich, director of the group’s restaurant campaigns. The letter asked why KFC, knowing of PETA’s actions against its competitors, was doing “nothing at all” to improve the lives of chickens raised for its restaurants. Friedrich asked what KFC intended to do, offered to put the company in touch with animal welfare experts, and added, “We are looking ahead to our next target.” Over the next several weeks Friedrich had a series of phone calls and meetings with Bachelder and David Novak, CEO of KFC’s parent corporation Yum! Brands. Yum! Brands was created in 1997 when PepsiCo spun off its KFC, Pizza Hut, and Taco Bell chains as a separate corporation. Subsequently, the new firm bought the Long John Silver’s and A&W chains. Today, Yum! is the world’s largest quick- service restaurant corporation with 36,500 restau- rants worldwide. The KFC brand traces its origins to the Kentucky Fried Chicken franchise started by the avuncular Colonel Harlan Sanders in 1952. It has 15,580 restaurants in 109 countries and serves about 12 million customers a day.

The dialogue revealed a wide gulf between the company and its interlocutor. KFC told Friedrich that it included humane treatment guidelines in its poultry supplier contracts. He accused the com- pany of using only inadequate industry standards permitting ghastly treatment of chickens and considering their welfare only at the point where deaths from abuse lowered profits. He stated that the suffering of chickens was an ethical issue going beyond financial considerations.5 KFC said it would review its guidelines and promised to keep PETA informed.

In the months that followed, KFC took several actions. It convened an Animal Welfare Advisory Council composed of outside academic and industry experts. It began unannounced audits of growers and slaughterhouses. And it worked with industry asso- ciations to develop new poultry welfare guidelines. However, its efforts were unsatisfactory to PETA because they did not lead to specific, more radical changes including the following.

• Gas killing. KFC chickens are stunned by electrical shock before immersion in scalding water (to loosen feathers) and then exposed to mechanical blades that slit their throats. PETA believes that gas killing is preferable because it ensures that chickens are insensate before these painful proce- dures, whereas electrical stunning is less reliable.

• Cameras in slaughterhouses. Cameras would sup- plement audits and make oversight more reliable.

• Mechanized chicken-catching. Hand-catching crews gather KFC chickens from grower buildings. PETA believes that the crews treat the birds roughly and that mechanical catching systems are less likely to result in bruises and broken bones.

• New genetic strains of chickens. The chickens eaten in KFC restaurants, known as “broilers,” are bred to gain weight rapidly over their brief lives. However, the “broiler breeders” used to produce the flocks of chickens slaughtered for restaurant meals live longer. They exhibit the rapid weight gain characteristic of all broiler strains, but their skeletons and joints do not grow commensurate with their overall weight and they are prone to painful joint conditions as they age. PETA re- quested introduction of leaner genetic strains that did not exhibit skeletal deficiencies.

• Elimination of forced growth. Broiler strains bred for rapid weight gain under forced growth regimens suffer from metabolic pathologies and excess mor- tality. Slowing growth means longer upkeep of chickens before slaughter, but it reduces prema- ture deaths.

• More room for birds to move around. PETA requests that KFC give its chickens at least two to three times more space per bird and give them shel- tered areas and perches in the warehouselike buildings where they are raised.

• Allowance for instinctive behavior of chickens. PETA believes that birds raised in captivity suffer from chronic stress and boredom induced by suppres- sion of natural behaviors. Among other measures, it suggests that they get whole green cabbages to peck and eat.

Debate between the antagonists was dysfunctional. PETA addressed the corporation in the tone of a parent scolding an errant child. It was “extremely concerned” that the firm “has no interest in making real progress to stop animal cruelty,” adding that “we have pressed you to take action on this issue, yet you have done nothing.”7 KFC, on the other hand, wrote to PETA “[i]n the spirit of open communications,” but kept it at arm’s length, giving only brief and general information about conducting audits, holding meetings, and working on animal welfare standards with industry groups.8 PETA thought that KFC was dragging its feet.

A LOOK AT PETA

PETA is dominated by its founder, Ingrid Newkirk, who became an animal rights activist after a forma- tive experience. Living in Maryland in 1972, she was training to be a stockbroker. A neighbor moved, abandoning cats that soon bred litters of kittens nearby. She gathered them up and took them to a nearby animal shelter to be cared for. Yet a short time later she learned they had been killed. The episode changed her. With no desire to become a stockbroker remaining, she talked her way into a job at the shel- ter. Observing brutal treatment of animals, she began to arrive early in the morning to kill them in a hu- mane way before others came. “I must have killed a thousand of them,” she says, “sometimes dozens every day.”9

From the shelter Newkirk moved on to work as a deputy sheriff on animal cruelty investigations, then headed a commission to control animal disease. She was inspired to form PETA after reading a book, Ani- mal Liberation, by philosopher Peter Singer.10

In the book, Singer argues that animals have moral rights. Moral rights are strong entitlements to dutiful treatment by others—in this case human be- ings. He asserts that the traditional, absolute domin- ion of humans over animals is an unfair exploitation. Because animals are living, sentient beings capable of suffering, their interests are entitled to equal consid- eration with human interests. In his words: “No matter what the nature of the being, the principle of equality requires that its suffering be counted equally with the like suffering . . . of any other being.”11 Thus, he argues, animals have an unalienable right to have their needs accommodated by humans. Denial of this right is speciesism, or the prejudicial favoring of one species over another. Speciesism, according to Singer, is an evil akin to racism and sexism because it restricts moral rights to one species just as racism and sexism have restricted them to one race or sex. The PETA Mission Statement, Exhibit 1, reflects the inspi- ration Newkirk found in this philosophy.

Newkirk has a combative attitude about animal rights. “The animals are defenseless,” she says. “They can’t talk back, and they can’t fight back. But we can. And no matter what it takes, we always will.”12 After reading about a Palestinian bomb put on a donkey and detonated by remote control she wrote to Yasir Arafat requesting that innocent animals be left out of the Arab–Israeli conflict. Her will stipulates that when she dies the meat on her body is to be cooked for a human barbeque, her skin used to make leather products such as purses, and her feet made into um- brella stands.13

PETA is creative. Since most people give no thought to animal rights, its actions are designed to attract attention, even at the cost of offending some. Perhaps the mildest attention-getting tactic is the use of theater. For example, PETA demonstrators have dragged themselves down streets with their feet in leg traps to publicize the evils of fur trapping. An- other tactic is that of the outrageous act. To protest pictures of women wearing fur in Vogue, activists went to the chic Manhattan restaurant where its edi- tor was having lunch and threw a dead raccoon on her plate. Young ladies at county fairs are crowned as pork queens only to have pies thrown in their faces by PETA activists. The group has asked Wisconsin, the “Dairy State,” to change its state beverage from cows’ milk to soy milk.

PETA freely uses sexuality to get attention. When the American Meat Institute puts on its Annual Hot Dog Lunches for government officials in Washington, D.C., former Playboy Playmates wearing bikinis made of lettuce hand out “veggie dogs” outside. It recruits celebrities to present its message. Fame and glamour attract. Their presence endows a view that might otherwise be disregarded with the celebrity’s aura of success and legitimacy. PETA also uses the Internet to get its message out. It has multiple Web sites for issues such as zoos, circuses, and animal testing. The network of sites is easy to navigate, informative in depth, and often entertaining. There are facts, games, pictures, video clips, humor, and celebrities. PETA makes a special effort to influence children. One comic brochure, “Your Mommy Kills Animals” shows a crazed woman wielding a bloody knife over a rab- bit. “Ask your mommy,” it suggests, “how many animals she killed to make her fur coat.”14

All these tactics, and more, have been employed in the fight against KFC.

THE CHICKENS

At the center of the conflict are the chickens. Chick- ens are a species of the order Galliformes, which in- cludes turkeys, pheasants, grouse, and partridges. Galliformes are heavy-bodied, short-duration fliers that feed on insects and seeds, nest on the ground, and hatch precocial (self-caring) young. They are social birds that communicate with each other and establish complex hierarchies in flocks.

The earliest wild chickens, members of the species Gallus gallus, inhabited jungles of Southeast Asia. About 4,000 years ago they were domesticated. From Asia the domesticated chicken, Gallus domesticus, spread across the globe. In ancient Greece they were valued for the sport of cockfighting, and in imperial Rome prophets read the future in their entrails. Chickens had such a hold on the superstitious Romans that generals kept special flocks in the belief that their behavior could foretell victory or defeat in battle. In the hours before combat, hardened legion- naires crowded around these flocks seeking portents. As the legions marched, they spread Gallus domesti- cus across the empire. Centuries later, the earliest European settlers brought chickens to North America.

In the United States, large-scale chicken produc- tion developed slowly. As late as the 1920s chicken farms had flocks of only about 500 free-ranging birds. Today the industry is highly specialized, with some farms in egg production and others raising broilers (or chickens slaughtered for meat; literally, chickens for broiling—or baking or frying). Flocks are now raised in long, windowless, buildings with auto- mated equipment to maintain as many as 100,000 birds. Consumption of chicken has risen. In 1955 only a little more than 1 billion broilers were raised, or 6.5 chickens for each American; by 2009 there were 9 billion raised, or 30 per American.15

Chickens, like other animal species, adapted for survival in an ecological niche. In doing so, certain behaviors became instinctive. They live in flocks of approximately 10 and establish dominance hierar- chies called pecking orders. The dominant bird in a flock can peck any other bird, and that bird will yield. Status in the pecking order is conveyed by sounds such as crowing or cackling, aggressive or passive postures, spacing, use of more or less desira- ble nesting sites, and running at or away from rivals. In mixed-sex flocks there are two pecking orders, one for cocks and one for hens, but the hen hierarchy is subordinate. All hens yield to even the lowest cock. This is a genetically predisposed trait essential for species survival because a cock will not mate with a dominating hen. Pecking orders have survival value. Once dominance is established, fighting ceases and energy is used in socially productive ways.

In nature, chickens are omnivorous, eating plants, insects, and small animals such as lizards. Hens are secretive and build hidden nests, preferably on the ground. During the day chickens spread out to forage, but at dusk they reduce the spaces between them. At night they often roost in trees. According to PETA, chickens are “inquisitive and interesting ani- mals” and “as intelligent as mammals like cats, dogs, and even primates.”16 In nature, they are individuals with “distinct personalities” that “form friendships and social hierarchies, recognize one another, love their young, and enjoy a full life, dust-bathing, mak- ing nests, roosting in trees, and more.”17

Life in high-density growing environments frus- trates these natural behaviors. Cages or crowding prevent division into flocks with established pecking orders. Without a complete pecking order, individu- als may not yield to threat displays, and physical at- tacks occur as birds compete over space, food, and water.18 Weaker animals have no place to hide and may be assaulted repeatedly until they die. In addi- tion, crowded chickens are unable to engage in a range of ordinary foraging, grooming, nesting, brooding, and roosting behaviors. Critics claim that such deprivation violates the right of an animal to satisfy its needs through natural behaviors

THE CAMPAIGN

At the start of the campaign, PETA activists de- scended on KFC outlets worldwide, conducting hundreds of demonstrations in the first months. Members handed out “Buckets of Blood” contain- ing “Psycho Col. Sanders” figures and toy chickens with slit throats. When Yum! Brands CEO David Novak appeared at the opening of a restau- rant in Germany, two activists doused him with fake blood and feathers. According to campaign leader Friedrich: “There is so much blood on this chicken-killer’s hands, a little more on his business suit won’t hurt.”19

KFC issued a statement calling the attacks “corpo- rate terrorism” that “crossed the line from simply ex- pressing their views to corporate attacks and personal violence.”20 In Paris, Ingrid Newkirk and celebrity musician Chrissie Hynde led activists who stormed into a busy KFC restaurant at the noon hour, smear- ing the front window with red paint symbolic of chicken blood and lecturing diners until guards threw them out. Outside, the protest blocked traffic on a boulevard for two hours. Back in the United States, PETA put up roadside billboards depicting Col. Sand- ers hacking a chicken with a bloody knife under the words “Kentucky Fried Cruelty. We do chickens wrong.”21

Although the main effort was directed toward publicly associating the KFC brand with cruelty to chickens, another focus was on pressuring KFC and Yum! Brands executives at a personal level. Several months into the campaign KFC President Cheryl Bachelder failed to keep what Ingrid Newkirk thought was a commitment to call her. So Newkirk phoned Bachelder at home on a Saturday evening. When Bachelder objected to being called at home, Newkirk responded with a letter that read, in part: Newkirk wrote to both Bachelder and CEO Novak at their homes in Louisville, Kentucky, post- ing the letters with their home addresses on PETA’s kentuckyfriedcruelty.com Web site. It enlisted former Beatle Paul McCartney to write to Novak. His letter, which requested an end to “the egregious forms of abuse endured by chickens,” ran as a full-page ad in the Louisville Courier-Journal. A KFC spokesperson responded that “PETA should follow one of Sir Paul’s songs and just ‘Let It Be.’”23 Other celebrities were recruited. The Rev. Al Sharpton asked the black com- munity to boycott KFC. His Holiness the Dalai Lama asked KFC to stop its plans for a restaurant in Tibet.

Taking advantage of Securities and Exchange Commission rules, PETA gained entry to the Yum! Brands 2003 annual shareholders’ meeting in Louisville. After activists spoke, CEO Novak called for an end to the campaign saying, “We don’t want to be abused, just like you don’t want the chickens to be abused.” In 2004 PETA qualified a shareholder resolution asking for a company report on actions to reduce cruelty toward chickens. Only 7.6 percent of shareholders voted for it. PETA would go on to intro- duce similar resolutions each year, getting only single-digit support each time.

A MUTED CORPORATE DEFENSE

Throughout the PETA campaign, KFC and Yum! Brands have maintained a low media profile while working to elevate animal welfare standards. When contacted by reporters a typical response is: “We don’t comment on PETA’s activities and publicity stunts, which speak for themselves.”24 This reticence is characteristic of the animal agriculture, food, and restaurant industries generally when animal welfare becomes an issue. In mass growing and slaughter, some pain is inevitable. Altering production to address chicken discomfort, injury, and behavior deprivation raises costs.

Most consumers are ignorant of factory farming methods and fail to entertain the link between a KFC meal and the life experience of the creature in it. Despite PETA’s efforts, there is no groundswell of demand for more humane treatment of chickens. Reacting to a protest going on outside a restaurant in Israel, a KFC customer said: “There’s nothing to do. This is life and it is all part of the food chain. I have to eat.”25

This vacuum of interest and concern sustains in- dustry calculations balancing poultry welfare against costs. For example, industry guidelines that KFC helped develop and now follows stipulate that corrective action be taken if the number of “DOA” [dead-on-arrival] chickens at a plant exceeds 0.5 per- cent, if the number of broken or dislocated wings from handling to place chickens on the stun line exceeds 5 percent, and if less than 98 percent of chickens are effectively stunned before having their throats cut by automatic knife.26 These standards may be defined as humane, but for every 500 chickens they are met if 3 arrive dead, 25 get their wings broken by handlers, and 10 are conscious when plunged into a tank of scalding water to loosen their feathers before further “processing.” Magnified to the scale of KFC opera- tions, assuming each of its claimed 720 million annual diners consumes the equivalent of only one-tenth of a chicken, the standard could allow 360,000 dead-on- arrival chickens, 3.6 million broken wings, and 1.4 mil- lion live throat cuttings.

Such compromises in chicken welfare to avoid higher costs are tacitly accepted by KFC diners, but difficult to defend in a media debate. PETA’s greatest source of power is the desire of average people to see themselves as humane and decent.27 The impossibility of defending a standard that lets chickens be boiled alive makes cautious nonconfrontation a better policy than frontal assault on PETA.

Therefore, in response to attacks, the company sidesteps discussing welfare to cost trade-offs and regularly makes four other points. First, it is justified in selling chickens by the morality of the market in which meeting customer demand is a positive duty. Hence, it says, “We support our customers’ prefer- ence to eat meat—a preference that represents the viewpoint of the majority of Americans.”28 Second, it is the target of false claims by PETA, a “radical or- ganization” that deceptively hides its real goal, the advent of a vegetarian world. Third, it complies with and usually goes beyond all laws in countries where it has restaurants. And fourth, it is only a purchaser and does not own chicken production facilities where abuses may occur; nevertheless, it accepts that its size as a chicken buyer gives it responsibility and the power to lead in humane treatment of chickens and it is taking a range of actions.

Since 2000 KFC has followed the Yum! Brands set of principles for animal welfare shown in Exhibit 2 and since 2004 it has carried out a more comprehen- sive set of KFC Poultry Welfare Guidelines covering breeding, growing houses, catching, transport, holding, stunning, and slaughter. KFC calls these guidelines “industry leading” because they exceed standards set by industry groups such as the National Chicken Council, but PETA rejects them because they do not require the changes it demands.

Yum! Brands set up an Animal Welfare Advisory Council of outside experts. When it was set up, PETA recommended people acceptable to it as members and the company appointed four of them. In 2005 three of these panel members submitted a set of recommendations for the welfare of chickens, calling for actions that would have satisfied all of PETA’s demands.29 KFC refused these recommen- dations and two of the panel members resigned. Currently the advisory group has six members, four academics and two managers from major sup- pliers, and meets twice a year to “align practices with the latest research and thinking in the field of animal welfare.”

KFC ABIDES, PETA IS

UNRELENTING

As the campaign moved into its seventh year, KFC stood firm. Although surely it has lost some custom- ers and its executives have been harassed, it has not, on the whole, suffered much from PETA’s boycott. Between 2003 and 2010 KFC added more than 4,600 new outlets, an increase of 37 percent, and sales per outlet grew 7 percent despite a severe recession.31 The performance of its parent, Yum! Brands, has also been strong. Anyone who bought its stock at the be- ginning of the boycott saw its share price outperform the Dow, the Standard & Poor’s 500, and McDonald’s since then.

PETA, now joined by more than a dozen other groups, including the Humane Society of the United States, continued its assertive campaign. Demonstra- tions, of which there have been more than 10,000, re- mained a staple. A favorite stunt is planting young women in yellow bikinis at KFC outlets where, espe- cially in cold weather, they attract attention. During the winter of 2008–2009 PETA’s bikini maidens held signs in below-freezing weather at KFCs in Michigan, Wisconsin, New York, and Maine. News- papers described scenes where the women trembled uncontrollably as distracted drivers ran their cars over curbs. “It’s a little bit chilly,” said a protester in 20 degree Kalamazoo weather, “but it’s really nothing compared to what the animals go through.”32

In Louisville PETA set up its KFCruelty cam- paign headquarters across the street from KFC’s flagship restaurant. It continues to visit the neigh- bors of KFC executives, handing out “bloody” chicken figures, asking them to prevail on their friends to end the cruelty. When Yum! Brands un- knowingly tried to buy a building owned by PETA in Norfolk, Virginia, the group offered to give it the property for nothing in return for meeting the cam- paign’s demands.

When KFC gave $3,000 grants of asphalt for cities to fix potholes, PETA offered to double them if it could put chalk marks on the patches reading “KFC Tortures Animals.”33 The offers were rejected. When KFC sponsored an effort at the Talladega Super- speedway to get in the Guinness Book of World Records for the most people simultaneously doing the chicken dance, Ingrid Newkirk wrote to Guinness officials, pointing out that records for killing animals are against its rules and asking them to “go a step fur- ther” and reject records from companies that subject animals to “needless suffering.”34 The attempt went on, but no record was set.

A PHILOSOPHICAL IMPASSE

Although the campaign against KFC could end if the company adopted specific practices, the plain issue between PETA and the corporation would remain. What is the proper relationship between humans and food animal species? The sides are polarized.

Richard Martin, editor of the industry magazine Nation’s Restaurant News, says PETA errs in its “rejec- tion of the animal kingdom’s remorseless food chain paradigm” and in its “repudiation of the world-wide acceptance of meat eating as a proper option for de- scendants of hunters. . . . ”35

This position is entirely at odds with the values of animal rights activists, including one who writes, “if we cannot imagine how chickens must feel . . . per- haps we should try to imagine ourselves placed help- lessly in the hands of an overpowering extraterrestrial species, to whom our pleas for mercy sound like nothing more than bleats and squeals and clucks— mere ‘noise’ to the master race in whose ‘superior’ minds we are ‘only animals.’”

Questions

1. Do you support KFC Corporation or People for the Ethical Treatment of Animals in this contro- versy? Why?

2. What are the basic criticisms that PETA makes of KFC? Are they convincing? Are its criticisms simi- lar to timeless criticisms of business mentioned in the chapter?

3. What methods and arguments has KFC used to support its actions? Is it conducting the best defense?

4. Is the range of PETA’s actions acceptable? Why does the group use controversial tactics? What are its sources of power in corporate campaigns?

5. Is it proper for PETA to pressure KFC for change when the company is following the law and pub- lic custom? Does PETA represent so compelling a truth or enough people to justify attacks on, and perhaps damage to, major corporations supported by and supporting millions of customers, employ- ees, and stockholders?

6. Do animals have rights? If so, what are they? What duties do human beings have toward animals? Does KFC protect animal welfare at an acceptable level?