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Coca-Cola Ethics

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Summary: Provide a summary of the company, and the facts and issues of the case.

According to Ferrell, the Coca-Cola Company is the world’s largest beverage company, and markets four of the world’s top five leading soft drinks. The company operates the largest distribution system in the world, which enables it to serve customers and businesses in more than two hundred countries. The Coca-Cola Company estimates that about 85 percent of its sales come from outside the United States (Ferrell). Former CEO Roberto Goizueta once said “Coca-Cola used to be an American company with a large international business. Now we are a large international company with a sizable American business” (Ferrell). According to Ferrell, Coca-Cola is the most-recognized trademark and brand name in the world today with a trademark value estimated to be about $25 billion. Coca-Cola’s vision for sustainable growth is fostered by being a great place to work where people are inspired to be the best they can be, by bringing the world a portfolio of beverage brands that anticipate and satisfy peoples’ desires and needs, by being a responsible global citizen that makes a difference, and maximizing return to share owners while being mindful of their overall responsibilities (Ferrell). While Coca-Cola’s vision statement may sound ethical, they have had several unethical issues come about in the past decade. According to Ferrell, in the early 2000’s Coca-Cola was involved in racial discrimination, misrepresenting market tests and manipulating earnings, and disrupting long-term contractual arrangements with distributors (Ferrell). Ferrell goes on to state that in June 1999 the Coca-Cola Company encountered a contamination scare when about 30 Belgian children became ill after consuming Coca-Cola products; the contamination was due to a poorly processed batch of carbon dioxide. Soon after the case in Belgium, another case of contamination was reported in Poland with mold contaminated water in a shipment of one of Coca-Cola’s products (Ferrell). While Coca-Cola had issues with their products being contaminated they also had issues with abiding European antitrust laws as well. According to Ferrell, PepsiCo and Virgin accused Coca-Cola of using rebates and discounts to crowd their products off shelves, thereby gaining greater market share. Coca-Cola’s strong arm tactics proved to be in violation of European laws and demonstrated Coca-Colas lack of awareness to European culture and laws (Ferrell). Coca-Colas unethical issues didn’t stop with their competitive and product issues, they also extended to unethical behavior towards their employees and unethical behavior from their employees. According to Ferrell, in 1999 an estimated two thousand current and former African American employees accused Coca-Cola of racial discrimination concerning the employees pay, promotions, and performance evaluations (Ferrell). Coca-Cola’s unethical issues didn’t just occur from the treatment of its employees they also extended to the behavior of their employees. According to Ferrell, a Coca-Cola administrative secretary and two accomplices were arrested in 2006 and charged with fraud and unlawfully stealing and selling trade secrets from the Coca-Cola Company. The incident occurred when the employees contacted PepsiCo and offered to sell them classified material concerning some of Coca-Cola’s top-secret products (Ferrell). The Coca-Cola Company also had some occurrences of unethical issues concerning its investors. According to Ferrell, in 2002 Coca-Cola was accused of fraud in a market study of their frozen Coke drink that was performed on behalf of Burger King. Additionally, in the late 90’s and early 2000’s Coca-Cola was found to be channel stuffing its products to Japanese bottlers in order to inflate financial statement earnings and mislead its investors (Ferrell). Despite that the Coca-Cola Company may have had a rough past 10 years; they have managed to still fulfill their social responsibility. According to Ferrell, the Coca-Cola Company provides grants and scholarships to more than half of the United States. Additionally, they sponsor a program called “Education on Wheels” (Ferrell) in Singapore that teaches children communication skills. Coca-Cola is also involved with UNAIDS which is an organization that’s objective is to put into place important initiatives and programs to help combat the threat of the HIV/AIDS epidemic (Ferrell). While the Coca-Cola Company has had its issues in the past and some still in current day the company is taking provisions to restore its reputation to the world. Since Coca-Cola’s unethical issues the Coca-Cola Company has according to Ferrell, hired an outside task force that includes business and civil rights experts and allowed them to have unprecedented power to dictate company policy with regard to hiring, compensating, and promoting (Ferrell). Coca-Cola has worked to settle the allegations with the Belgian government concerning their past contamination cases. The Coca-Cola Company has also according to Ferrell, taken measures to ensure their financial statements on earnings are correct for investors (Ferrell). In summary the Coca-Cola Company has had a rocky past decade and their unethical issues prove it, but despite all the unethical issues the Coca-Cola Company has still managed to do some good things for world.

Text Questions: 1. Why do you think Coca-Cola has had one ethical issue to resolve after another over the last decade or so?

I believe that Coca-Cola has had one ethical issue to resolve after another because they have lacked the proper leadership that was needed to properly manage what is according to Ferrell the world’s largest beverage company (Ferrell). Over the last decade Coca-Cola CEO’s have changed numerous times. What can be said about a company when they can’t keep a CEO in a position due to poor management decisions? What it tells me is that Coca-Cola’s reputation was put at stake due to poor management decisions that lacked honesty and fairness. Another reason I believe that Coca-Cola has had one ethical issue to resolve after another is because of the sheer size of the company. “Coca-Cola used to be an American company with a large international business. Now we are a large international company with a sizable American business” (Ferrell). With a company that has operations all over the globe; a solid ethical leader is needed to ensure the company is operating properly. I believe that the size of Coca-Cola and its previous poor leadership are directly related to their constant ethical issues in the last decade. In the end given the size of Coca-Cola and the previous leaders that have made poor decisions, there is no doubt that this is why Coca-Cola has had the issues they have had.

2. A news analyst said that Coca-Cola could become the next Enron. Do you think this is possible and defend your answer?

I believe that it is a possibility that Coca-Cola could become the next Enron just as easily as any company who is falsifying their financial earnings. Although, given this statement I do not believe that Coca-Cola could become the next Enron. I don’t think that Coca-Cola could become the next Enron because it appears that Coca-Cola has realized the dangers in manipulating their financial earnings. In the case where Coca-Cola was caught channel stuffing concentrate to its Japanese bottlers; I believe they have realized the dangers because they were called out for this by the Securities and Exchange Commission. Since then Coca-Cola has according to Ferrell, agreed to avoid engaging in channel stuffing in the future, created an ethics and compliance office and is required to verify each financial quarter that it has not altered the terms of payment or extended special credit (Ferrell). In the end, I believe that Coca-Cola is slowly regaining their reputation that it once had before all of the financial issues came about.

3. What should Coca-Cola do to restore its reputation and eliminate future ethical dilemmas with stakeholders?

I believe that if Coca-Cola wants to restore its reputation and eliminate future ethical dilemmas with stakeholders they need to take a step back and further evaluate the business decisions they make on a daily basis that could possibly turn out unethical. Coca-Cola could also ensure they have a strong CEO that is capable to stay in the seat for more than a few years, because a stronger leader is what Coca-Cola needs in order to recover from its past mistakes. They need a strong leader because of their company size and due to the previous years of unethical decisions that have hurt their reputation.

Primary Stakeholders –
Customers – I believe that Coca-Cola should ensure tighter quality control measures on their outgoing products and their bottling process to ensure that customers do not get sick off of their products. I believe that this is one of the worst things a business can encounter, is customers getting sick off of their products. This is the one thing that will surely drive a business’s sales down and damage reputation. Coca-Cola could also respond quicker to accounts of people getting sick off of their products. In the case where the 30 Belgian children got sick off of the Coca-Cola products it took Coca-Cola several days to comment on the situation. If Coca-Cola wants to restore its reputation with customers and eliminate future ethical dilemmas, they need to ensure its products are safe and when issues come about they need to respond with urgency.

Employees – I believe that Coca-Cola could improve its reputation with its employees and eliminate future ethical dilemmas by ensuring that racial discrimination does not occur within its company. According to Ferrell, there were accounts of Coca-Cola discriminating against African American employees concerning pay, promotions, and performance evaluations (Ferrell).

Shareholders – Coca-Cola could improve its reputation with shareholders by being honest with their earnings. Coca-Cola could also improve its reputation with shareholders by abiding by the terms that have been set in place as a result of their previous run in with the Securities and Exchange Commission during their channel stuffing allegations. Another way that Coca-Cola could improve its reputation with shareholders is by not manipulating the results of market testing of its products. I believe that Coca-Cola can eliminate future ethical dilemmas by just being honest with their shareholders and that will also in turn repair some of the damage that has happened to their reputation.

Community – Coca-Cola can improve its reputation with its community stakeholders by continuing its philanthropic initiatives. According to Ferrell, Coca-Cola offers grants to various college and universities in more than half of the United States (Ferrell). Coca-Cola also sponsors a program called “Education on Wheels” (Ferrell) that helps teach children in Singapore communication skills. It is through actions like this that gives Coca-Colas reputation a fighting chance for recovery. I believe that if Coca-Cola wants to eliminate future ethical dilemmas they need to stay consistent with their community involvement. Coca-Cola should stay consistent with their community involvement because its helps to improve their reputation.

Government Regulatory Agencies – Coca-Cola can improve its reputation with the Securities and Exchange Commission by not giving false financial information to its shareholders and by not engaging in channel stuffing in order to boost their earnings.
I believe that Coca-Cola can eliminate future ethical dilemmas by being honest about their financial records and by giving shareholders correct financial information concerning their company.

Secondary Stakeholders –
Competitors – Coca-Cola can improve its reputation with its competitors in Europe by abiding by antitrust laws. According to Ferrell, PepsiCo and Virgin accused Coca-Cola of using rebates and discounts to crowd their products off shelves, thereby gaining greater market value. Coca-Cola’s strong-arm tactics proved to be in violation of European laws (Ferrell). I believe Coca-Cola can eliminate future ethical dilemmas in Europe by having some awareness of the European culture and laws.

Updates: Provide an update(s) of the case since the publication of the text.

There have been several updates to Coca-Cola’s ethics issues since the February 2008 publication of the case.
Contamination Scare – It would appear that since the publication of this case that Coca-Cola Company is still having issues concerning the contamination of their products. According to China CSR, in March 2009 three Chinese consumers claimed to have seen objects such as black threads and worms in Sprite, a beverage produced by Coca-Cola, recently went to Coca-Cola's headquarters in Shanghai to ask for an explanation and compensation from the company (China CSR).
Discrimination – While Coca-Cola has settled their racial discrimination cases from the late 90’s, they seem to still have a rash of other discrimination issues that still include racial discrimination cases. According to McCarthy, in February 2009 a former manager at Coca-Cola's distribution center in Yuba County, California contends he was fired after 34 years because of his age and advocacy for employees (McCarthy). Additionally in May of 2008 according to Wills, the U.S Equal Employment Opportunity Commission announced a settlement of a racial discrimination lawsuit against BCI Coca-Cola Bottling Company of Los Angeles (BCI) for $250,000 on behalf of an African American former worker in Albuquerque, N.M. that was fired because he would not come to work on his day off (Wills).

Channel Stuffing – According to Fowlkes, in July 2008 the Coca-Cola Company has finally settled their almost 8 year long lawsuit against them for channel stuffing their concentrate to Japanese bottlers. The settlement cost the Coca-Cola Company $137.5 million (Fowlkes).

Employee Troubles – According to Westheimer, in May of 2008 the US Court of Appeals for the Eleventh Circuit upheld the convictions and prison sentences of Joya Williams and Ibrahim Dimson for conspiracy to commit theft of trade secrets (Westheimer).…...

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