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THE COCA-COLA COMPANY STRUGGLES WITH ETHICAL CRISES

Case 9 The Coca-Cola Company Struggles with Ethical Crises Naureeen Rebeka Hekma School of Business Dar Al Hekma College

BSIS 3301: Business Ethics Ms. Alaa A. Rajab 26th October, 2011

THE COCA-COLA COMPANY STRUGGLES WITH ETHICAL CRISES

1. Corporate reputation of a company consists of overall views and beliefs held about that company on the basis of its history and future prospects, in contrast to its close competitors. Corporate reputation of a company is determined by its stakeholders. It plays a vital role in influencing the companys performance. For example, in the Coca Cola Company, the contamination issue in Belgian where 30 children became sick after consuming Coke products. This would adversely affect the reputation of the company from the consumers perspectives and eventually affect the performance of the company as the demand of Coca Cola is likely to decline from such an incident. Coca Cola is a company that is extremely dependent on global sales. However, due to unawareness of the strict anti-trust laws that the EU countries are subjected to, the company had cases filed against it. This hinders the performance of the company as huge amounts of money are lost for court cases and moreover, ruins the reputation of Coca Cola in the eyes of Governments where the company operates in. The cases of racial discrimination filed by African American employees against Coca Cola reflect unfair employment practices. This affects the reputation of the company and organizational performance would be negatively affected as employees who are unfairly treated would not work productively. So, it is important to maintain a strong corporate reputation by a company to enjoy positive organizational performance. To grow out of the ethical misconducts and improper practices that Coca Cola was suffering from, the CEO decided to undertake social responsibility. Corporate reputation can be strengthened through social responsibility as it enables an organization to maximize its positive impacts on stakeholders and minimize its negative impact. Social responsibility initiatives taken

THE COCA-COLA COMPANY STRUGGLES WITH ETHICAL CRISES

by Coca Cola include providing local education and community improvement programs, grants to colleges and universities nationally and internationally, scholarships, addressing recycling and climate change issues, promoting HFC-free alternative refrigeration technologies, establishing the worlds largest plastic bottles recycling plant, creating jobs for developing world, combating HIV/AIDS and improving the recycling of water. Philanthropic contributions by Coca Cola in terms of social responsibility would benefit the companys stakeholders because it results into better quality of life, lesser government involvement, developing staff leadership skills and building staff morale. Therefore, if the stakeholders are benefiting from such initiatives then this would eventually strengthen the corporate reputation of Coca Cola. Stakeholders can be broadly categorized into two types. Firstly, the primary stakeholders include the shareholders, employees, customers, government/regulatory agencies, community and suppliers. Primary Stakeholders Shareholders Employees Factors to assess corporate reputation Profit growths, price of shares, dividends No discrimination, safe working conditions, fair pay, promotions, payment of salaries on time, career prospects Customers Quality of products, customer service, reasonable pricing, social responsibility Government Community Operating legally, paying taxes timely, creating jobs Creating jobs, good cause initiatives and programs, contributing to development of the community, sustainable use of resources Suppliers Payment on time, no violations of terms of the contract

THE COCA-COLA COMPANY STRUGGLES WITH ETHICAL CRISES

Secondly, the secondary stakeholders include the shareholders, customers and suppliers. Secondary Stakeholders Competitors Pressure groups and Media Factors to assess corporate reputation Relative financial growth, relative goodwill Intensity of ethical misconducts, sustainability of environment, violations of human rights, etc.

The factors that different stakeholders may use to asses corporate reputation are not consistent across stakeholders because each stakeholder is concerned about its own benefit. Each stakeholder assesses corporate reputation based on its own relationship with the organization. For example, shareholders would desire maximum profits but consumers would look for lower and reasonable prices. This results into a conflict as the organization cannot achieve high profits if it keeps its prices fairly low. Therefore, it is difficult to satisfy all the stakeholders together. 2. Since Coca-Cola operates globally and a significant portion of its sales are global, it is important that the company is aware of the cultures and laws of the countries that it operates in. For example, Coca Cola faced competitive issues in EU countries because it was unaware of the strict anti-trust laws. So, the CEO must plan to carry out a training program for employees from various departments regarding the culture and laws so as to avoid such issues from occurring. Another area that should be paid attention is developing ways to detect a crisis and react to it quickly. This can be done by instilling a system of reporting so whenever an incident occurs, the people responsible to fix it are informed fast and hence take quick actions. For instance, when

THE COCA-COLA COMPANY STRUGGLES WITH ETHICAL CRISES

the contamination scare occurred, the company did not react to the problem as expected and the response was slow. Coca-Cola has been suffering from a slow decline in earnings due to decreased consumption and increased competition. So, in order to remain profitable in the future and give confidence to its investors, Coca-Cola should adopt a diversification strategy. Its competitor, PepsiCo. has succeeded by adopting such a strategy. Therefore, Coca-Cola should also enter new product lines, preferably healthier drinks and snacks as fizzy drinks are becoming a major health concern. To overcome the racial discrimination issues faced by employees, an anti-discriminatory committee should be set up. If any employee feels discriminated, then he/she shall report to this committee and the members of this committee should be responsible in taking actions against such acts. Coca Cola should initiate affirmative action programs which focus on recruiting, hiring, training, and promoting qualified individuals from groups that have been traditionally discriminated against such as on the basis of race in case of Coca Cola. In general, Coca Cola should develop and propagate a code of conduct that communicates standards and recognized the main risk areas. Then, high ranking personnel who are known for good ethical and legal conduct should be given the responsibility of overseeing this program. A communications system for ethical training should be installed. Furthermore, an employee reporting system should allow employees to report misconducts without any fear of retaliation. Also, monitoring systems should be installed to detect any misconduct. If misconduct is detected then the company is responsible for taking a fair disciplinary action. Finally, the organization must work to ensure the prevention of such misconducts in the future by modifying the ethical compliance program and more employee training.

THE COCA-COLA COMPANY STRUGGLES WITH ETHICAL CRISES

In terms of social responsibility, to remedy concerns of all stakeholders, Coca Cola should concentrate in all four areas of social responsibility. These include philanthropic which is giving back to the society. This is an area that the company has been working on already by providing grants and scholarships. Next, the company should focus more on the ethical side which is concerned about following standards of acceptable behavior as judged by stakeholders. To satisfy the shareholders and government, the company should also concentrate on economic and legal elements as it has been subject to a lot of lawsuits. Coca Cola should continue addressing humanitarian and environmental concerns. They can do so by signing the Kyoto Protocol which is a treaty on climate change to avoid accusations about pollution in the future. In addition, it should also take initiatives in terms of creation and maintenance of employment and avoid occurrences of ethical misconducts. 3. Coca Cola has undertaken a variety of environmental initiatives in terms of social responsibility. It is demonstrating strategic philanthropy by tying up the companys objectives with philanthropic giving. The company is thinking strategically about the long term benefits and value added that these initiatives would earn the stakeholders. It has addressed issues concerning recycling, climate change and environmental sustainability. Coca Cola opened the worlds largest plastic bottle-to-bottle recycling plant in 2009 which is a big investment from the companys side. Participation in so many different types of programs shows that the company is making an effort to strengthen its reputation despite the ethical conflicts that it has faced in the past. Such environmental initiatives require large monetary investment from the company and its in

THE COCA-COLA COMPANY STRUGGLES WITH ETHICAL CRISES

alignment with Coca Colas mission of being a responsible business. To ensure whether such efforts were just means of window dressing to hide corruption or sincere efforts, it is important to find out how effective these programs were in terms of real measured outcomes, quantitative or qualitative. The only way Coca Cola can restore its reputation is by ensuring that the ethical conflicts do not repeat in the future. This will make people believe that the efforts made by the company are sincere.

THE COCA-COLA COMPANY STRUGGLES WITH ETHICAL CRISES

Reference Ferrell L., Ferrell O. C., Fraedrich J. (2011). Ethical Decision Making For Business (8th edition). South-Western: Cengage Learning.