UNIVERSITY OF CEBU (UC)

GRADUATE SCHOOL
Sanciangko St., Cebu City

SOCIAL RESPONSIBILITY AND GOOD GOVERNANCE (BM 228)

Masterand: Agnes C. Ampo Course: MBA

Professor: Dr. Eddie E. Llamedo Schedule: BL1 Sat, 12:00nn-4:30pm

CASE STUDY: The Coca-Cola Company Struggles with Ethical Issues

Facts of the Case

Coca-Cola is undoubtedly one of the most famous and most valuable brands all

around the world. Be that as it may, in late decades the organization has experienced

issues meeting its money related goals and has been connected with various moral

emergencies. As an outcome, a few speculators have lost confidence in the organization.

For instance, Warren Buffet (board part and solid supporter of and financial specialist in

Coca-Cola) surrendered from the board in 2006 following quite a while of disappointment

over Coca-Cola’s inability to conquer its difficulties. Since the 1990s, Coca-Cola has been

blamed for dishonest conduct in various regions, for example, item security, hostile to

aggressiveness, racial segregation, channel stuffing, wholesaler clashes, terrorizing of

union laborers, contamination, and exhaustion of common assets. Verifiably, Coca-Cola

has been a win for over 120 years. Interestingly, PepsiCo (established at generally the

same time) did not turn into a genuine contender until after World War II, when it

concocted the thought to offer its item in bigger bits at the same cost as Coke. Coca-Cola

stays a standout amongst the most-perceived brand names on the planet today, justified

regardless of an evaluated $68.73 billion in 2009. The organization has constantly

exhibited solid business sector introduction, settling on key choices and making a move to

pull in, fulfill, and hold clients. Sections archive the affirmed unfortunate behavior and

sketchy conduct that have influenced Coca-Cola partners and perhaps the organization’s

money related performance. Perhaps the most harming of Coca-Cola’s emergencies—and

a circumstance feared by each organization – started in June 1999 when around thirty

Belgian youngsters turned out to be sick in the wake of devouring Coke items. Questions

concerning Coca-Cola’s business sector predominance and government investigation into

its advertising strategies tormented the organization all through Europe. Since the

European Union nations have strict antitrust laws, all organizations must give careful

consideration to advertise share and position when considering joint endeavors, mergers,

and acquisitions. In 1999, Coca-Cola’s notoriety was managed another blow when 1,500

African American representatives sued for racial segregation. The claim, which in the end

developed to incorporate 2,000 current furthermore, previous workers, blamed the

organization for separating in regions of pay, advancement, furthermore, execution

assessment. Coca-Cola was likewise blamed for channel stuffing amid the mid 2000s.

Channel stuffing is the act of delivery additional, no requested stocks to wholesalers and

retailers some time recently the end of a quarter. Somewhere around 2001 and 2004, a

viler allegation against Coke surfaced in Colombia. Since 1989 eight union Coca-Cola

laborers had passed on there, 48 were constrained into stowing away; also, 65 had gotten

demise dangers. Coca-Cola has additionally experienced inconvenience at its packaging

plants in India, handling allegations of both groundwater exhaustion and sullying. Despite

feeling, obviously Coca-Cola is not a flawless organization and that it has been included in

its offer of moral wrongdoing. Shareholder responses have modified many times over the

organization’s history, however the organization has held an expansive faithful base. The

organization trusts that its present administration is sufficiently solid to move Coca-Cola

past these emphases on morals and into a beneficial begin to the twenty-first century.
Subsequently, the inquiry is whether authority is doing what it takes to polish Coca-Cola’s

picture and try to do it says others should do.

Problem of the case

With Coca-cola’s case, it is clearly evident that Coca-Cola is facing a number of

issues in terms of different ethical and legal concerns. Coca-Cola faced a lawsuit in the

spring of 1999. Fifteen hundred African American employees sued Coca-Cola for racial

discrimination. Later, the number grew to 2,000 current and former employees. The

company was being charged because they put African Americans at the bottom of the pay

scale. The company denied the accusations, but the public had strong reactions to the

case. To rebuild their image, Coca-Cola created a diversity council and paid $193 million to

settle the racial discrimination lawsuit. Matthew Whitley, a mid-level Coca-Cola executive

filed a whistle-blowing suit. Whitley revealed fraud in a market study that Coca-Cola did on

behalf of Burger King. In 2002, Coca-Cola wanted to increase sales so they paired up with

Burger King to launch a frozen Coke as a child’s snack. Before launching nationally,

Burger King wanted to test the product out in the market. Burger King launched a three-

week trial run in Richmond, Virginia to see if it was worth the investment. Customers

received a coupon for a free frozen Coke when they purchased a Value Meal. When the

test first started, sales of the frozen Coke were not looking good. Therefore, Coca-Cola

decided to pay at least one individual $10,000 to take hundreds of children to Burger King

to purchase Value Meals including the frozen Coke. U.S. attorney general for the North

District of Georgia discovered and investigated the fraud. Coca-Cola had to pay Burger

King $21 million, the whistle-blower $540,000, and a $9 million pretax write off had to be

taken. Coca-Cola disputed the claim; however, it was extremely costly for the company.

Not only did they lose millions of dollars, but also the case attracted a lot of negative

publicity. In addition, it ruined any relationship that they had with Burger King. Along with
the other ethical dilemmas Coca-Cola was faced with, the company was accused of

practicing channel stuffing. The use of channel stuffing is deceptive and a company utilizes

it to inflate their sales and earnings figures. When a company ships out their product to a

distributor, it is counted as a sale. However, when a company participates in channel

stuffing, they count the sale and usually the product is returned or it remains in a

warehouse. The company sends their retailers more than they can sell, falsely

demonstrating that there is a high demand for the product. It can also be used to hide

when the demand of a product declines. Coca-Cola also faced serious issues with their

distributors beginning in 2006. The company had deliveries of Powerade sent to Wal-Mart

in a small Texas test area. When they tried to expand the delivery of Powerade directly to

Wal-Mart warehouses all over the US, fifty-four of their bottlers filed lawsuits. Amongst

other international problems faced by Coca-Cola, they ran into trouble related to labor

unions as well. The major cause of these problems occurred in Columbia where there

were unfortunate deaths of Coca-Cola workers as well as forty-eight who went into hiding

and another sixty-five who received death threats. The labor unions claimed that Coca-

Cola chose to be involved with illegal dealings surrounding these deaths, death threats

and disappearances. Coca-Cola denied any of the allegations and claimed that only one of

the deaths was on the premises of the bottling plant that Coke worked with while the other

ones were located off the premises where Coke had no involvement. Rather than take

swift action Coca-Cola made itself look bad by not offering to help to any of the workers or

their families. The further denial along with not providing any aid or action caused

animosity with labor unions regarding the case and put another black mark on Coca-Cola’s

currently sliding ethical reputation. Sure there may have been other circumstances behind

the problems in Columbia but Coca-Cola did nothing to help anyone else or themselves in

the situation. Another problem Coca-Cola faced came a little closer to home. Coca-Cola

had three employees get arrested in 2006 for fraudulently and unlawfully stealing and
selling trade secrets from Coca-Cola. One of the people accused in the case contacted

Pepsi and told them he was a high level employee with Coca-Cola. He then offered them

very confidential and detailed information regarding the Coca-Cola Company. In early

2006 Coca-Cola once again faced problems—this time on its home front. Fifty-four of its

U.S. bottlers filed lawsuits against Coke and the company’s largest bottler, Coca-Cola

Enterprises (CCE). The suit sought to block Coke and CCE, both based in Atlanta, from

expanding delivery of Powerade sports drinks directly to Walmart warehouses instead of to

individual stores. Bottlers alleged that the Powerade bottler contract did not permit

warehouse delivery to large retailers. They claimed that Coke breached the agreement by

committing to provide warehouse delivery of Powerade to Walmart and by proposing to

use CCE as its agent for delivery. The main problem was that Coke was attempting to step

away from the century-old tradition of direct-store delivery (DSD), in which bottlers deposit

drinks at individual stores, stock shelves, and build merchandising displays. Bottlers

claimed that if Coke and CCE went forward with their plan, it would greatly diminish the

value of their businesses. For years Coca-Cola has been battling consumer perceptions

that its soft drinks contribute to obesity. In 2008 Coca-Cola launched a “Motherhood and

Myth-Busting” campaign in Australia, attempting to convince the public that a diet including

soda was healthy for children. The Australian Competition and Consumer Commission

promptly took Coca-Cola to court after the Obesity Policy Coalition, the Parents’ Jury, and

the Australian Dental Association all filed complaints. As a result, 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. Coca-Cola admits that it

did not supply consumers with detailed information during its campaign. Also in 2008 the

FDA declared that the company had violated the Federal Food, Drug, and Cosmetic Act

when naming the Coca-Cola Diet Plus beverage. Using “plus” in the name indicated an

unsubstantiated nutritional claim. Perhaps the most damaging of Coca-Cola’s crises—and

a situation dreaded by every company—began in June 1999 when about thirty Belgian

children became ill after consuming Coke products. Although the company issued an

isolated product recall, the problem escalated. The Belgian government eventually ordered

the recall of all Coca-Cola products, which prompted officials in Luxembourg and the

Netherlands to recall Coke products as well. Coca-Cola finally determined that the

illnesses were the result of an improperly processed batch of carbon dioxide. Coca-Cola

was slow to issue a response to the problem, taking several days to address the media.

The company had initially judged the problem to be minor and did not immediately

investigate the extent of the issue. The slow response time led to a public relations

nightmare. France soon reported more than 100 people sick from bad Coke and

temporarily banned all Coca-Cola products as well. Soon thereafter, a shipment of

Bonaqua, a new Coca-Cola water product, arrived in Poland contaminated with mold. In

each of these instances, the company’s slow responses and failure to acknowledge the

severity of the situation harmed its reputation and cast doubt on then-CEO Ivester’s ability

to successfully lead. In the late 1990s, government inquiries into the company’s marketing

tactics plagued the company throughout Europe. Because EU countries have strict

antitrust laws, all firms must pay close attention to market share and position when

considering joint ventures, mergers, and acquisitions. During the summer of 1999 Coca-

Cola began an aggressive expansion push in France, and the French government

responded by refusing Coca-Cola’s bid to purchase Orangina, a French beverage

company. French authorities also forced Coca-Cola to scale back its acquisition of

Cadbury Schweppes, maker of Dr Pepper.

Alternative course of action

So as to remain an effective organization long into the future, Coca-Cola must

resolve clashes and claims connected with moral emergencies. Being a socially

responsible company is must if you want to stay long in a business. It is your responsibility
to provide and promote a well balanced form of organization that will motivate others as

well to do the same and in doing so, as a leader or member of that organization you are

enable your company to grow in a positive way that will create a greater value towards

others With the emphasis of CSR, providing a better work environment to the employees

of the company that will enable them to work effectively because of a very conducive

environment for development and innovation. Coca-Cola leaders did not execute strong

ethical habits which resulted in a long chain of unethical practices. Based on Enron's

downfall, I don't think that Coca-cola will have the same outcome. Enron's downfall was a

result from the top management hoarding money for their personal gain. I feel with those

unethical acts performed by Enron for strictly for the personal gain of the individuals

involved. Coca-Cola’s issues appeared to be the direct reflection of poor management and

ethical skills, especially top management. Coca-Cola should start with the top

management and re-evaluate the ethical foundation. Also, Coca-Cola should have much

more aggressive in their reaction time and their realization it was a major health concern.

These were children that were affected and it put the company in a very bad light. Any

health scare should be the biggest priority to a food and beverage company, and ignoring

the problem is the very worst thing they could have done. Lastly, they should not have

engaged in such aggressive marketing plan when the situation was over. It was so

aggressive that it seemed like they were bent on eliminating the competition. They already

know that Europe has strict antitrust law.

Best Alternative Course of Action

The best alternative course of action I can provide is that leaders should effectively

execute strong ethical habits and practices. This should start with the top management.

They need to consider re-evaluate the ethical foundation. First, the company needs to

understand the individual factors, organizational factors, ethical intensity and opportunity to
determine the intentions and evaluations of the business. The leadership influences the

ethical decisions performed by the business as a whole. Also Coca-Cola needs to address

and resolve any lingering dilemmas going forward and work to continuously build a strong

ethical foundation.

Conclusion

Coca-Cola is one of the most successful and recognized brand in the world. These

ethical problems that have been presented in this paper were not just minor problems for

the company, but it seems that they have been able to keep the Coke name relatively

untarnished. Coke today strives to reduce their ethical issues to a minimum in order to

focus on reaching all around the world. The issues presented to us were all problems that

could be fixed and while we gave examples of how they could have handled the problem

differently, Coke seems to have handled it in the way that they see fit, and their name still

stands as one of the top companies in the world. A company this big has to be very careful

with what they do in the public eye, one fatal mistake can be the end of a very successful

business.