Coca-Cola’s Business Practices

Coca-Cola Case Study

Coca-Cola’s Business Practices:  Facing the Heat in a Few Countries

Costello, DeHerrera, Ellis, Mullen

 

I.          Define the problem

A.   What is the situation?  (Identify what you actually know about the situation from reading the case; state the facts)

            Coca-Cola is suffering backlash from various groups for alleged misconduct in its overseas operations and to an extent, in the USA.  Coke maintains the most widely recognized brand name in the world.  They seek to develop and sustain this position through various forms of stewardship.  The economic measure of the backlash is not yet significant however the consumer backlash threatens to undermine years of careful brand grooming.  For their part, Coke had always believed that it dealt fairly with local populations, and conducted itself in accordance with safety, health and environmental commitment.

 

·        The Allegations

 

1.      TRADE PRACTICES IN MEXICO

                                    Mexico represents Coca-Cola’s second largest market in per capita consumptions of soft drinks.  In fact, they realized their largest profit margins and held a 70% stake in that market.  At one time, Pepsi was their chief rival but a new comer, Big Cola, entered the scene with a comparatively low price.  By 2004, Big Cola held a 5% market share and growing.  Because half of Mexicans are poor, Big Cola gained this share and Coke had to adjust its prices thus lowering its profit margin.  On 04JUL2005, Mexico’s Federal Competitive Commission charged Coca=Cola and its bottlers for violation of anti-monopoly laws and indulging in anti-competitive business practices.  These charges were leveled as a result of small business owners claims that Coke had threatened sanctions against them if they were to sell Big Cola.

 

2.      ENVIRONMENT & PRODUCT ISSUES IN INDIA

                                    In India, Coke was accused of draining the underground water table, of releasing improperly treated industrial effluents and of selling products containing pesticide residues above standard limits.  It is alleged that Coke used an estimated that 15 million liters of ground water every day for product and bottle washing ops through 65 wells thus depleting underground water levels.  Additional allegations include that the water left was contaminated as a result of chemicals used in the bottle washing ops.  To further compound the problem, a study found that the effluent from the bottle washing ops contained high levels of carcinogenic heavy metals like cadmium and lead.  Their plant sold and offered at no charge this toxic effluent sludge.  Furthermore, when farmers no longer accepted this toxic byproduct, Coke purportedly dumped it by the wayside under the cover of night.  Finally, the Center for Science and Environment revealed that Coke and Pepsi were distributing 12 different products contaminated with pesticides at a rate of 36x greater than allowed by the European Economic Commission. 

 

3.      LABOR PRACTICES IN COLUMBIA

                                    If you were to have heard about a dead trade unionist eight years ago, there was a 60% chance he was from Columbia.  Also in Columbia’s credit, a forty-year civil war that claimed around 3,000 lives a year, many of which were trade union leaders and workers.  In 2001, Coca-Cola was linked to the murders of eight union leaders (since 1989) and violence, abductions and torturing union members through the use of paramilitary forces-known to be friendly with the local plant management.  Allegedly, through the same methods, the union offices were burned, union members were forced to quit the union, many received death threats and permanent workers were targeted so that cheaper contract workers could replace them.  In January 2004, a fact-finding delegation concluded that there had been 179 major human rights violations, including murders, to Coke’s Columbian workers.  Violence and intimidation occurred at the direction of or the knowledge of the plant’s management.  The company’s Columbian managers never investigated any of the numerous complaints leading the delegates to conclude that Coca-Cola clearly and utterly disregarded human rights and the well being of its labor.

 

4.      OTHER ALLEGATIONS AGAINST COCA-COLA

a.       Coca-Cola has been accused of discriminating against African-Americans twice.   First in 1998 for unequal pay and promotions, then again in 2002 for more of the same plus unequal representation in top positions and being dismissed more often. 

b.      In Africa, Coca-Cola was charged with having a whites only management staff.  

c.       Coca-Cola products were briefly banned from several European countries in 1999 for having the “wrong” CO₂ . 

d.      During that same time, France made Coke pull its cans due to fears that a fungicide used to treat pallets contaminated them.  The EU concluded that Coca-

e.       Cola frequently entered into anti-competitive deals with bar and restaurant owners.  The same charges were brought in the USA but later dismissed. 

f.        Improper firings, specifically M. Whitley for outing another manager to top management for fraudulent activities. 

 

·        The Backlash

1.      BOYCOTTS

                                    On 01JAN2006, the University of Michigan became the 10^th U.S. university campus to put a hold on the sale of Coca-Cola products.  The UM boycott was a result of student activists’ campaign to protest this MNC’s business practices overseas.  Other notable universities include; New York U, Rutgers U, Santa Clara U with NYU and MU being Coca-Cola’s largest campus networks worth around $1.4 million in 2005.  In July 2001, Columbian union SINALTRAINAL, the United Steelworkers of America and the International Labor Rights Fund, failing to get the American Judicial system to take action against Coca-Cola in Columbia, launched an appeal for boycotts.  On 22JUL2003, the world took notice and by October 2003, the University of Dublin perhaps became the first university to impose the boycott.  Although Coca-Cola protested, eventually several Irish colleges adopted the ban, totaling over 250,000 students.  And several other Irish organizations joined the fold.  As the anti-Coca-Cola sentiment swept Ireland, English unions, organizations and student bodies picked up the torch.  England’s National Union of Students has called for verification of the allegations against Coca-Cola.  If these allegations prove factual, they stand to be banned from every college and university in England.  In May of 2005, 12 universities offered to investigate the allegations against Coca-Cola in Columbia but Coke refused because they did not want those findings to be admissible in court.  By October of 2005, Canadian Universities began to balk at Coca-Cola products as well.  Coca-Cola found its products banned from the 2006 Winter Olympics.  Their $10 million donation to the Turin Olympic Committee and the fact that they were a sponsor of these games did not stop the City Council of Turin from making its controversial decision.  Lastly, They were not allowed to sponsor a Live 8 concert and the  Make Poverty History March.

 

·        Coca-Cola’s Position

1.      COCA-COLA’S BUSINESS PRACTICES

                                    They had always believed that their business model forced it to conduct matters with responsibility and ethics.  Included in its practices were creating value in the marketplace, providing excellent working conditions, protecting the environment, strengthening the communities in the places of operation and a commitment to quality.  To meet their objectives in quality, they utilized TCCQS, which was found to be on par with ISO standards.  To meet the company’s core values of honesty, integrity, diversity, quality, respect, responsibility and accountability a uniform code of conduct defining policies, procedures and contingencies was introduced.  As with any organizational policy, these guidelines protected people and the organization.  In so far as organizational protection is concerned, Coca-Cola felt that their brand image, developed over 100 years could be shielded as well.  The labor relation’s policy maintained that workers would be allowed to unionize without fear of retaliation, repression or any other form of discrimination.  It also contained the provision that local labor laws be respected and if in dispute, would be handled in the country of origin (unless more broad implications applied.) 

2.      COCA-COLA’S RESPONSE TO COLUMBIA

                                    Coca-Cola opened a web site, www.cokefacts.org to address allegations made against them in Columbia and India.  Officially, Coke claims all allegations made in Colombia are false.  They cite two different Columbian judicial inquiries, the Columbian Attorney General, a respected independent third party investigation—Cal Safety Compliance Corp, their own internal investigation and the Columbian Vice President.  None of the above found Coca-Cola guilty of any wrongdoing.  On the contrary, they cited Coke as uplifting to the Columbian workforce identifying such things as transportation and cell phones being provided, loans and legal aid.  The Vice President feels that political gorillas are at the heart of a smear campaign, using a model that has worked for them in the past.

 

3.      COCA-COLA’S RESPONSE TO MEXICO

                                    Coca-Cola will appeal to a higher authority to present their arguments that their business practices are fair and lawful.

 

4.      COCA-COLA’S RESPONSE TO INDIA

                                    Coca-Cola opened a web site, www.cokefacts.org to address allegations made against them in Columbia and India.  If the reader will please re-read the statements made against Coke in the “Allegations” portion backward, that is the MNC’s stance.  They show in official study after study that they didn’t deplete the water table, did not contaminate the water table, the sludge was not poisonous—it wasn’t dumped improperly, that they complied with this or that.  They also rebuke the claims against pesticides in their drinks, they say that it is not the final product to test; you need to test all of the inputs prior to mixing. 

 

II.         Data analysis

A.   What issues are at stake? (Identify issues in the cases that link to course content covered in the specific chapters associated with the case in the textbook)  

·              Political—Chapter 1

·              Economic—Chapter 1

·              Legal—Chapter 1

·              Social Responsibility —Chapter 2

·              Ethics—Chapter 2

B.   What information do you have? 

This team has the case study itself and all references and additional reading contained therein. 

What information do you still need?  Where/how can you find it? (Identify the information you have.  Identify what information is potentially missing.   

The last copyright date for this case study is 2006.  We have a little over 100 days left in this year.  Checking the reference material supplied in the case may or may not help—that is dependant on the age of the material supplied on the web.

State your assumptions about why the information is important. State your strategy for retrieving the information)

  It is possible that the growing anti-Coca-Cola sentiment is subsiding or growing.  A check of the reference material will be required combined with a Google search consisting of appropriate key words and date range.  There is also a high probability that there have been studies completed recently for both sides of the issue to interpret as it supports their own agendas.

A Google search of web articles in the past month (September 13) shows that the boycott is alive and well and spreading.  Just by scanning the sites’ abstracts it is easy to demonstrate that Coca-Cola is maintaining their stated position of innocence while the Western world is continuing to call for accountability.  Lines like “admitted no wrongdoing”  and  “The assessment was a scathing indictment of Coca-Cola's operations in India” stand in stark contrast to one and other. 

C.   What problem(s) need to be solved? (Discuss what you believe to be the problem, e.g., communications, actions, etc. of the different participants in the case) 

  AND

D.  What are the underlying assumptions for [person X] in the case—how do you see them? (Discuss what you believe to be the genesis of the problem, e.g., differences in beliefs, values, etc. of person X versus person Y; company X versus company Y; country X versus country Y)  

-Coca-Cola did not adequately address the assault on their international business ethics in a timey fashion.  Their global corporate culture possessed a shortsighted attitude that problems in a host country should be addressed in the host country and ignored the larger global theater.  By doing so they marginalized the opinions of the Western cultures expectations, value systems and their ideals of what is generally accepted in business practice.  Furthermore, Coca-Cola should have proactively utilized its capital, skills and power in India, to demonstrate corporate social responsibility by investigating alternatives and means to accomplish its operations in areas suffering from low water tables.  Thus, they would have circumvented part of the West’s backlash against their practices through a demonstrated concern for the welfare of the inhabitants of the host country.   

-More troubling than the allegations against Coca-Cola is the issue of the groups making the allegations themselves.  These boycotters, as a whole, are no less guilty in propagating global corporate misdeeds.  What thought is there to boycotts on a similar scale to other MNCs?  If Anhieser-Busch were accused of the same crimes as in India, would the UM students (or any other student seeking boycott) insist their peers quit drinking Natural Light?  Does the UM student body flog Abercrombie and Finch’s $50 t-shirts, when an Indonesian child made it for fifty cents?  Perhaps Coca-Cola is to be the poster child for all MNCs to see because stereotypical college kids can’t live without cheap beer, overpriced clothing and sweatshop shoes.    

    

Solutions or course of action for leaders or managers of the Coke Cola Board of directors

 

1.      Do nothing.

2.      Revamp the public relations on the incidents

3.      Decide the ethics and corporate responsibility the company will adhere to

 

First lets talk about the term “Do nothing”. What we mean by the term do nothing in the context of this case study is to stay the course in the things that the Coke Cola Company is already doing and have done in the past. Lets review some of those courses of action.

In Exhibit V in the book on page 63 we have “The Coke Cola Quality system” (TCCQS) we can look at the handout on the specifics. The gist of what it says is that a global team of professionals developed it, and was approved by the senior managers of top franchise bottling partners. We’ll talk a bit more about this in the later part of presentation. The system formed the guiding principles encompassing all the business process and activities, helped the management in decision-making, and drove the company towards continuous improvement and quality.

     Than we have Exhibit VI, which is, “Coke Cola’s Code of Business Conduct”.  And as the list shows covers various aspects of conduct to be utilized by employees and management. In the Business Code of Conduct the core values of honesty, integrity, diversity, quality, respect, responsibility, and accountability are all clearly defined policies and procedures, for all the companies operations across the world. Coke Cola also laid out extensive policies and procedures with respect to labor relations. The company policy was to comply with all applicable labor and employment laws of the countries in which it operated. In its labor policies, the company said it respected the workplace human rights of its employees in accordance to international labor standards. The company was also committed to its employees’ rights to form unions and they’re right to join the union or not. The company said it ensured these rights were exercised without fear of retaliation, repression or any other form of discrimination from the management. Coke Cola also believed that any disputes relating to labor relations were best solved in the place of origin.

    So from that perspective the “Do Nothing” course of action is a course of action that the Coke Cola Company has been doing for a long period of time and in view of the current allegations there is no further course of action need by the Board of Directors. It is a course of action that says we have continuously been addressing similar problems around the world and have developed the proper policies and procedures that reflect the commitment that the Coke Cola Company to address those concerns.

    

 

Public Relations

 

In this particular case the allegations that have been leveled at the Coke Cola Company is starting to affect the carefully cultivated trade name that has been the anchor that holds the company together. Over the years one of the greatest assets that the company has relied on to expand its business into the number one recognized trade name in the world has been its use of marketing. In this case we feel that Coke Cola needs to go back to its marketing departments and find ways to market the good will that the company has done over the years. Part of the public relations strategy would need to would be to admit some guilt and move on. I think Andy said it best when he quoted some statement about actions in the white house during the Clinton years. All right I did it, get over it “I have a country to run” The public relation approach to solving the problems would focus in each individual issue and highlight the good that the company is doing in that country of that particular part of the country. That strategy would also incorporate all the negative impact that would happen in the local economy if Coke Cola were to pull out and move to another area. The public relations can take any number of different approaches to change the perceptions of what the company is doing or not doing. The problem with this scenario is that it wouldn’t change the minds of the people that are boycotting outside of the local area. It may change perceptions in the local area but not likely to affect the unions.

 

Option number three “Decide the ethics and corporate responsibility the company will adhere to”

 

Of the three options that we have mentioned this is by far the most complicated and most difficult to implement. For this scenario to work we need to look at the stand that Coke Cola has taken and reexamine some of the policies and procedures it has implemented in the past. There is no doubt that the Coke Cola Company has made efforts to implement the kind of procedures that were put in place for the very allegations that are facing them via the student boycotts. They have tried to insure that those procedures were implemented and have done what any reasonable company, as large as Coke Cola could do with such a diverse number of partners that are part of the company. With its Code of Business Conduct and its TCCQS program it has certainly moved in the right direction to address some of the human rights and labor concerns. One of the statements that are striking to me is the realization that the Coke Cola Board of Directors came to believe that any disputes relating to labor relations were best solved in the place of origin.  I can understand the logic of that thought process but its underlying implications are hands off approach. With all the good that would have come out of the code of business conduct it doesn’t make sense to me that the most important aspect of relations with employees from a foreign country is left entirely to the host country. That seems to be most evident with the case in Columbia. With the policy that the Coke Cola Company has it was up to the management in Columbia to deal with the problem of unions. From my understand of the case study the ongoing feud between the government and the leftist guerrillas and right wing Para military groups makes the case in Columbia very suspect that solution would be resolved simply by the code of conduct policies. There is an underlying issue with the case in Columbia. The actual murders of the union activists happened at the Bottling plants, which are partnerships of the Coke Cola Company and two Latin American companies. Coke Cola had a 25 % interest in Pan-American Beverages, and a 31% interest in Coke Cola Femsa. These two companies merged into Coke Cola Femsa of which Coke Cola has a 31.6% outstanding stock and a 37% voting interest. Femsa has a 53.7 % of voting stock and a 63% voting right. What that implies is that Coke Cola isn’t in control of the bottling company, it is a minority owner in the company. Coke Cola Femsa is the largest bottling and distribution company in Latin America.  There is a connection with Coke Cola Femsa and the right wing paramilitary groups as mentioned in the case study. “The paramilitary groups had free access to the bottling plants and had cordial relations with the plant managers”. Having had some experience in how the Latin American companies operate it is not out of the question that some of those allegations actually took place. That being said it is more probable that it happened in Columbia as the owners of the large business interests have little respect for the employees or any perceived agitator union activists.

     The Case in Mexico has some similarities to the case in Columbia, as I said earlier Femsa is the largest soft drink and beer distributor in Latin America. Femsa is also the Coke Cola distributor in Mexico. I think the over reaction of the Coke Cola Company to a minor incursion of another product, Big Cola has more to do with what Femsa perceived as a threat to its bottling interests. All of Femsa business is in Mexico, Central America and the northern and eastern part of South America. Big Cola is from Peru and holds its interest in the western and southern part of South America. I think the threat was    that Big Coke had made a move into a region controlled by Femsa. The Coke Cola Company was used to rid a competitor from the region and convinced Coke Cola to reduce the price of its product and ended causing financial damage to the Coke Cola Company. It is very likely that Femsa distributors intimidated the big cola small retailers with out thinking of the impact with Coke Cola. The Question is what can Coke Cola do to have an impact on the decisions that Femsa is making on the behalf of Coke Cola.

      The third area that the Coke Cola Company is having issues is India. Although it is not the same issue that are happening in Latin America there are some similarities in the culture and how they approach conflict. In India there are environmental issues that the local population has brought to the attention of its local government agencies and a report by a British Broadcasting Station brought it to light on the world stage. The Difference in India and Latin America is that the Cole Cola Company has full ownership of the bottling company where the ground water issues occurred. What the Company did is refute all the allegations that had been leveled against it and never fully took responsibility for any of those Allegations. When you look at the issues in India you have to understand that all of the managers of the Indian Bottling plant of native to the country. When I looked at the list of managers it reads like a list of who’s who in India. India in respect to its business practices is very different than those we are used to in the United States. India has a long tradition of a Cast System and the managers that work for a large multinational company are not going to pay a lot of attention to the poor people that live in the surrounding areas near the bottling plant. We only have to look to the Bhopal incident as an example of hop the local population is treated.

     What we recommend that the company do to keep its trade name as a symbol of a world leader is recognize that it has to manage its subsidiaries in a way that makes better environmental stewards and is a protector of human rights. The overall issue for a large Multinational company such as Coke Cola is to take a deep breath and admit that its ethical conduct either by the company or its subsidiaries is not meeting the needs of its customers. That has to be the first place to start is first to admit that it has a huge problem when looked at as a whole. The individual issues that arise on the surface seem to be minor incidents but when looked at in their entirety create a very big issue for the trade name that is Coke Cola. If the company doesn’t admit that there is a problem than it will never solve that problem. 

    There are four basic elements that need to be adopted

1.      Develop world wide code of ethics

2.      Consider ethical issues in strategic development.

3.      Develop periodical “ethical impact statements”

4.      Given major, unsolvable, ethical problems, consider withdrawal from problem market.

 

 Develop worldwide code of ethics means that it has to review the statement that I mentioned earlier that any disputes relating to labor relations are best handled in the country of origin. This statement is just not working and it has to develop a strategy that incorporates some very forceful statements that it will, under no circumstances tolerate any human rights infractions in any of its plants, or by any of its subsidiaries. It has to take a stand that it is just not going to happen and the Coke Cola Company will not be a party to any allegations and take whatever action is required to investigate any such allegations. The Coke Cola Company has to be part of the solution and not leave it to the country of origin handle or cover up human rights abuses. Realizing that it stated in its business code of ethics the Coke Cola Company has to put some teeth behind its words. One of the mechanisms that might be used is to create a security trust fund that is paid into by the partnerships in direct proportion to the amount of ownership as a percentage of gross earnings. This fund would be used somewhat like an insurance investment fund that would make payments for any lawsuits that develop from behavior that was detrimental to the welfare of the companies interest. Because this fund is a self-funded, meaning by revenues of both Coke Cola and its subsidiaries it would also pay a dividend after a set length of time to be distributed to the parties involved. What the fund would do is prevent negotiations as in the case of the unions and Coke Cola from failure for lack of a financial solution. The reason that the negotiations failed to stop the boycotts is because Coke Cola didn’t want to be liable for the financial cost of the allegations that weren’t of its own making. In this way it is a mechanism that brings the bottling companies partnerships into financial responsibility the same the big MNC.

      It must also develop environmental code of ethics that are on the same line of thinking and take responsibility for the actions that happen in other countries even if their regulations are not as stringent and the ones it has to adhere to in its home country. It could implement the same kind of fund mechanism to make sure its standards are met.

    

Consider ethical issues in strategic development. What this means is that it has to pay more attention into the areas it decides to go into and make sure it has control or a method of exerting control over its subsidiaries. As the case both in Columbia and Mexico I believe that the company that has the bottling rights in both countries has more power in how the product is placed and promoted. I believe that in that instance it is one MNC board of directors vs. another MNC Board of directors and the one with the largest block of voting rights gets to create the agenda. The Coke Cola Company has to go into any future agreements with a set agenda of a well-defined World Wide Code of Ethics.

 

Develop periodical “ethical impact statements” as with any program this has to be an ongoing mission and continually updated to meet any new challenges in an ever-changing world. I think that the Board Of Directors of the Coke Cola Company became complacent is their status as number one and weren’t able to focus the attention to minor issues that developed into bigger issues of corporate responsibility.

 

Given major, unsolvable, ethical problems, consider withdrawal from problem market. This is always an option of last resort but by no means off the table. There is probably a solution to every problem if you have partners that resolve to solve them. Sometimes for reasons that out of your control it may become necessary to take actions that that you had not intended to take. Leaving a market may seem like a huge hurdle in the short term but when that decision is made, it usually has been done for long term objectives.