Racial Discrimination Allegations at Coca-Cola

Legal and Ethical Ramifications of Racial Discrimination Allegations at The Coca-Cola Company

By: Shannon A. Hanson Strayer University, Woodbridge Campus

To: Professor John Chanin LEG 500 Law, Ethics & Corporate Governance September 2009

Racial Discrimination Allegations at Coca-Cola The Coca-Cola Company was founded on May 8, 1886 in Atlanta, Georgia by a pharmacist named Dr. John Stith Pemberton. When Dr. Pemberton first created this caramelcolored liquid he took it down to Jacobs Pharmacy where it was mixed with carbonated water

and sold for five cents a glass. Dr. Pembertons accountant, Frank M. Robinson, suggested the name Coca-Cola and penned it in its now famous script. More than one hundred and twenty years later Coca-Cola has over four hundred brands offering more than three thousand products and sells more than 1.4 billion servings each day in over two hundred countries. Today with so many brands and products there are many stakeholders in The Coca-Cola Company. Some of the companys stakeholders include: the employees, consumers, partners, investors, and suppliers. All of these stakeholders would experience some sort of negative ramifications from any legal or ethical issue that may arise involving The Coca-Cola Company, such as what happened in 1999 with the race discrimination class action lawsuit. In April of 1999 four current and former African-American employees of Coca-Cola filed a class action lawsuit alleging race discrimination under the U.S. Civil Rights Act. The plaintiffs, on behalf of themselves and twenty-two hundred similarly situated African-American colleagues, alleged they had suffered discrimination in pay, promotions and performance evaluations (Case Profile: Coca-Cola Lawsuit, n.d.). The plaintiffs provided statistics showing that the median salary of Caucasian employees was about one-third greater than that of their African-American counterparts. They also claimed that Coca-Cola had glass-wall and glass-ceiling policies in place to keep them from rising to top positions within the company. The plaintiffs argued that Coca-Cola failed to prevent and remedy this discrimination (Case Profile: Coca-Cola Lawsuit, n.d.).

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The key stakeholder who would have had the most negative ramifications by this lawsuit would have been Coca-Colas partners. While efforts by disgruntled Coke employees in Atlanta to start a boycott never crimped the companys bottom line, the lawsuit has troubled Coke for 18 months and, company officials acknowledge, tarnished the image of one of the worlds best-known brands (Winter, 2000). But the allegations would not only tarnish CocaColas image, but also the image of many of their partners, such as: The Olympic Games, World Wildlife Fund, USAID and other companies that only sell Coca-Cola products, such as: McDonalds, Dominos Pizza, and Burger King. There are still people today who boycott CocaCola products due to these racial discrimination allegations which would naturally lead to a boycott of the above named companies and partnerships. The plaintiffs filed their case under Section 1982 of the Civil Rights Act of 1871, as amended by the Civil Rights Act of 1991 (Section 1982) in the Northern District Court of Georgia. Section 1982 prohibits discrimination on the basis of race and ethnicity (Brennan, Browne, Kubasek, 2009, p. 592). Initially Section 1982 prohibited discrimination only by state and local governments, but today also is used in purely private discrimination cases usually in employment. The plaintiffs in this case sought declaratory, injunctive and other equitable relief, and compensatory and punitive damages, based on Defendants continuing deprivation of rights (Mehri & Voyles, 1999). The plaintiffs went on to allege that they were discriminated on by the basis of evaluations, compensation, promotions, glass-ceiling, glass-walls, and in terminations. The complaint filed by the plaintiffs goes on to describe this discrimination. Its important at this point to define what the plaintiffs meant when they refer to glass-ceiling and glass-walls. A glass-ceiling is a barrier to career advancement. In 1998 at Coca-Cola out of

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the five hundred employees at pay grade eleven only 7.8 percent where African-American. The figure drops even further to 4.4 percent of the more than one hundred employees at pay grade fourteen and only 1.5 percent of pay grade fifteen employees. In terms of glass-walls the plaintiffs noted that most African-Americans in senior positions are concentrated in less powerful and non-revenue-generating areas. The Human Resources Division and the External Affairs Departmentaccount for over half of the African-American senior management officials (Mehri & Voyles, 1999). Coca-Cola was charged with having created a disparate impact on their employees by engaging in a pattern and practice of race discrimination. CocaColas culture and their focus on increasing their profit share, instead of focusing on the wellbeing of their employees was one of the main factors that contributed to the company being noncompliant in regards to Section 1982. A prime example of Coca-Colas corporate culture that lead to this was depicted in a 1995 report to M. Douglas Ivester, Coca-Colas president at the time. The report (later known as the Ware Report) was put together by Carl Ware (the President of Coca-Colas Africanoperations group) and other black executives and criticized the dearth of blacks in top management and lamented an atmosphere in which they often felt humiliated, ignored, overlooked or unacknowledged (Winter, 2000). Prior to the 1999 lawsuit, the Labor Department, in 1997, found that Coca-Cola had violated federal anti-discrimination laws and ordered immediate rectification of their ways. However, they did little to correct their processes and policies at that time. Coca-Cola violated many ethical principals and behaviors in their treatment and reaction to racial discrimination. Ethics in the case of business comprises the principles and standards that guide behavior in the world of business. Investors, employees, customers, interest groups,

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the legal system, and the community often determine whether a specific action is right or wrong, ethical or unethical (Ferrell, Ferrell, Fraedrich, 2008, p. 6). The first ethical principal that should be addressed is Coca-Colas integrity and the integrity of their senior executives. Integrity is often used in reference with the term virtue and in an organizations, it means uncompromising adherence to ethical valuesthis usually rests on an organizations enduring values and unwillingness to deviate from standards of behavior (Ferrell et al., 2008, p. 63). Ethical values are that of honesty, integrity, fairness and trust. Knowingly and willingly paying your African-American employees $26,000 a year less than that of your Caucasian employees that are in the same position and level goes against all of those ethical values. The 1995 Ware Report to M. Douglas Ivester and the findings by the Labor Department in 1997 prove that Coca-Cola was aware of the discrimination that was taking place and still they did nothing to right that wrong. I believe that the senior executives at The Coca-Cola Company acted very hypocritically when it came to their integrity and that of the company. Coca-Cola was a company who prided itself on its social responsibility and donated millions of dollars a year to African-American organizations in the community; yet did not embrace the African-Americans within its own company. A prime example of this is shown through Linda Ingram, the first named plaintiff in this lawsuit. Ingram is a member of Ebenezer Church in Atlanta, a church that received endowments from Coca-Cola as part of its commitment to the MLK Center, (Spruell, 2007, p. 22) yet she had a manager who made derogatory remarks to her and called her the N-word to her face. This to me is an example of a company that knew what it was doing in regards to its employees was wrong, yet did nothing to correct it because the public face they presented was a good one. However I will say that I dont feel all of the executives at Coca-Cola showed poor

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integrity. First, we have Carl Ware with the filing of his 1995 report; trying to show Coca-Cola they had a problem and that it needed to be addressed. Ingrid Saunders Jones is another senior executive at Coca-Cola who I believe exemplified integrity in her work. Jones was Coca-Colas director of corporate external affairs, senior vice president of The Coca-Cola Company and chairperson of the Coca-Cola Foundation. Ingrams minister from Ebenezer Church was able to introduce her to Jones who in turn was able to start an internal investigation into the allegations presented by Ingram, which lead to Ingrams manager getting terminated. The next ethical behavior to be addressed is that of using abusive or intimidating behavior. Workers at Coca-Cola depicted an environment so hostile that black employees at Coke still suffer from unusually high rates of stress-related illnesses like depression. Upon complaining about these conditions, many black employees say they were denounced, spied on by management or summarily fired (Winter, 2000). That is a prime example of the use of intimidating behavior; complain about your work environment and conditions and well fire you or demote you. I believe that the Ware Report and the statements by the employees on the working environment conclude that intimidating behavior was a way of life at Coca-Cola. Perhaps senior management at Coca-Cola was unaware of the derogatory language that middle management was using towards the subordinates, but having your head buried in the sand is not an excuse for the continuation of unethical behavior. More so, the Ware Report, the warnings from the Labor Department and the fact that other employees saw and heard this makes it very unlikely that senior management did not know what was going on below them. The fact that senior management continued not to act reinforces to their employees that discrimination is part of the corporate culture and will be tolerated. Another example of this intimidating behavior is also

Racial Discrimination Allegations at Coca-Cola shown when Ingram went to the senior vice president of human resources and asked to be removed from her group after the firing on her boss due to the tension she felt from the

remaining white workers. She left many phone messages without a return call and finally left a message stating she would go outside the company for help. The SVP then called her back and said you or no one else threatens me or The Coca-Cola Company. If you feel you need to get help from the outside, then get help from the outside (Spruell, 2007, p. 23). The ironic part of this is that the SVP was a black women and if she had agreed to transfer Ingram to a new group, quite possibly the entire race discrimination lawsuit could have been avoided. The last ethical behavior to be addressed is that of discrimination. As previously stated the plaintiffs in this case filed their lawsuit under Title VII claiming discrimination on the bases of race. A few months after the lawsuit was filed, M. Douglas Ivester (then CEO) demoted Carl Ware who was the highest-ranking black executive at that time. The plaintiffs alleged that CocaCola had glass-wall and glass-ceilings in place to stop them from rising within the company and to keep them in the fields they deemed suitable. A prime example of this is that in 1999 only 8.4 percent of the senior executive positions where held by people of color and by 2006 that number had risen to 21.1 percent. I feel that discrimination is one of the most unethical behaviors a person or company can present. To have an undue bias towards someone based on their race, color, sex, national origin or religion is uncalled for and equally disturbing that in this day and age still happens. I feel that Coca-Cola didnt do anything ethically correct in regards to the discrimination their company showed. Repeatedly people tried to bring it to senior managements attention through the Ware Report, the Labor Department, Ingrid Saunders Jones and her internal investigation and still

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nothing was done. They ignored the problem hoping it would go away, but in turn their ignoring of the problem is what lead to the lawsuit. Another example of how the corporate culture of Coca-Cola manifested into discrimination and used abusive and intimidating behavior is the additional discrimination suits that targeted Coca-Colas bottler Coca-Cola Enterprises, Inc. One of the additional lawsuits claimed that the company created a hostile, intimidating, offensive and abusive workplace environment for its African-American employeessupervisors at the plant allowed white employees to use racial slurs and threats and to physically abuse minority employeesfired nonwhites at four times the rate of white employeesand in 1997, fired 69.4 percent of its minority employees and 18.3 percent of its white employees (Lovel, 2003). These statistics are absolutely deplorable and show that it wasnt only in The Coca-Cola Company itself where discrimination was tolerated and promoted, but also in other companies owned by The CocaCola Company. Corporate culture is another factor that contributed to the racial discrimination allegations. Some of the factors of Coca-Colas corporate culture have been addressed above; however, there is one other that I feel should also be counted towards leading to these allegations. Corporate culture is something that starts at the top of a company through implementation and practice and in turn trickles down to the other employees in the company. In 1997 then president, M. Douglas Ivester was promoted to CEO of The Coca-Cola Company. In 1999 when the lawsuit was filed Ivester refused to settle and while not all of the executives believed the allegations, many agreed that nothing could be gained from a caustic and protracted legal battle. Even if the company won, it might do so only at the expense or appearing heartless and inured to concerns about fairnessbut Mr. Ivester refused to budge, leading executives who

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though Coke had erred to quit or stew in frustration (Winter, 2000). Even after the lawsuite was filed and other senior executives where able to openly voice their opinions, some of who agreed with the plaintiffs, Ivester refused to acknowledge the discrimination that had taken place while he ran Coca-Cola. I have never seen such a blatant turning a blind eye to a problem then this one. Overall I would say that corporate culture played one of the biggest roles in the discrimination at Coca-Cola. The CEO let it happen, the SVP of HR let it happen, middle management let it happen; therefore it happened and people where okay with it happening. One of the ethical issues I feel should be addressed is virtue, which ties in very closely to that of integrity. The philosophy of virtue ethics was first cultivated by Aristotle. Virtue ethics is defined as what is moral in a given situation is not only what is conventional morality or moral rules require but also what the mature person with a good moral character would deem appropriate (Ferrell et al., 2008, p. 157). To be considered a virtuous person one must go against the grain of what is easy and do what is right. There were a number of people at CocaCola who were presented with the opportunity to be virtuous and instead followed the lead of those who were choosing not be. Ivester, the SVP of HR, middle management, other employees all saw what was taking place and being done to other employees and none choose to stand up and say it wont be tolerated. And because the didnt stand up and say it wont be tolerated the lawsuit was filed. As earlier pointed out Ivester refused to even consider a settlement, he wanted to case to go to trial. However in early 2000 Ivester resigned as CEO (though speculation is that it was a forced resignation). He was replaced by Doug Daft who quickly reached a settlement in the discrimination case, the largest settlement ever in a racial discrimination case; a whooping $192.5 million officially approved by the Court on June 7, 2001. This settlement was broken

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down into three parts with $113 million as a cash settlement, $43.5 million for African-American employee salary adjustments and $36 million for work force remedies. In addition to the money, the settlement also gave an outside panel, appointed by Coke and the plaintiffs lawyers, limited authority to revise company personnel policy (Winter, 2000). This panel or task force was set in place for a five year term from 2001 2006. Alexis Herman, a former Secretary of Labor under the Clint administration, was appointed as the task force chair. The task forces report in 2003 was not a good one; it noted that considerable progress, in fact, was made in implementation in some areas. Yet, the Company was not able to implement several key programs because personnel and resources were focused on a massive restructuring effort and other matters (Spruell, 2007, p. 24). To no ones surprise Dafts tenure as Coca-Colas CEO ended in 2004. E. Neville Isdell was then appointed as the CEO of CocaCola and quickly started to turn the company around. The task force was able to quickly implement, with Isdells support, what has become known as The Nine Systems which monitors Coca-Colas diversity performance in: performance management, staffing, compensation, diversity education/strategy, EEO, problem resolution, career development, succession planning and mentoring. Through these nine systems Coco-Cola quickly made great strides in their employment of people of color. In 1999 only 8.4 percent of executives where of color, 16 percent of managers and 21.9 percent of professionals for a total work force of color of 26 percent. By 2006 those figures had jumped to 21.1 percent, 25.5 percent, 33.6 percent and 34.9 percent, respectively. Coca-Cola also went from ranking number 18 on DiversityIncs Top 50 Companies for Diversity List in 2003 (there first year participating) to number 3 in 2006.

Racial Discrimination Allegations at Coca-Cola Isdell also quickly realized that there was a morale issue at Coca-Cola that was seeping

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into their overall performance. On his first day stepping back onto the campus at the Coca-Cola Northern headquarters, the company culture almost immediately changed. Isdell recalls an impromptu speech he gave on his first day in the quadrangle where he talked about people and the spirit of The Coca-Cola Company and the people of The Coca-Cola Company and about bringing back pride to the companythat impromptu move spoke volumes to the Coca-Cola team (Spruell, 2007, p. 26). Isdell knew if he could reenergize and motivate the Coca-Cola team and show that real change was coming that the employees would get behind him and support his efforts. He made it a team effort and drove it more to a business perspective. He took it from compliance to commitment (Spruell, 2007, p. 29). He proved that Coca-Colas efforts werent just to satisfy a settlement, but where a culture change for the company. Isdell also made huge strides by diversifying their business operations as well. From 2002 to 2006 Coca-Cola spent more than $1 billion with women and minority owned firms. Also in 2005 Coca-Cola spent an additional $255 million with diverse vendorsthis represent four percent of the companys total procurement spent that year (Spruell, 2007, p. 28). Throughout this settlement and in the recovery face afterwards Coca-Cola continued to donate argues funds to socially responsible organizations with a focus on diversity programs and education donating $50 million to support schools through the Coca-Cola Foundation. Overall I believe the settlement reached by Coca-Cola and the plaintiffs was a good one that worked, the statistics above speak for themselves. However there is one part of the settlement that I do not agree with and had I been a plaintiff or one of their lawyer, would not have signed off on and that is the distribution of the cash settlement. The four named plaintiffs in the case each received $300,000, while the remaining twenty-two hundred plaintiffs received

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approximately $40,000 each. That is a huge disparity between the settlement amounts. If either of those additional twenty-two hundred plaintiffs had worked for Coca-Cola for two years or more, they still were short-sided in their compensation being that in general they where paid $26,000 less per year. I believe the most fair and equitable way to distribute the cash settlement would have been by length of service to Coca-Cola. The employees who worked with CocaCola for ten years would receive more compensation then those that had started a year ago and so on. I truly feel that many of the additional plaintiffs in this case where unjustly compensated in the settlement. In a nutshell, Coca-Colas triumphant recovery from the largest race-based court settlement is a testament to engagement leadership leveraged their corporate culture, and from the onset, the process was one of inclusion and engagement across gender, race, orientation, disability and age. It worked (Peacock & Visconti, 2007, p. 12).

Racial Discrimination Allegations at Coca-Cola References Brennan, B., Browne, M., Kubasek, N. (2009). The Legal Environment of Business: A Critical Thinking Approach. Upper Saddle River, NJ: Pearson Education, Inc. Case Profile: Coca-Cola Lawsuit (re Racial Discrimination in USA). (n.d.) In Business and

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Human Rights Resource Centre. Retrieved August 24, 2009, from http://www.businesshumanrights.org/Categories/Lawlawsuits/Lawsuitsregulatoryaction/LawsuitsSelectedcase s/Coca-ColalawsuitreracialdiscriminationinUSA Ferrell L., Ferrell O.C., Fraedrich J. (2008). Business Ethics: Ethical Decision Making and Cases. Mason, OH: South-Western Cengage Learning. Lovel, Jim. (2003, May 2). Race Discrimination Suit Targets Coke Bottler CCE. Atlanta Business Chronicle. Retrieved from http://atlanta.bizjournals.com/atlanta/stories/2003/05/05/story1.html Mehri, C., Voyles, J. (1999, April 22). Amended Complaint. Ingram et al., v. The Coca-Cola Company. Retrieved from http://www.essentialaction.org/spotlight/coke/complaint.html Peacock, F., Visconti, L. (2007, January/February). How DiversityInc Got the Coca-Cola Exclusive. DiversityInc, 6(1), 12. Spruell, Sakina. (2007, January/February). A Company in Recovery: Coca-Cola from Discrimination Suit to Diversity Leader. DiversityInc, 6(1), 20. Winter, Greg. (2000, November 17). Coca-Cola Settles Racial Bias Case. The New York Times. Retrieved from http://www.nytimes.com/2000/11/17/business/coca-cola-settles-racialbias-case.html