The Coca-Cola Company Struggles with Ethical Crises

I. Summary:

Incepting in the late 1800s, Coca-Cola has been famous worldwide in beverage industry. Some widely recognized products are Coke, Diet Coke, Fanta, Sprite, Virgin Cola, etc. CocaCola dominated over PepsiCo in the US in 1993, leading in global soft-drink market and was the most-recognized trademark in the world. Its strong reputation was reinforced with philosophic practice, philanthropic initiatives, international market orientation and strategic-making decisions. Coca-Colas mission is to benefit and refresh everyone to whom Coca-Cola touches. However, its performance has been associated with many ethical crises over the last ten years. The main reasons lie in leadership issues, poor economic performance and other upheavals. From 1997 to 1999: Accused of sending extra concentrate to Japan bottlers to inflate profits. This inflation was related to Channel Stuffing. In 1999: Associated in Contamination Scare because Coca-Cola products were mold. Coca-Cola must recall products and lost many market shares. Failed in doing business in French market and other European countries due to lacking of knowledge of European law and culture. Fined $193 million because of Racial Discrimination against African American. In 2002: The Coca-Cola - Company Struggles with Ethical Crises Page 1

Got into trouble with the Burger King Market Test. In 2006: Faced problems with bottlers, was blocked from expanding Powerade directly to Wal-Mart and was reported negatively by media. Faced international problems related to Unions because the death and hiding of Coca-Cola workers. Associated to sell trade secrets when a administrative secretary and two accomplices were accused of stealing and selling fourteen pages of Coca-Cola logo-marked and samples of top-secret products. Nevertheless, Coca-Cola denied almost ethical crises and responded slowly. Coca-Cola reputation has been reduced over time because of these crises. In spite of that fact, Coca-Cola still ranked third in the most-respected companies. Currently, financial performance of Coca-Cola is getting trouble and having problems with distributors. Coca-Cola is trying to retrieve its reputation by manufacturing quality products and practicing social responsibility. However, various stakeholders do not agree with ethicalmaking decision of Coca-Cola. Therefore, this raises doubts about Coca-Colas social responsibility, philanthropic and environmental concerns.

II.

Key Learning:

Coca-Cola had poor leadership and management skills related to ethical issues. For example, they took slow action on serious problems such as contamination scare case. They had to show heartfelt responsibilities and duties of the company to customers who got sick by

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drinking Coke by taking prompt responses and sending immediate recall orders to all distribution centers - wholesalers and retailers. Coca-Cola just focused on profit making even though damages had happened to children who got serious sickness because of drinking Coca-Cola. Moreover, they tried to ignore this issue and assume that this was minor problems. Instead, they should admit and apologize publicly for what had happened as soon as discovering those problems and figure out how to settle such issues related to ethical conducts. Coca-Cola was lacking of knowledge of cultures and legislations in different countries in Europe. Thats why they had many problems in doing business in France and Germany and lost market shares and customers loyalty. Experiencing from racial discrimination, Coca-Cola should create equal opportunities to their employees and promote them by fairly evaluating their performance and capabilities instead of looking at their races to give more favors. By this way, the company can keep actual talented employees and in return, the company gets the most benefits from these employees. Coca-Cola should strongly emphasis on social responsibility to help the company gain their reputation and prestige after many ethical crises. As a well-known multi-corporation, Coca-Cola should try to prevent any racial , sex, age discriminations because these are basic business ethical concepts for a company to create good and fair working environment, attract talented employees globally and get good reputation. Racial discrimination is badly criticized by society that causes the company to lose their reputation, market shares and customers loyalty.

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III.

Ethical Perspective:

Different styles of the moral philosophies that Coca-Cola used to apply in decision making for their ethical issues were: For the crisis situation Contamination Scare, it begun when about thirty Belgian children were getting ill after drinking Coca-Cola products in June 1999 and later reactions from Coca-Cola were claimed slow response by Public Media. For this case, those Coca-Cola members who were in charge of resolving these crises were considered as relativists. They were late in actions because they would attempt to determine the company consensus before deciding whether they have proper actions to public and their customers. This made their situation worse while other same complaints coming from France and Poland. In each instance, the companys slow response and failure to acknowledge the severity of the situation harmed Coca-Cola reputation. For the crisis situation Competitive Issues, during 1999, Coca-Cola faced to be violation of European antitrust laws (especially in France and Italy). This was the result of so aggressive actions of Coca-Cola in European market but lack of awareness of European culture and laws. So members in charge in Coca-Cola are utilitarian in this case. They made decision after conducting a cost-benefit analysis to assess which alternative would create the greatest utility. For the crisis situation Racial Discrimination, in 1999, there were over two thousands current and former African American employees sued Coca-Cola for racial discrimination and the consequence was that they had to pay $193 million to settle the racial discrimination lawsuit. This problem would have happened if authorities had been deontological and probably felt obliged to treating fair between staffs no matter they were man or woman, black or white,

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religious or impious, etc. Therefore, Coca-Cola should learn the above lessons and get actions to prevent such matters.

IV.

Ethical Assumptions:

Coca-cola is a strong financial performance company and a market share leader in beverage industry. The maintenance of market share and good financial performance creates pressure to board of directors. If there was no pressure, they would not have made mistakes such as: inflated earnings and competitive issues. Moreover, Coca-cola wouldnt have been lost the court case anticompetitive prices in 1999. If coca-cola had a crisis management, it could have solved the problem of contamination scare in Belgium better and promptly. At that time it wouldnt be banned in France for a short time and lead to reduce coca-colas market standing in Europe. Imagine that if contamination scare had happened in USA, the main market share of coca-cola, coca-cola reacted and resolved the problem like in Belgium; the consequence would have been more serious. The worse result is coca-cola would be boycotted in USA. The racial discrimination allegations and international problems related to union wouldnt have happened if coca-cola had had staff issues review. The staff issues review would consider all internal staff issues. It would have created the equality between African American workers and Caucasian workers. If coca-cola had considered the relationship of distributors and partners more important than profits, the problems with the Burger King market test and trouble with distributors wouldnt have happened. Also, Coca-cola wouldnt have lost stakeholder trust, which put a negative effect on coca-cola reputation.

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V.

Resolutions:
1. External

a.

Coca-Cola Board of Director had better to invite the mass media organizations to join the cases initially. Together with mass medias participation, Cola-Cola can keep community advised the problems in time. This can prove in public its prompt action towards the issues occurred. In the case of soft drinks contaminated with mold in Europe, competitive issues, racial discrimination and others, the role of mass media is top essential to support Coca-Cola in interpreting its transparent internal Ethical Systems. Community partially grasps Coca-Colas social responsibility by its immediate responses towards all concerns accordingly.

b.

The utilizing the Middle Organization as business partners, government officers who obtain good relationship with oversea markets as European Union Trade Organization can help Coca-Cola to conduct the communication with other European Countries markets as France, Italy. The case of competitive issues taken place in France which lead Coca-Cola be refused in purchasing famous brand of soft drinks of Orangina and Schweppes showed weakness of Coca-Cola in creating relationship with the abovementioned partners.

2. a.

Internal:

Check-up the whole Supply Chain Management including input and output. Processes for Operation Management should be re-checked carefully to assure all raw materials input used for manufacturing traditional soft drinks in Coca-Cola factories in the very

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United States and other markets as Europe are strictly controlled. The case of products contaminated in Europe and caused illness for some children in Belgium and Poland proved carelessness in checking the finished commodities output in Coca-Cola. All processes must be audited periodically. b. c. Immediately audit the management mechanism for top managers. Set up the whistle-blowing for employees to denounce the misconduct of all managerial levels. Tools are used for whistle blowing can be telephone with hot lines or anonymous letters. It is necessary in this case as most of problems happened in the next 3 decades caused by leadership issues, poor ethical performance internally and other upheavals. The case of racial discrimination in Coca-Cola in 1999 has shown the lack of Whistle-bower which made Coca-Cola be sued in the court. All instructions, ethical and unethical, come from high ranked bodies. Subordinates can envision but do not know how to denounce the misconduct to keep corporations prestige. Besides that, this system should be checked up to safeguard employees ethical behaviors. d. Set up the internal independent Oversight Board (OB) that can audit periodically ethical procedures. That will be chosen by the very employees. This OB will provide a tight system of control that limit managers and employees chance to deflect from ethical frame and ethical policies that can avoid illegal and unethical activities. Besides that, Auditing and Controlling can be regarded as the tool to improve the Coca-Colas organizational actions. e. Review Corporation mission, values, goals, and policy to define the ethical priorities such as ethical standards towards suppliers, customers. This is an overview of the ethical framework of the corporation as by time, missions, goals, objectives and policy

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must be re-checked and re-defined to adapt every period of time in trading. As for Competitive Issues happened in European, because of setting the objective of benefits in trading, Coca-Cola applied dumping prices campaign to dominate all kinds of soft drinks over there for gaining the greater market share. In return, Coca-Cola was sued by the group of some countries in Europe. Board of Director has forgotten the adjusting objectives and goals in business per different outlet.

VI.

Recommendation:

There is no best resolution for any problems. However, in Coca-Cola case, we think they should apply periodical Ethical Audit to have a pure company. This recommendation is very effective because only auditing ethics can recognize almost current problems and help to prevent it reoccur in the future. When ethical audit is applied in company, every member from employees to senior managers has to follow the rule. As a result, problems can be seen and managers find the best ways to avoid in advance.

VII.

How to prevent this in the future?

To restore Coca-Colas reputation and demolish ethical problems that can influence into Coca-Colas Strategic Management in the future, we make some subjective recommendations: Build up the Ethical System applied for managers and employees with measure of Balanced Scorecard or MVA orientating stakeholders interests instead of EPS (earning per share) that just satisfies shareholders interests. On paper, balanced scorecard (BS) demonstrates combination of all measurements including financial status; customers satisfaction; internal business perspective; and innovation The Coca-Cola - Company Struggles with Ethical Crises Page 8

and learning. This method is comprehensive for it bears Social Ethical meanings towards the stakeholders. Coca-Cola must consider this process transparent though it takes very much time and power beside the fact that it requires all cooperation together with the effort, truth from all SBUs managers in performing, and sometimes it can ignore the main trading objective for gaining more benefits. Executing BS, we are able to put the objectives and goals as follow: a. Financial b. Customers : How does Coca-Cola interpret to shareholders? : How do all Coca-Colas customers including distributors,

end-users, and stakeholders envision? c. Internal Business Perspective : What Coca-Cola is to excel? d. Innovation and Learning : Coca-Cola must review if it can keep on

improving and creating corporations value? Upon applying this, Coca-Cola will encounter a lot disadvantages as all shareholders investing a huge amount and always putting their benefits in the first place do not want to put BS measurement in practice, but just prioritize the traditional financial figures EPS or the step of financial statement and that contradicts the BS or back-tracks the stakeholders. Finally, applying BS or EPS to measure business activities in Cola-Cola depends on the CEOs vision on the fact whether corporation will develop on Ethical Frame or net trading benefits.

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References
Ferrell, O. C., Fraedrich, J., & Ferrell, L. (2008). Business Ethics: Ethical Decision Making and Cases. US: South-Western, Cengage Learning. Haig, M. (2005). Brand Failures: The Truth about the 100 Biggest Branding Mistakes of All Time. Kogan Page, Limited. Hays, C. (2004). Real Thing: Truth and Power at the Coca-Cola Company. Random House, Incorporated. Rothman, H. (2001). 50 Companies That Changed the World : Incisive Profiles of the 50 Organizations - Large and Small - That Have Shaped the Course of Modern Business. Career Press, Incorporated.

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