61927670 Coca Cola Case

The Coca-Cola - Company Struggles with Ethical Crises Page 1

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. Coca-

Cola 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-Cola’s 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:


� 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 ethical-

making decision of Coca-Cola. Therefore, this raises doubts about Coca-Cola’s 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


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. That’s 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.


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 company’s

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,


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 wouldn’t 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 wouldn’t be banned in France for a short

time and lead to reduce coca-cola’s 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 wouldn’t

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

wouldn’t have happened. Also, Coca-cola wouldn’t have lost stakeholder trust, which put a

negative effect on coca-cola reputation.


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 media’s 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-Cola’s 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 above-

mentioned partners.

2. Internal:

a. 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


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. Immediately audit the management mechanism for top managers.

c. 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 corporation’s 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-Cola’s

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


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-Cola’s reputation and demolish ethical problems that can influence into

Coca-Cola’s 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


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

SBU’s 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 : How does Coca-Cola interpret to shareholders?

b. Customers : How do all Coca-Cola’s 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 corporation’s 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

CEO’s 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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61927670 Coca Cola Case