THE COCA-COLA COMPANY STRUGGLES WITH ETHICAL CASES

Issue: Whether the company can permanently rise above its ethical problems, learn from its
mistakes, make necessary changes, avoid further problems, and still emerge as the leader
among beverage companies.

 Since the 1990s, Coca-Cola has been accused of unethical behavior in a number of areas
such as product safety, anti-competitiveness, racial discrimination, channel stuffing,
distributor conflicts, intimidation of union workers, pollution, and depletion of natural
resources.
 A number of these issues have been dealt with, some via private settlements and some
via court battles, while others still besmirch the Coca-Cola name.

IMPLICATIONS/ EFFECTS

In 1996, Coca-Cola traded just below $50 a share. In the first half of 2009, it ranged from $.59 to
$37, showing little growth over a dozen years and underperforming against both the S & P 500
and NASDAQ. This slow growth may be attributed to various internal problems associated with
top management turnover and departure of key investors, as well as external problems that
have led to a loss of reputation.

In 2000, Coca-Cola failed to make the top ten of Fortune’s annual “America’s Most Admired
Companies” list for the first time in ten years, although it still ranked first in the beverage
industry.

In 2001, the company disappeared from the Top 100 in Business Ethics magazine’s annual list of
“100 Best Corporate Citizens.”

In 2007, Coca-Cola was still absent from the Business Ethics “100 Best Corporate Citizens” list,
but PepsiCo was number forty-two.

By 2009, Coca-Cola was in twelfth place and had fallen to third in the beverage industry.

PepsiCo vs. Cola-Cola Company

On 2006, PepsiCo enjoyed a market value greater than Coca-Cola for the first time. Pepsi’s
strategy of focusing on snack foods and innovative approaches in the non-cola beverage market
has helped the company gain market share and surpass Coca-Cola in overall performance.
During the 2008-2009 recession, PepsiCo’s diversification strategy continued to pay off.

Coca-Cola’s Reputation
 Coca-Cola remains one of the most recognized brand names in the world today, worth an
estimated $68.73 billion in 2009. Savvy marketing and a reputation for quality have always been
hallmarks of Coca-Cola and have helped to make the product ubiquitous.

 During World War II, company president Robert Woodruff distributed Coke around the
world to sell to members of the armed services for a nickel a bottle.

ETHICAL PROBLEMS / ISSUES/ CONCERNS

1.) CONTAMINATION SCARE IN EUROPE
(The most damaging of Coca-Cola’s crises that further reduced its marketing standing in Europe. Also, the
company’s slow responses and failure to acknowledge the severity of the situation harmed its reputation and cast
doubt on then CEO Doug Ivester’s ability to successfully lead.)
Country Problem/ Issue/ Concern Effects / Results Strategy / Tactic/
Involved Action Taken
Belgium In June 1999, 31 Belgian children The Belgian government “Restore” Marketing
became ill after consuming Coke ordered the recall of all Coca- Campaign was launched in
products due to an improperly Cola products, which order to regain consumer
processed batch of carbon dioxide. prompted officials in trust and sales in Belgium.
Luxembourg and the It includes the giving of
Netherlands to recall Coke free cases of the products,
products as well. discounts to wholesalers
and retailers and the
In December 1999, Belgium designation of extra
ordered Coca-Cola to halt the promotion personnel.
“Restore” marketing
campaign for being contrary
to the country’s Antitrust
Laws.

Finally, a Belgian health report

France More than 100 people got sick The French government has
because of bad Coke.
Poland Bonaque, a new Coca-Cola water
product, were reportedly
contaminated with mold.
2.) COMPETITIVE ISSUES IN EUROPE
France In the summer of 1999, Coca-Cola
began an aggressive expansion by
trying to purchase Orangina, a
French beverage company, and
Cadbury Schweppes, maker of Dr.
Pepper.
Italy Court case over anti-competitive
prices in late 1999. Likewise,
PepsiCo and Virgin Cola accused
Coca-Cola of using rebates and
discounts to crowd their products
off the shelves.
was released indicating that
no toxic contamination had
been found inside Coke
bottles.
temporarily banned all Coca-
Cola products.
Again, for being contrary to
the Antitrust Laws, the French
government has refused to
Coca-Cola’s bid to purchase
Orangina and Cadbury
Schweppes.
Italy won prompting the
European Union (EU) to
launch a full-scale probe into
the company’s competitive
practices. EU found such
tactics to in violation of
 European culture and laws.

3.) RACIAL DISCRIMINATION ALLEGATIONS

USA In 1999, almost 2,000 African Coca-Cola created a
American employees filed a racial diversity council and the
discrimination case specifically company paid $193 million
indicating therein the discrimination to settle the racial
in their salary, promotion and discrimination lawsuit.
performance evaluation.
Coca-Cola settled the
Plaintiffs charged that the company lawsuits by donating $50
grouped African American workers million to a foundation
at the bottom of the pay scale and supporting programs in
that they earned around $26,000 a minority communities,
year less than Caucasian employees hired an ombudsman
in comparable jobs. directly reporting to CEO
Daft to investigate
complaints of
discrimination and
harassment, and set aside
$36 million to form a
seven-person task force
that includes business and
civil rights experts has the
authority to oversee the
company’s employment
practices particularly in the
hiring processes,
compensation and
promotion of women and
minorities.
4.) CHANNEL STUFFING
It is the practice of shipping extra, non-requested inventory to wholesalers and retailers before the end of a
quarter. A company counts the shipments as sales although the product often remains in warehouses or is later
returned. Because the goods have been shipped, the company counts them revenue at the end of the quarter. It
creates the appearance of strong demand (or conceals declining demands), and results in inflated financial
statement earnings and the subsequent misleading of investors.
Japan In 2000, a former employee filed a Securities and Exchange The company created an
lawsuit accusing the company of Commission (SEC) did find ethics and compliance
fraud and improper business that channel stuffing had office and is required to
practices. occurred. Coca-Cola had verify quarterly that it has
pressured bottlers into buying not altered the terms of
In 2004, Coca-Cola was accused of additional concentrate in payment or extended
 sending extra concentrate to exchange for extended credit. special credit.
Japanese bottlers between 1997
and 1999 in an effort to inflate its
profits.
5.) BREACH IN THE DELIVERY AGREEMENT (Antitrust Laws)
Atlanta, USA In 2006, 54 U.S. bottlers filed In 2007, an undisclosed Coca-Cola adopted an
lawsuits against Coke and the agreement between the enterprise-resource-
company’s largest bottler Coca-Cola bottlers and Coca-Cola was system that linked Coca-
Enterprises (CCE) for the direct reached. Cola’s once highly secret
delivery of Powerade sports drinks information to a host of
to Wal-Mart warehouses to the partners.
detriment of other large retailers.
6.) INTIMIDATION AGAINST UNION WORKERS
Colombia Since 1989, eight union workers In 2007, a group of hundreds After two years, the case
were reportedly killed, 48 were of people made up of against Coca-Cola was
forced into hiding, and 65 had Teamsters, environmentalists, dismissed due to
received death threats. However, human rights proponents, and insufficient evidence.
Coke completely denies the student activists gathered in
allegations and notes that only one New York City to protest
of the eight workers was killed on against Coca-Cola in regard to
the bottling plant premises. Also, the union problems in
the company maintains that the Colombia.
other deaths were by-products of
Colombia’s four-decade-long civil
war.
7.) GROUNDWATER DEPLETION AND CONTAMINATION
India In 2003, Centre for Science and Although Coca-Cola denied A new pipeline had been
Environment (CSE) tested Coca-Cola allegations, stating that its built to eliminate the
soft drinks produced in India and water is filtered and its final problem.
found that extreme levels of products are tested before
pesticides from using contaminated being released, sales dropped Concretely, Coca-Cola has
groundwater. temporarily by 15%. partnered with local
governments, NGOs,
In the Indian city of Varanas, Coca- In 2005, students at the schools, and communities
Cola was also accused of University of Michigan asked to establish 320 rainwater
contaminating the groundwater the university to cancel its harvesting facilities.
with wastewater. contracts with Coca-Cola
based on these issues in India. Likewise, the company
launched the Coca-Cola
Based on the findings of India Foundation for
Energy and Resources Sustainable Development
Institute, Coca-Cola’s soda did and Inclusive Growth.

COMPLAINTS ON HEALTH CAMPAIGNS
Australia In 2008, Coca-Cola launched a
“Motherhood and Myth-Busting”
campaign attempting to convince
the public that a diet including soda
was healthy for children. Hence,
Australian Competition and
Consumer Commission, Obesity
Policy Coalition, the Parents’ Jury
and the Australian Dental
Association filed complaints.
In 2009, Coca-Cola was sued by the
Center for Science in the Public
Interest regarding misleading
marketing concerning the contents
of its Vitamin Water despite of
having contains a high quantity of
sugar.
not contain higher than
normal levels of pesticides.
However, it suggested that
the company do a better job
of considering a plant’s
location based on resources
and future impact.
In 2008, FDA declared the
company had violated the
Federal Food, Drug, and
Cosmetics Act when naming
the Coca-Cola Diet Plus
beverage.
In 2008, it received the
Golden Peacock Global
Award for Corporate Social
Responsibility in water
conservation,
management and
community development
initiatives.
In 2009, the company was
forced to release new
advertisements in a
number of Australian
newspapers correcting
information such as the
amount of caffeine found
in Diet Coke.
Further, Coca-Cola makes
an effort to encourage
consumers to exercise and
embrace a healthy lifestyle
through nutritional
education and physical
activity programs and
engages in ongoing
discussions with
government, NGO, and
public health
representatives regarding
obesity and health.

Whether Coca-Cola has recovered from its ethical crises?

COCA-COLA’S CORPORATE SOCIAL RESPONSIBILITY PROJECTS/ INITIATIVES

I. PROBLEM
Can Coca-Cola’s strong emphasis on social responsibility, especially philanthropic and
environmental concerns, help the company maintain its reputation in the face of highly
public ethical conflicts and crises?
III. IDENTIFY ALTERNATIVES

First Alternative
Continue Doing Corporate Social Responsibility Projects/Initiatives

Second Alternative
Ignore Ethical Crises

Third Alternative
Conduct Public Relations Activities

IV. EVALUATE ALTERNATIVES

First Alternative

As a globally recognized brand, developing a number of social responsibility

initiatives are clear indications that Coca-Cola seek to protect its reputation as it upholds
its Mission, Vision & Values statements which is to “Inspire Moments of Optimism”
through brands and actions as well as to create value and to make a difference in the
countries in which it does business. In short, it creates the company’s sustainable growth
and profitability simultaneously with social entrepreneurship.

Second Alternative

Since some of ethical crises are mere allegations against the company, Coca-cola
could possibly neglect unfounded allegations as it could simply say that those are false
accusations that are trying to besmirch its corporate name. Besides, ethical problems
cannot positively affect its well-established brand name worldwide as it will remain the
leader and most dominant company in the field of beverage industry.

Third Alternative

The company could possibly conduct public relations activities that are less costly
than corporate social responsibility projects. By doing so, Coca-Cola can simply answer
controversies being thrown against them so as to clarify and defend its reputation from
further embarrassments and maligning accusations.

V. DECISION

The best decision is to implement the first alternative which is to continue doing
Corporate Social Responsibility (CSR) projects and initiatives. Although critics might say
that these are “window dressing” to hide its mistakes, CSR programs produce strong
brand recognition while fostering relationship marketing. Moreso, it is also a humble
admission that Coca-Cola is not a perfect company and it has a genuine desire to rectify
its ethical misconducts.

VI. Implementation Plan of the Decision

To maintain its world-class brand identity, Coca-Cola will establish a Corporate

Social Responsibility (CSR) office in every country where it does it business. The said
office shall conceptualize and implement different community development programs
that are innovative and relevant in that particular country. Likewise, CSR office shall
handle and respond to different ethical issues and concerns so as to improve its early
detection and compliance systems.

VII. Method of Evaluation

A sound balance sheet is an indicative that Coca-cola’s financial performance

remains to be viable, sustainable and has maintained a large loyal base despite ethical
crises. Similarly, CSR initiatives could definitely establish company awareness and
recognition, product retention and eventually encourage loyalty and long-term
profitability among its target market and customers.