The milk business in China just can’t seem to stay out of trouble.

A couple of months ago baby formula maker Synutra found itself the victim of allegationsthat its product was linked to early puberty in girls. Its shares ate a big one on the NASDAQ and the company spent much time defending itself furiously. So furiously, in fact, that I was moved to ding them on Twitter for a CEO quote blaming the situation on “certain parties in the media.” Don’t blame the media was the gist of my message.

As true as I still think that is in general, Synutra’s CEO may have had a point. Chinese media reported yesterday (and the China Daily relayed in English today) that executives from giant dairy company Mengniu and one of their PR firms, BossePR, have been detained on suspicion of stoking rumors against both Synutra and Mengniu’s chief rival, Yili. Mengniu is denying the allegations.

Who knows what really happened. As one analyst points out in the China Daily story, baby formula isn’t really a huge part of Mengniu’s business, so why go after Synutra? This is probably true at the board level. I find it hard to believe that the senior management of Mengniu were sitting around the conference table and came up with a plan to slander Synutra. It’s just a touch too Snidely Whiplash for me.

On the other hand, while the baby formula business may only be a small part of Mengniu’s business, I’m sure it’s damned important to whomever manages it at Mengniu (and is, presumably, judged on its success). There are two reasons why the allegations are at least plausible. First, as anyone living here knows, despite its brand images of purity and healthy, angelic children, the milk business in China is capable of complete sordidness. One need only read up on the now legendary melamine scandals of 2008 to be reminded of that. And there is more where that came from. In our family all the milk comes from one of the expensive organic farms near Beijing. It costs about triple what regular local milk costs, but when it’s your kid you err on the side of less melamine if you have the means. The milk industry in China is like the finance industry in the US now: Trust is so damaged that people are primed to believe the worst of just about any company, and it’s not hard to get the rumors flying.

The second factor is that using PR agencies and Internet firms to run sock-puppet campaigns attacking rivals is a time-honored tactic here. (BusinessWeek has written a bit about this here, although this story lumps some companies I respect together with some I don’t.) I’ve run into it in both the car and consumer electronics industries. It’s not always incendiary child health stuff like the Synutra allegations. Sometimes it’s just garden-variety griping about products. Even that can be extremely difficult to defend against. On the Internet, criticism is forever and anonymous rumors or allegations can take on a life of their own, at warp speed if they’re salacious or involve the health of children. And it’s generally pretty cheap to do, so the temptation to stoop to such tactics can be powerful, especially in a competitive consumer business.

I’m a fan of transparency online. When I was on the agency side my advice to clients was straightforward: Don’t astroturf, don’t sock puppet. The long-term benefits are small and the risks to reputation are high (as may be the legal risks). I expect that most international agencies would give similar advice and that most PR managers, especially at international firms operating in China, would agree. At least to your face.

Nevertheless, when push comes to shove, it seems some companies still take the easy path, and many agencies will do what they need to do to keep a client happy. Also, many large companies use a range of international and local agencies, often reporting to different managers facing different pressures and having different points of view about what constitutes ethical PR. A company without a clear policy or tight management of such things may find that not every department is equally scrupulous in its approach. I wonder if that’s what happened to Mengniu.

Note:

After this post was published I also appeared on Blue Ocean Network’s “Chinalogue” program along with Alistair Nicholas of AC Capital Consulting [Note – now of Weber Shandwick – WM] to discuss…PR slime! By which the producers of the show meant the recent Mengniu vs. Yili vs. Synutra PR sockpuppet slagfest. The heavy-breathing title of the segment aside, most of the show was a fairly sober discussion of PR ethics in general. The video is here.

See also:

• China Hearsay: Holy Cow: Defamation case against Mengniu raises some questions
• EastSouthWestNorth: The Chinese dairy wars — Roland’s awesome collection of Chinese press coverage and statements (in translation). Well worth a look.
• Forbes’ Gady Epstein with an excellent in-depth take: Creating a scandal for a fee: the dark arts of China PR