Edited by Sarah Mejia
Investors expect a high level of respect from companies. Among expectations are full disclosure and transparency in regard to any foreseen issues that may affect sales.
Yum Brands Inc. is a Fortune 500 corporation that operates or licenses KFC, Taco Bell, Pizza Hut and Wingstreet. Although it is based in Louisville, Kentucky Yum Brands services over 120 countries and generated over $12 billion in revenue in 2011. With a company of such global capacity, one would assume that full disclosure of all material sales information would be disseminated to all investors. However, Yum Brands Inc. recently did not fulfill this expectation and withheld information from shareholders about an investgation in KFC China leading to a much larger decline in sales than anticipated.
On November 23rd, China Economic Net (website of the state-operated Economic Daily Newspaper) reported alleged concerns about the practices of KFC suppliers in China. Since then, via the internet, consumers in China have been passing along worries of safety hazards in KFC chicken. Despite the burgeoning concerns sweeping Chinese consumers, Yum did NOT inform United States shareholders of this at the release.
According to Julie Jargon and Laurie Burkitt of The Wall Street Journal, “Yum alerted its U.S. shareholders at the end of November that it expected a 4% drop in its same-store sales in China in the fourth quarter—the first such decline since 2009.” However, in that Nov. 29 release and in an ensuing conference with investors, the company failed to mention Chinese consumer concerns, but rather alluded to a shaky economy and the complexity of doing better than a strong preceding quarter. Now, Yum has finally admitted decline this quarter will be even worse than they had predicted.
Only a month later, December 21st, did Yum express to their U.S investors that a Chinese government investigation of indecent antibiotics used by its chicken suppliers was negatively affecting the KFC businesses there. This negative announcement caused a spiral affect of Yum’s shares to drop even further.
In the age of mass global technology, the ease of damaging a company’s reputation has increased, thus depleting internet swayed, value-mindful consumer bases. Social media websites and various independent websites spreading accusations with truth or absurdity, certainly bias customer decisions. For example, following the November 23rd report Yum combated the accusation that the supplier on the hot seat made up only 1% of their chicken, yet irreparable damage was already done and affected previous customers.
Dean of the Milgard School of Business at the University of Washington in Tacoma stated, “In terms of transparency and corporate social responsibility, one would expect them to have mentioned this at their investor meeting,” in regard to the nondisclosure of known causes of sales decline. Indeed, with blatant access to internet sources around the globe, the nondisclosure may appear intentional and unfair in the eyes of investors.