Mcdonalds french fries contain beef

BECG/017

IBS Center for Management Research

The McDonald’s ‘Beef Fries’ Controversy

This case was written by A.Mukund, IBS Center for Management Research. It was compiled from published sources, and is

intended to be used as a basis for class discussion rather than to illustrate either effective or ineffective handling of a

management situation.

Claire Latham 14609 Uplands Drive

Lake Oswego, OR 97034 United States

Licensed to print 10 copies, 21 November, 2016. License valid upto 20 February, 2017.

 2002, IBS Center for Management Research. All rights reserved.

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BECG/017

The McDonald’s ‘Beef Fries’ Controversy

“Hindus and vegetarians all over the world feel shocked and betrayed by McDonald's deception

and ultimate greed.”

- Attorney Harish Bharti, on filing the lawsuit against McDonald’s, in May 2001.

“These are the ways the fries are made in the US, and we don’t have any plans to change.”

- Walt Riker, McDonald’s spokesperson, in May 2001.

A CONTROVERSY ERUPTS

In May 2001, a class action lawsuit 1 was filed against the world‘s largest fast-food chain

McDonald‘s, in Seattle, US. The lawsuit alleged that the company had, for over a decade, duped

vegetarian customers into eating French fries 2 that contained beef extracts. The lawsuit followed a

spate of media reports detailing how the French fries served at McDonald‘s were falsely promoted

as being ‗100% vegetarian.‘

Although McDonald‘s initially declined to comment on the issue, the company issued a

‗conditional apology,‘ admitting to using beef flavoring in the fries. The furore over the matter

seemed to be settling down, when to McDonald‘s horror, some of its restaurants in India were

vandalized. Activists of Hindu fundamentalist groups – the Shiv Sena, the Vishwa Hindu Parishad

(VHP) and the Bajrang Dal, staged a demonstration in front of the McDonald‘s head office in

Delhi protesting the alleged use of beef flavouring. They submitted a memorandum to the Prime

Minister, demanding the closure of all McDonald‘s outlets in the country.

Activists also staged protests in front of McDonald‘s restaurants in south Mumbai and Thane.

Mobs ransacked the outlet at Thane, broke the glass panes and smeared the McDonald‘s mascot

Ronald with cow dung. About 30 people were arrested and later let off on bail. Company officials

estimated the loss to the outlet at Rs 2 million.

Officials at McDonald‘s India quickly announced that the vegetarian products served in India did

not have any non-vegetarian content (Refer Exhibit I for details). However, despite this

reassurance, the anti-McDonald‘s wave refused to die down.

Meanwhile, more cases were being filed against McDonald‘s – this time in California, US and

Canada. It seemed certain that the company would have to shell out millions of dollars to

settle the class action lawsuit representing the 1 million US based Hindus and 15 million other

vegetarians.

1 A class-action suit is a suit filed to protect the interests of group of individuals who are affected or may

be affected by a perceived fraud or misconduct of a similar nature. The number of people could be as few

as under 10 to millions. Typically, class action suits in the US drag on for years and very often parties

settle out of court within the first year of filing. 2 Thinly sliced, finger-sized pieces of potato, deep fried and served with a sprinkling of salt.

The McDonald’s ‘Beef Fries’ Controversy

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BACKGROUND NOTE

McDonald‘s was started as a drive-in restaurant by two brothers, Richard and Maurice McDonald in California, US in the year 1937. The business, which was generating $ 200,000 per annum in the 1940s, got a further boost with the emergence of a revolutionary new concept called ‗self-service.‘ The brothers designed their kitchen for mass production with assembly line procedures. Prices were kept low. Speed, service and cleanliness became the critical success factors of the business. By mid-1950s, the restaurant‘s revenues reached $ 350,000. As word of their success spread, franchisees started showing interest. However, the franchising system failed because the McDonald brothers observed very transparent business practices. As a consequence, they encouraged imitators who copied their business practices and emerged as competitors. The franchisees also did not maintain the same standards for cleanliness, customer service and product uniformity.

At this point, Ray Kroc (Kroc), an exclusive distributor for milkshake machines expressed interest in the McDonald brothers‘ business. Kroc finalized a deal with the McDonald brothers in 1954. He established a franchising company, the McDonald System Inc. and appointed franchisees. In 1961, he bought out the McDonald brothers‘ share for $2.7 million, and changed the name of the company to McDonald‘s Corporation. In 1965, McDonald‘s went public.

By the end of the 1960s, Kroc had established over 400 franchising outlets. McDonald‘s began leasing/buying potential store sites and then subleased them to franchisees initially at a 20% markup and later at a 40% markup. To execute this, Kroc set up the Franchise Realty Corporation. The real estate operations improved McDonald‘s profitability. By the end of the 1970s, McDonald‘s had over 5000 restaurants with sales exceeding $3 billion.

However, in the early 1990s, McDonald‘s was facing problems due to changing customer preferences and increasing competition. Customers were becoming increasingly health conscious and they wanted to avoid red meat and fried food. They also preferred to eat at other fast food joints that offered discounts. During this time, McDonald‘s also faced increased competition from supermarkets, convenience stores, mom and dad delicacies, gas stations and other outlets selling reheatable packaged food. McDonald‘s added only 195 restaurants during 1991-92.

In 1993, McDonald‘s finalized an arrangement for setting up restaurants inside Wal-Mart retail stores. The company also opened restaurants in gas stations owned by Amoco and Chevron. In 1996, McDonald‘s entered into a $1 billion 10-year agreement with Disney. McDonald‘s agreed to promote Disney through its restaurants and opened restaurants in Disney‘s theme parks. In 1998, McDonald‘s took a minority stake in Chipotle Mexican Grill – an 18-restaurant chain in the US. In October 1996, McDonald‘s opened its first restaurant in India.

By 1998, McDonald‘s was operating 25,000 restaurants in 116 countries, serving more than 15 billion customers annually. During the same year, the company recorded sales of $36 billion, and net income of $1.5 billion. McDonald‘s overseas restaurants accounted for nearly 60% of its total sales. Franchisees owned and operated 80% of McDonald‘s restaurants across the globe. However, much to the company‘s chagrin, in 1998, a survey in the US revealed that customers rated McDonald‘s menu as one of the worst-tasting ever.

Undeterred by these developments, the company continued with its expansion plans and by 2001, it had 30,093 restaurants all over the world with sales of $ 24 billion (Refer Exhibit I for key statistics of McDonald‘s). By mid 2001, the company had 28 outlets in India, spread across New Delhi, Bombay, Pune, Jaipur and on the Delhi-Agra highway.

THE TROUBLED HISTORY

McDonald‘s has had a long history of lawsuits being filed against it. It had been frequently accused of resorting to unfair and unethical business practices – October 16

th is even observed as a

‗World anti-McDonald‘s day.‘ In the late 1990s, the company had to settle over 700 incidents of

The McDonald’s ‘Beef Fries’ Controversy

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scalding coffee burns. Reportedly, McDonald‘s kept the coffee at 185 – approximately 20 hotter than the standard temperature at other restaurants – which could cause third degree burns in just 2- 7 seconds. An 81-year old woman suffered third degree burns on her lower body that required skin grafts and hospitalisation for a week. After McDonald‘s dismissed her request for compensation for medical bills, she filed a lawsuit against the company.

A McDonald‘s quality assurance manager testified in the case that the company was aware of the

risk of serving dangerously hot coffee, but it had no plans to lower the temperature or to post a

warning on the coffee cups about the possibility of severe burns. In 1994, the court declared

McDonald‘s guilty of serving ‗unreasonably dangerous‘ hot coffee. The court awarded punitive

damages of $ 2.7 million dollars, which was later lowered to $ 480,000.

The company also had to settle multi-million dollar lawsuits in many other cases such as the one

filed by a woman who was permanently scarred by an extremely hot pickle slice in a hamburger

and a customer who found the crushed head of a rat inside his hamburger. There were a host of

other allegations against the company (Refer Table I for some notable allegations).

Table I

Allegations against McDonald’s

Nutrition – McDonald‘s high fat, low fibre food can cause diseases such as cancer, heart

problems, obesity and diabetes, which are responsible for about 75% of premature deaths in the

West. McDonald‘s refuted the allegation saying scientific evidence has never been conclusive

and that its food can be a valuable part of a balanced diet. The company also argued that it had

the right to sell junk food just like chocolate or ice-cream manufacturers did. However, critics

claimed that the company should at least refrain from advertising the products as nutritious,

sponsoring sports events and opening outlets in hospitals.

Environment - McDonald‘s has been accused of destroying tropical forests to facilitate cattle

ranching. Although the company claimed that the one million tons of packaging it used was

recyclable, it still was accused of causing environmental pollution due to the litter generated.

Advertising - McDonald‘s annual ad spend of over two billion dollars was criticized for

exerting a negative influence on children and exploiting them. Through its collectable toys,

Ronald the clown, TV advertisements and promotional schemes in schools, it has an extremely

strong hold on children.

Employment – Though McDonald‘s has generated millions of jobs worldwide, it is accused of

offering low wages and forcing local food outlets out of business. Charges of discrimination,

curtailing workers‘ rights, understaffing, few breaks, illegal hours, poor safety conditions,

crushing unionisation attempts and kitchens flooded with sewage, and selling contaminated

food were also levelled against the company.

Animals – As the world‘s largest user of meat, McDonald‘s slaughters hundreds of thousands

of cows, chickens, lambs and other animals per year.

Expansion – By opening restaurants in developing countries, McDonald‘s is creating a

globalised system in which wealth is drained out of local economies into the hands of a very

few rich elite. This results in self-sufficient and sustainable farming being replaced by cash

crops and agribusiness under control of multinationals.

Free Speech – McDonald‘s uses its clout to influence the media, and legal powers to intimidate

people into not speaking out against it. Many media organisations that voiced strong opinions

on the above issues have been sued by the company.

Source: IBS Center for Management Research.

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Most of these allegations were made way back in the early 1980s in a movement spearheaded by

two London Greenpeace 3 activists Helen Steel (Steel) and Dave Morris (Morris). They started their

protests by distributing leaflets containing allegations against the company. Soon, the issue

snowballed into a bitter £ 10 million courtroom battle against the activists.

The company was severely criticized for hiring detective agencies to break into the activist group.

According to an analyst, ―The company had employed at least seven undercover agents to spy on

Greenpeace. During some London Greenpeace meetings, about half the people in attendance were

corporate spies. One spy broke into the London Greenpeace office, took photographs, and stole

documents. Another had a six-month affair with a member of London Greenpeace while informing

on his activities.‖

Steel and Morris were later found to have libelled McDonald‘s by a British court. However, the company

was also found guilty of endangering the health of its customers and paying workers unreasonably low

wages. The case, chronicled completely at www.mcspotlight.org, has become a classic example of a

corporate giant‘s struggle to uphold its image amidst allegations of unethical practices.

In the light of the company‘s chequered history of legal problems, the French fries controversy

seemed ‗run-of-the-mill.‘ However, when McDonald‘s issued a conditional apology, the matter

acquired serious undertones. This was because it was one of the very few instances where the

company seemed to have publicly acknowledged any kind of wrong-doing.

THE BEEF FRIES CONTROVERSY

With an overwhelming majority of the people in the West being non-vegetarian, products often

contain hidden animal-based ingredients. Incidents of vegetarians finding non-vegetarian food

items in their food abound throughout the world. Whether a person has chosen to be a vegetarian

for religious, health, ethical or philosophical reasons, it is not easy to get vegetarian food in public

restaurants. According to the manager of a Thai food cafe in the US, ―We have a lot of customers

already. We don‘t need to have any vegetarian food.‖ Commenting on this dilemma, a US based

Hindu vegetarian said, ―We can‘t blame anybody. You have to find out for yourself. If you have

any doubts, try to avoid it. Otherwise, you just have to close your eyes and try to eat.‖

The French fries controversy began in 2000, when a Hindu Jain software engineer Hitesh Shah

(Shah) working in the US happened to read a news article, which mentioned that the French fries

at McDonald‘s contained beef. Shah sent an e-mail to McDonald‘s customer service department,

asking whether the French fries contained beef or not and if they did, why this was not mentioned

in the ingredient list. Shah soon got a reply from Megan Magee, the company‘s Home Office

Customer Satisfaction Department.

The reply stated, ―Thank you for taking time to contact McDonald‘s with your questions regarding

the ingredients in our French fries. For flavor enhancement, McDonald‘s French fry suppliers use a

miniscule amount of beef flavoring as an ingredient in the raw product. The reason beef is not

listed as an ingredient is because McDonald‘s voluntarily (restaurants are not required to list

ingredients) follow the ‗Code of Federal Regulations‘ (required for packaged goods) for labeling

its products. As such, like food labels you would read on packaged goods, the ingredients in

‗natural flavors‘ are not broken down. Again, we are sorry if this has caused any confusion.‖

A popular Indian-American newspaper ‗West India‘ carried Shah‘s story. The news created

widespread outrage among Hindus and vegetarians in the US. In May 2001, Harish Bharti (Bharti),

a US based Indian attorney filed the class action lawsuit against McDonald‘s.

3 A social activist group based in UK that has been campaigning for a variety of environmental and social

justice issues since the early 1970s. The group predates the more well known Greenpeace International

and the two organizations are unconnected.

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McDonald‘s immediately released a statement saying it never claimed the fries sold in the US were vegetarian. A spokesperson said that though the fries were cooked in pure vegetable oil, the company never explicitly stated that the fries were appropriate for vegetarians and customers were always told that the flavor came partly from beef. He added that it was upto the customer to ask about the flavor and its source. This enraged the vegetarian customers further. Bharti said, ―Not only did they deceive millions of people who may not want to have any beef extraction in their food for religious, ethical and health reasons, now McDonald‘s is suggesting that these people are at fault, that they are stupid. This adds insult to injury.‖

Interestingly enough, McDonald‘s statement that it never claimed its French fries were vegetarian was proved completely wrong after Bharti found a 1993 letter sent by the company‘s corporate headquarters to a consumer in response to an inquiry about vegetarian menu items. The letter clearly bundled the fries along with garden salads, whole grain cereals and English muffins as a completely vegetarian item.

The letter stated, ―At McDonald‘s, we are always reviewing our menu, developing new products and looking for ways to satisfy the diverse tastes of our customers. We feel it is important to offer a variety of menu items that can be enjoyed and fit into any well-balanced diet. With that in mind, we presently serve several items that vegetarians can enjoy at McDonald‘s – garden salads, French fries and hash browns (cooked in 100% vegetable oil), hotcakes, scrambled eggs, whole grain cereals and English muffins to name a few.‖ Further, it was reported that many McDonald‘s employees repeatedly told customers that there was absolutely no meat product in the fries.

The whole controversy rested on a decision McDonald‘s had taken in 1990 regarding the way French fries were prepared. Prior to 1990, the company made the fries using tallow.

4 However, to

address the increasing customer concern about cholesterol control, 5 McDonald‘s declared that it

would use only pure vegetable oil to make the fries in the future. However, after the decision to change from tallow to pure vegetable oil, the company realized that it could have difficulty in retaining customers who were accustomed to beef flavored fries.

According to Eric Scholsser, author of the best-selling book ‗Fast Food Nation: The Dark Side of the All-American Meal

6 ,’ ―For decades, McDonald‘s cooked its French fries in a mixture of about

7% cottonseed oil and 93% beef tallow. The mix gave the fries their unique flavor.‖ This unique flavor was lost when tallow was replaced by vegetable oil. To address this issue, McDonald‘s decided to add the ‗natural flavor,‘ i.e. the beef extract, which was added to the water while the potatoes were being partially cooked.

The ‗beef fries‘ controversy attained greater dimensions in India as 85% of the country‘s population was vegetarian. Non-vegetarians also usually did not consume beef because Hindus consider cows to be holy and sacred. Eating beef thus a sacrilege. A US based Hindu plaintiff in one of the lawsuits said, ―I feel sick in the morning every day, like I want to vomit. Now it is always there in my mind that I have done this sin.‖

Experts commented that the issue was not of adding beef extract to a supposedly vegetarian food item – it was more to do with the moral and ethical responsibility of a company to be honest about the products and services it offered. According to James Pizzirusso, founder of the Vegetarian Legal Action Network at George Washington University, ―Corporates need to pay attention to consumers who avoid certain food products for religious or health reasons, or because they have allergies. They say they are complying with the law in terms of disclosing their ingredients, but they should go beyond the law.‖

4 Tallow refers to shortening made from beef fat.

5 Cholesterol is a soft, waxy substance found in the lipids (fats) in the bloodstream and in all body cells. It forms

cell membranes, hormones and other needed tissues in the body. However, a very high level of cholesterol in

the blood causes cardiovascular diseases and leads to heart attacks and strokes. Foods rich in saturated fats

cause the cholestrol level to rise thereby increasing the chances of cardiovascular diseases. 6 The book provides a detailed account of the negative aspects associated with the products and operations

of fast food giants such as Burger King and McDonald‘s.

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While it was true that McDonald‘s complied with the Federal Food and Drug Administration 7

(FDA) guidelines by classifying beef extract as ‗natural flavor,‘ critics claimed that the company

was trying to ‗play with words‘ to brush off the allegations. This prompted analysts to remark that

a large part of the blame was with the weak guidelines stipulated by the FDA. The guidelines did

not require the flavor companies or the restaurants buying these flavors to disclose the ingredients

in their additives as long as they were generally regarded as safe (GRAS 8 ). Analysts added that as

long as the FDA did not make the guidelines more specific, companies could legally get away with

serving dishes containing animal-based products.

Meanwhile in June 2001, another class-action lawsuit was filed in the District Court in Travis

County, Austin, Texas on behalf of all Hindus in Texas, alleging that Hindu moral and religious

principles had been violated by their unintentional consumption of French fries that were flavored

with beef. As public outrage intensified, McDonald‘s released its conditional apology on its

website, admitting that the recipe for the fries used a ‗a miniscule trace of beef flavoring, not

tallow‘ (Refer Table II for McDonald‘s response to the allegations).

McDonald‘s said that it issued an apology only to provide more details about its products to

customers. A company spokesperson said, ―Customers responded to the news about the lawsuit. In

the end, we are responding to those customers. We took a fresh look at how we could help

customers get more information about natural flavors.‖

Unsatisfied by the apology, Bharti said, ―Apology is good for the soul if it comes from the heart. It

is not an unconditional apology. Why do they go around using words like ‗if there was any

confusion‘ in their apology?‖ Further, news reports quoting company sources said that the apology

did not mean McDonald‘s was admitting to claims that it misled million of customers by adding

beef extract to its fries. Bharti said that the legal battle would continue and that McDonald‘s would

have to issue an unconditional apology and pay a substantial amount of money. By this time, two

more lawsuits were filed in Illinois and New Jersey, taking the total number cases of five.

Table II

McDonald’s Response to the Allegations

It has always been McDonald‘s practice to share nutrition and ingredient information with our

customers, including facts about our French fries. In the US, we consistently communicate this

information through in-store posters, wallet-sized cards and various brochures, which offer a

wide variety of dietary details.

McDonald‘s USA is always sensitive to customer concerns. Because it is our policy to

communicate to customers, we regret if customers felt that the information we provided was not

complete enough to meet their needs. If there was confusion, we apologize.

Meanwhile, here are the details of our French fry production in the U.S. A small amount of beef

flavoring is added during potato processing – at the plant. After the potatoes are washed and

steam-peeled, they are cut, blanched, dried, par-fried, and frozen. It is during the par-frying

process at the plant that the natural flavoring is used. These fries are then shipped to our US

restaurants. Our French fries are cooked in vegetable oil at our restaurants.

Contd…

7 A US governmental consumer protection body, the FDA promotes and protects public health by helping

safe and effective products reach the market in a timely way and monitoring products for continued

safety after they are in use. 8 GRAS status is awarded after the FDA conducts scientific tests on a product and the product meets the

criterion set for approval. Products which are GRAS are explicitly excluded from requirement for FDA

premarket approval.

The McDonald’s ‘Beef Fries’ Controversy

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Contd…

McDonald‘s 1990 switch to vegetable oil in the US as our standard cooking oil was made for

nutritional reasons, to offer customers a cholesterol-free menu item. This nutrition

announcement received national media coverage, widely broadcasting the facts about our

switch and why we made it.

As a local business in 121 countries, our French fry process varies country-by-country to

account for cultural or religious dietary considerations. For example, in predominantly Muslim

countries – as in Southeast Asia, the Middle East and Africa – McDonald‘s strictly conforms to

halal standards. This means no use of beef or pork flavorings or ingredients in our French fries.

In India, where vegetarian concerns are paramount, no beef or pork flavorings are used in our

vegetarian menu items.

Our ‗McDonald‘s Nutrition Facts‘ brochure uses the term ‗natural flavor‘ in the ingredient list

for French fries. This description is in full compliance with and permitted by the US Food and

Drug Administration (FDA).

Source: www.mcdonalds.com

THE AFTERMATH

The courtroom battle had entered the 11 th month when McDonald‘s announced that it would issue

a new apology and pay $ 10 million to vegetarians and religious groups in a proposed settlement of

all the lawsuits in March 2002. Around 60% of this payment went to vegetarian organizations and

the rest to various groups devoted to Hindus and Sikhs, children‘s nutrition and assistance and

kosher dietary practices 9 .

The company also decided to pay $ 4,000 each to the 12 plaintiffs in the five lawsuits and post a

new and more detailed apology on the company website and in various other publications.

McDonald‘s also decided to convene an advisory board to advise on vegetarian matters.

In April 2002, McDonald‘s planned to insert advertisements in newspapers apologizing for its

mistakes, ―We acknowledge that, upon our switch to vegetable oil in the early 1990s for the

purpose of reducing cholesterol, mistakes were made in communicating to the public and

customers about the ingredients in our French fries and hash browns. Those mistakes included

instances in which French fries and hash browns sold at US restaurants were improperly identified

as vegetarian. We regret we did not provide these customers with complete information, and we

sincerely apologize for any hardship that these miscommunications have caused among Hindus,

vegetarians and others.‖

Unhappy with the monetary compensation the company was offering, Bharti said, ―Wish I could

do better in terms of money. But our focus was to change the fast food industry, and this is a big

victory for consumers in this country because we have brought this giant to this.‖

Though $ 10 million was definitely a pittance for the $ 24 billion McDonald‘s, what remained to

be seen was whether the case would set a precedent and make corporates throughout the world

more aware and responsible towards their customers or not.

9 The term ‗kosher‘ is used to describe foods or other animal products that are fit for consumption

according to the religious rules of the Jewish community. By ensuring that the food is kosher, the Jews

believe that they recognize the value of the life taken, while at the same time integrating religion into

their dietary practices.

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QUESTIONS FOR DISCUSSION:

1. Analyze the various allegations levelled against McDonald‘s before the French fries controversy. Why do you think the company attracted so much hostility and criticism despite

being the number one fast food chain in the world?

2. Discuss the French fries controversy and critically comment on the company‘s stand that it had never claimed the fries were vegetarian. Do you think the company handled the controversy

effectively? Give reasons to support your answer.

3. Discuss the steps taken by McDonald‘s to play down the French fries controversy and critically comment whether the company will be able to come out of this unscathed.

The McDonald’s ‘Beef Fries’ Controversy

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Exhibit I

What Happened in India

In May 2001, Managing Directors of McDonald‘s India – Vikram Bakshi (Bakshi) of Delhi‘s

Connaught Plaza Restaurants and Amit Jatia (Jatia) of Mumbai‘s Hardcastle Restaurants said at

a press conference, ―We are open to any kind of investigation by the authorities, from the state

or central governments. We categorically state that the French fries and other vegetarian

products that we serve in India do not contain any beef or animal extracts and flavouring of

whatsoever kind.‖

Bakshi said that the company had developed a special menu for Indian customers taking into

consideration Indian culture and religious sentiments. McDonald‘s officials circulated official

statements by McCain Foods India Pvt. Ltd. and Lamb Weston, suppliers of French fries to

McDonald‘s India, stating that the fries were par-fried in pure vegetable oil without any beef

tallow or any fat ingredient of animal origin.

People were however skeptical of the company‘s assurance because it had made similar false

promises in the US as well. Their fears came true when it was revealed that Lamb Weston‘s

supplies had been rejected after they failed to meet standards set by McDonald‘s. McCain

Foods was still in the process of growing the appropriate potatoes and needed another two years

to begin supply. The French fries were being sourced from the US.

However, tests conducted on the French fries and the cooking medium by Brihanmumbai

Municipal Corporation (BMC) and the Food and Drug Administration (FDA) confirmed the

fries contained no animal fat.

Source: IBS Center for Management Research.

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Exhibit II

McDonald’s – Financial Performance Summary

Source: www.mcdonalds.com

 Includes $378 million of pretax special operating charges primarily related to business reorganization in the US and other global change initiatives, and the closing of 163

underperforming restaurants in international markets.

 Includes the $378 million of pretax special operating charges noted above and $125 million of net pretax special nonoperating income items primarily related to a gain on the initial public

offering of McDonald‘s Japan, for a net pretax expense of $253 million ($143 million after tax

or $0.11 per share). Net income also reflects an effective tax rate of 29.8 percent, primarily

due to the one-time benefit of tax law changes in certain international markets ($147 million).

 Includes $162 million of Made For You costs and the $160 million special charge related to the home office productivity initiative for a pretax total of $322 million ($219 million after tax

or $0.16 per share).

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Exhibit III

McDonald’s – Social Responsibility Statement

The McDonald‘s brand lives and grows where it counts the most— in the hearts of customers

worldwide. We, in turn, hold our customers close to our heart, striving to do the right thing and

giving back to the communities where we do business. At McDonald‘s, social responsibility is a

part of our heritage and we are committed to building on it worldwide; some of our efforts to do

so are described here.

Ronald McDonald House Charities - McDonald‘s supports one of the world‘s premier

philanthropic organizations, Ronald McDonald House Charities (RMHC). RMHC provides comfort

and care to children and their families by awarding grants to organizations through chapters in 31

countries and supporting more than 200 Ronald McDonald Houses in 19 countries.

Environmental Leadership - We take action around the world to develop innovative solutions

to local environmental challenges. Ten years ago, we began a groundbreaking alliance with the

Environmental Defense Fund (EDF) to reduce, reuse and recycle. Since then we eliminated

150,000 tons of packaging, purchased more than $3 billion of recycled products and recycled

more than one million tons of corrugated cardboard in the US. We continue to set new waste

reduction goals and are focusing on reducing energy usage in our restaurants. In Switzerland,

we annually avoid 420,000 kilometers of trucking and, in turn, the use of 132,000 liters of

diesel fuel by shipping restaurant supplies via rail. In Latin America, we have partnered with

Conservation International to create and implement a sustainable agriculture program to protect

the rainforests in Costa Rica and Panama. In Australia, we have committed to meet that

country‘s Greenhouse Challenge to reduce greenhouse emissions.

Diversity - We believe a global team of talented, diverse employees, franchisees and suppliers

is key to the company‘s ongoing success. We work to create and maintain an inclusive

environment and expand the range of opportunities, thereby enabling all our people to reach

their highest potential and generate the most value for McDonald‘s and the best experience for

customers. McDonald‘s also provides opportunities for women and minorities to become

franchisees and suppliers and offers a wide range of support to help them build their businesses.

These efforts have paid off: Today, more than 30 percent of McDonald‘s franchisees are

women and minorities, and in 1999, we purchased about $3 billion worth of goods and services

from women and minority suppliers.

Employment - Being a good corporate citizen begins with the way we treat our people. We are

focused on developing people at every level, starting in our restaurants. We invest in training

and development programs that encourage personal growth and higher levels of performance.

These efforts help us attract and retain quality people and motivate superior performance.

Education - As one of the largest employers of youth, education is a key priority. So the

company, our franchisees and RMHC proudly provide about $5 million in educational

assistance through a variety of scholar-ship programs. We also honor teachers‘ dedication and

commitment to education with the McDonald‘s Education Award.

Safety/quality - We are committed to ensuring safety and quality in every country where we do

business. Accordingly, we set strict quality specifications for our products and work with

suppliers worldwide to see that they are met. This includes ongoing testing in labs and on-site

inspection of supplier facilities. Restaurant managers worldwide are extensively trained in safe

handling and preparation of our food. Also, we continually review, modify and upgrade the

equipment at PlayPlaces and Playlands to provide a safe play environment. Our quality control

efforts also encompass animal welfare. Notably, we are working with a leading animal welfare

expert in the US to implement an auditing process with our meat suppliers to ensure the safe

and humane treatment of animals.

Source: www.mcdonalds.com

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Additional Readings & References:

1. Emery David, Ratburger - Family sues McDonald's after allegedly finding rat’s head in burger, www.urbanlegends.about.com, April 4, 2001.

2. Sundaram Viji, Where’s the beef? It’s in your French fries, India-West, April 9, 2001.

3. Lawsuit says McDonald’s Uses Beef Fat in French Fries, www.seattleinsider.com, May 2, 2001.

4. Pais J. Arthus, Harish Bharti fears dirty tricks, www.rediff.com, May 4, 2001.

5. Singh Nanda Harbaksh, Hindu zealots throw cow dung at McDonald’s, www.mcspotlight.org, May 4, 2001.

6. Bharti’s Beef with McDonald’s, www.rediff.com, May 4, 2001.

7. Perera Nirsha, Bharti gets clinching evidence against McDonald’s, www.rediff.com, May 5, 2001.

8. Indian beef protesters raid McDonald’s, www.europe.cnn.com, May 5, 2001.

9. McDonald’s India denies beef flavouring, www.blonnet.com, May 5, 2001.

10. No beef extract in French fries, claims McDonald‘s, www.rediff.com, May 5, 2001.

11. Quit India, Sena tells McDonald’s, www.hindu.com, May 6, 2001.

12. Pais J. Arthur, I’ve been violated for over a decade!, www.rediff.com, May 8, 2001.

13. Venugopal Arun, Even The Pea Soup Has Ham!, www.rediff.com, May 9, 2001.

14. Goodstein Laurie, For Hindus and Vegetarians, Surprise in McDonald’s Fries, www.commondreams.org, May 2001.

15. Perera Nirshan, Will you get any McDonald’s money, www.rediff.com, June 1, 2001.

16. Brockes Emma, Life after McLibel, www.mcspotlight.org, June 7, 2000.

17. Mozumder Guha Suman, Another class action lawsuit against McDonald’s, India Abroad, June 2001.

18. Cohen Deborah, McDonald’s Tries to Diffuse Meaty Fries Row, www.mcspotlight.org, August 13, 2001.

19. Chu Vivian, Big Mac Will Pay $ 10 million to patrons if offended, The Economic Times, March 9, 2002.

20. Big Mac Atones for Beef Fries With $ 10 million, Business Line, March 9, 2002.

21. Rajghatta Chidananda, McDonald’s Apologises, to Pay $ 10 million to Veggies, The Times of India, March 9, 2002.

22. McFacts about the McDonalds Coffee Lawsuit, www.lawandhelp.com.

23. www.mcspotlight.org

24. www.mcdonalds.com