For this case study, go to the Wikipedia page titled “1985 diethylene glycol wine scandal” and read through the history of the event. (The Wikipedia page is copied and posted here as well). In short, several Austrian wineries were adding diethylene glycol, a toxic substance used in the production of some brands of antifreeze, to their wines to make them taste sweeter and more full-bodied.
Assume that you are the CEO of a Virginia-based wine company. (A business plan for the winery is attached. See page 9 for the relatively simple organizational chart.) For this case study, consider the internal governance aspect of an incident in your vinyard.
Your business manager, William, and the wine maker, Tom, decided that a small dose of diethylene glycol would actually help sales by making the wine product a little sweeter and more robust. You, as CEO, were unaware of this activity. William and Tom each drew a salary, but the compensation package for both employees also included a substantial bonus based on the sales of the vinyard in any given year. The bonus plan was implemented in the hopes that these employees would be motivated to take more care in the production work and be more aggressive in their sales efforts if they would realize a financial benefit for putting in extra effort.
This is, obviously, a failure in governance. In considering this case, address the following: How would you have established effective governance in this organization? How would you have established decision making processes and ethical standards, and how would you have enforced them? Describe the organizational culture and then describe what it should have been. Assume that there was a Board of Directors for the organization. What role should they have played in ensuring the quality of the product? How would you have responded a new story exposing your company’s practices? What actions would you take at this point?