Whole Foods was recently caught up in a ground beef recall after illnesses were linked to the beef originating from a slaughterhouse in Omaha and distributed by Coleman Natural Beef, a Whole Foods supplier.  Although Whole Foods along with four other regional grocery chains were participated in the recall, it was a bigger black eye for Whole Foods than the rest.

The assumption is that for the extra money that you pay for most Whole Foods products, in return you’re getting something that’s safer, fresher and more nutritious, according to Gene Grabowski, head of the crisis and litigation practice at Levic Strategic Communications. Add to this a slowing economy where escalating food prices have caused consumer to stretch budgets by cutting corners and high priced chains and you have a mess.

So what happened?

In April, Whole Foods’ long time supplier, Coleman Natural Beef, announced the sale of its beef line to Meyer Natural Angus who started using Nebraska Beef in Omaha to process some beef and sold it under the Coleman brand. Unfortunately, Nebraska Beef had a spotty track record with the Agriculture Department.  According to a report in the NY Times, Coleman was supposed to get Whole Foods’ approval for the change, but didn’t.  It sounds like an important contract provision was ignored. 

Even though Whole Foods audits its suppliers annually and has strict supplier qualifying procedures, there was no procedure in place at the time of the incident to check the product codes as the goods were coming through the door at retail. If there were, Whole Foods would have seen the change. Instead, they trusted their contract and their supplier.

To their credit, Whole Foods has acted swiftly and instituted new procedures to audit their shipments more carefully and now requires E. coli testing of beef that exceeds government standards.  

What does this mean for you? 

Contracts are good, but they can only take you so far. They are good to the extent that they provide recourse against the party that harmed you. The theory of the case goes like this: they made a promise to tell you about supplier changes, they didn’t keep it, and now you’re harmed and entitled to be made whole (no pun intended). That’s helpful. But, the down side is that if you’re suing someone whose resources are questionable, you could win your suit and still loose. In other words, the operation can be a success but the patient can still die.

So yes, contract provisions requiring notice of any change in your supplier’s processes that can affects your business are good.  Also good are provisions requiring notice of change in control or ownership because unknown changes can undermine the due diligence of the supplier selection process and your vendor’s ability to meet your expectations. 

But in addition to contract terms, business steps should be taken to create fail safe mechanisms to protect the core business model. In the Whole Foods case consistent high quality was critical to its reputation and continued success and couldn’t be compromised. An extra step needed to be taken to make sure the contract was being complied with and that no adverse changes had been made to the product without notice to Whole Foods. The new audit procedure achieves that goal. It closes the loop on contract compliance and quality assurance.

In sum, in areas were failure is not an option, it’s OK to trust, but you also need to verify, to create redundancies, or fail safe mechanisms that insure consistent performance. Cut corners and you may get more than you bargained for, and not in a good way.

No one likes to get sued.  It’s expensive.  It’s time consuming and nobody really wins, except maybe the lawyers. 

Apologizing may sound like a totally a counter-intuitive move.  However, some academic medical centers have discovered they can substantially cut their litigation costs by acknowledging preventable errors and apologizing for their mistakes instead of making excuses and denying them. 

It’s been reported that at the University of Illinois only one patient out of 37 sued after receiving an apology and at the University of Michigan Health System claims and lawsuits declined from 262 to 83 between 2001 and 2007, resulting in a 2/3 drop in legal costs.  Now that’s a cost savings you can take to the bank, including the drop in malpractice premiums.

The issue of disclosure through apology is not an academic one confined to university hospitals.  Groups like the American Medical Association, the American Hospital Association, and the Joint Commission which accredits hospitals have adopted standards encouraging transparency and disclosure and many hospitals have written policies in compliance. 

Maybe these smarty pants doctors may be on to something.  They are recognizing that nothing morphs a reasonable patient into an indignant one — one who is ready to pull the pin out of the lawsuit hand grenade – than denial and concealment of an error. Denial provokes fear that it can happen again and the concealment is nothing more than disrespect of the other party.

Let’s face it.  No one likes being lied to, especially if they are paying the price for your mistake.  It makes them angry.  It provokes outrage.  It’s the kind of negative energy that sends them running to lawyers’ offices. 

You don’t need to be in the medical profession to benefit from the hospitals’ experiences.  The next time a contract dispute arises with a customer or vendor, ask yourself whether a mistake was made. Be honest with yourself. The same goes for an employment dispute, or any other business/ legal problem.

In the end, a sincere and well timed apology can turn negative energy into positive energy.  It’s a lot cheaper than a lawyer and you can get on with your business.