DE LA SALLE LIPA

College of Business, Economics, Accountancy and Management Accountancy Department

Coca-Colas Reputation in Danger.

Presented by: De Castro, Rafael Eduardo Gomez, Mattheus Lurenz Gutierrez, Karol Josef Lajara, Raymond Maranan, Marvin

Presented to: Ms. Theresita Magsino

I. Introduction

Coca-cola, the world's largest beverage company, manufacturer, retailer and marketer of non-alcoholic beverages is founded in 1886. Beside Coca-cola itself, it currently offers more than 500 brands in over 200 countries or territories and serves over 1.7 billion servings each day. (Wikipedia) It devised a large distribution system to service global demand in order to reach customers worldwide in every possible corner.

The company made many breakthroughs which led them to where they are now. CocaCola made a global push in order to dominate the global market by taking advantage of the opportunities in the international world. By the late 1990's it succeeded in dominating the global soft drink history gaining more than 50 percent of the global market shares.

Despite the success of the company, Coca-Cola did not became invulnerable to different issues. Contamination scare, competitive issues, racial discrimination are some of the problems they faced and almost destroyed public trust and customer relationships. Also the cases of mismanagement of the different problems contributed to the growing distrust of the loyal customers.

II. Statement of facts and problems/issues

The Coca-cola is one of the most recognized beverage brands in the world today. It has shown dominance in the global market through the use of the different strategies to attain success. However, poor decisions, mismanagement and alleged misconduct tarnished their name in the 1990s and 2000s.

The company faced several ethical issues that are evidenced by several documentations and allegations regarding business misconduct and questionable behaviour that rendered the companys stakeholders and financial performance to be a subject of doubt. These concern contamination scare, racial discrimination, competitive issues, channel stuffing, conflict with distributors, dilemmas related to union and issues on impact on health.

These factors gave rise to the companys questionable reputation resulting to their damaged identity and therefore causing difficulties in their public relations.

The public image and relations of the company have been extensively damaged by multiple issues ranging from the nature of environmental issues to the of lack business ethics, which are the results of the companys mismanagement of its business affairs whether external or internal.

Therefore the company must find ways in order to re-establish the reputation they once had with the general public from the perspective of their employees, investors, customers and distributors.

III. Areas of Consideration

For a huge company like Coca-Cola, reputation is one of the most important intangible assets of the business. Anything that they will do would greatly affect their image to the public which is why they must have taken into consideration the fact that any action they do will be immediately focused on by the general public with an eagle eye. One wrong step would cause the loudest of murmurs and one toe out of line would destroy their name is something which the Coca-Cola Company has forgotten to take into account.

In addition, in their efforts to attain success, they resorted into committing several debatable actions, involving allegations with regards to their business practices and relationship with their stakeholders.

These contentions are evidenced by the involvement of the company in the issue of Channel Stuffing or shipping extra, non-request inventory to retailers and wholesalers at the end of the quarter, which happened during the early 2000s and in 1997 to 1999, as claimed by their Japanese bottlers in the accusation they made in 2004. Another matter to be considered is their trouble with their distributors during the early stages of 2006, when US Bottlers filed a lawsuit that sought to block Coke and the Coca-Cola Enterprises from expanding delivery of one of their products (Powerade) directly to the warehouses of Wal-Mart, instead of individual stores. This action, as claimed by US Bottlers, was a violation of the antitrust laws.

There are also concerns about the untimely response of Coca-Cola in 1999 in the contamination crisis in Belgium and France, as well as the same response time during the same year when the company was sued for racial discrimination. Also, the failure of the company to disclose thoroughly necessary information regarding their business operations (i.e Waste Management and Impacts on Health of their products) has set a wildfire in the publics outlook towards the company, which tarnished Coca-Colas name.

As a result of all these different issues, the success of Coca-Cola has slowly gone downhill in its major operations which may be found in huge developed 1st-world countries such as US, Canada, UK, Australia, multiple European companies and others. As such, Coca-Cola now finds itself with the question How do we regain their trust and how we are going to improve our name, image and identity?

For most of the Fortune 500 companies, one of the biggest factors which has since improved their image from the publics perspective, was the division of the roles of CEO and Chairman of the board (in accordance with the provision found in the legislation more commonly known as Sarbanes-Oxley Act) and also the conduction of different activities which are in the nature of Corporate Social Responsibility.

And if the odds serve their purpose properly, with well though-out planning and thoroughly observed implementation, the compliance with Sarbanes-Oxley act and the conduction of Corporate Social Responsibility programs shall inevitably improve the PR of the Coca-Cola Company.

IV. Identification and evaluation of alternative courses of action

In order to cope up with the prevailing conflicts, different alternatives can be applied by the company to regain public trust. The possible alternatives that can be used are the implementation of Corporate Social Responsibility, having a uniform treatment for the employees; whether they are from the country of origin of the enterprise or from foreign countries where they simultaneously conduct their business operations, applying the accounting concept of faithful representation in disclosing company information and focusing on environmental and health effects of their business operations and products.

*Environmental support and research for preservation (Coca-cola goes green)

There have been issues in the past which have led people to think that the entity is not all too conscious about the environment in which they conduct their business dealings, and although these events have lead to conclusions which contradict these assumptions regarding Coca-cola. But despite this, there has been a bad effect on the image of the entity. An advantage of this is that not only will this ensure the customers that Coca-cola is very cautious in order to ensure that their operations are conducted in environmentally stable areas, this will also give the company a public image of a vanguard for the preservation of the environment and the redevelopment of any areas which may have been affected negatively by their business operations. A disadvantage of this is that the management may have to set aside some plans for corporate expansion and also appropriate some of the earnings in order to fund the research and implementation regarding this plan.

*Comprehensive meetings with labour unions. Past issues regarding Coca-Cola Companys disregard for their labourers safety and security and the lack of proper compensation for any dangers their labourers may face in their line of work. An advantage of this is that the company would develop a better reputation regarding high regard they give to the safety, security and compensation of their employees which may in turn be spread to their employees local communities which may result to a higher patronization by the locals. A disadvantage of this is that the company may have to consider some compromises regarding their cost minimization. This may result to a temporary increase in expenses in order to have a more secure working environment and also to increase the wages of their employees and labourers.

*Assistance and funding for medical research

Coca-Cola has been thoroughly and extensively accused for making products with dangerous side effects for those who consume their products and they are even reputed to

withhold this kind of information from their customers. An advantage of this is that the companys image may improve exponentially by showing that they do care for the safety and health not only for their customers but also for the public in general. In turn, this may also help them manufacture products which are much safer for consumption of their customers. This in turn may result in a much wider market and a higher patronization caused by the fact that more people would recognize the fact that more people would recognize the fact that Coca-Cola Company is now making sure that their products are not dangerous to the health of their customers in any way. A greatest disadvantage that this decision may result to is inflation in the expenses incurred by the company and thus the deflation of profits which may then lead to losing a few short-term investors.

*Coordination with major distributors for development of local communities Coca-Cola isnt exactly one of those companies with the best reputation in the public. It even comes to a point wherein the entity has had conflicts in dealing with their major distributors. An advantage of this is that the company will be able to improve their relationships with their major distributors, they will also be able to improve their public relations by contributing to the community development in the form of corporate social responsibility and in addition, they will also incur less expenses in the commencement of these corporate social responsibility activities because these activities will be conducted with the help of distributors who will split the costs of these activities with the Coca-Cola Company. A disadvantage of this is that these activities may suddenly lead to a corporate dependence by these communities and if the company suddenly decides to shift the focus of community development, they may be seen as an entity which has simply abandoned their cause for the improvement of one community. Thus, small and gradual community development projects must be made and maintained or supervised regularly.

*Expansion of production and expansion operations to provide employment mostly for ethics in order to promote ethical diversity.

There have been some accusations in the past that Coca-Cola Company being involved in racist activities in the nature of unfair compensation for those labourers with ethnic backgrounds. An advantage of this is that not only will they be able to conclusively negate the past accusations regarding the racist nature of the company, they will also be providing

numerous jobs for ethnic people and create a better image for them as an entity which cares about raising the quality of life available for the general public but also for the members of the ethnic minority groups. A disadvantage of this is that the company may have some trouble finding people with an ethnic background who are fully trained in order to fulfil the roles of a new business segment and may therefore have to shoulder the costs of training these people in order to fully function in their jobs.

*Compliance with the Sarbanes-Oxley Act. The Sarbanes-Oxley Act is a legislation from the United States Governments Legislative division which aims to protect the interests of the investors through the proper disclosure of certain internal, material information to the investors which may be a factor in their decisions whether to hold, buy or sell products. It is also the legislation which recommends but does not require the separation of the roles of CEO and Chairman of the Board in order to avoid instances of conflicts of interest. This will result to changing the image of Coca-Cola in a manner which they will seem to be a more transparent company which has nothing to hide from its investors, thus, making them much more trustworthy from the perspective of both existing and potential investors. But this may also require them to disclose more information which may lead to the loss of investors but in the future, these investors may be expected to return due to a new found trust in the company resulting from the fact that they now disclose all bits of information necessary for their investors to make better decisions.

V. Decision/Recommendation/Best Solution

The most crucial part for a company who is facing numerous setbacks is to come up with the best solution that is enough to suffice the needed remedies for several small problems or for their one major problem. Other than that, the chosen solution must be thoroughly evaluated if the cost of implementation would be adequate to provide the desired results or reparations of the conflict/s being addressed upon.

Of the enumerated alternative courses of action, the best one which will be most appropriate and most beneficial for the problems faced by the Coca-Cola Company regarding their public relations is the 4th course of action enumerated above, namely: Coordination with major distributors for development of local communities. This course of action is in its nature,

an act of corporate social responsibility. In addition, we also would like to advise the company to comply with the provisions found in the Sarbanes-Oxley Act. These two will inevitably cause the public image and relations of the Coca-Cola Company from the perspective not only of their customers, distributors and other health agencies, but also will help them to regain the trust of their current investors and gain the confidence of future potential investors.

The different programs of corporate social responsibility will help Coca-Cola create an image which ensures the general public that they are also doing their part in the development of the community and that they are not only concerned with the profit-making of the business, the protection of the investors and the expansion of the company and its operations but that it is also concerned with making the community in which it operates, a more developed community which offers a better quality of life.

The compliance, on the other hand, with the Sarbanes-Oxley act will give the Coca-Cola company an image of transparency which will show their investors that they are not only out to get their money and to use it for the survival of the company (as was the case for Lehman Brothers and the American Insurance Group which was granted trillions of government bail-out money which was instead used not to make the company survive but rather also be considerate on what methods they use to attain profitability., to pay of the officers of the company). We must develop an image which portrays the fact that we are also concerned with making sure that the investors money is being put to proper use and that they will also benefit from these operations, showing them that we have absolutely nothing to hide from them simply because we are also concerned for their security.

VI. Implementation/Course of Actions

In order to complete the process of decision making, the company should implement the best course of action chosen that will be most appropriate and most beneficial. The proper implementation of the alternative will be vital in order to solve the challenges faced by the company.

The best alternative that will be the most appropriate and most beneficial to the company is the implementation of the alternative namely: Coordination with major distributors for

development of local communities. This can be implemented by having different programs and activities that will have the participation of the public with the help of its distributors. Some of these activities are fun runs, scholarship grants to less fortunate families, feeding programs for the malnourished children and having sports clinics. In addition, the company, with the help of local authorities, could address the issues they face regarding waste management.

These activities are great stepping stones to further strengthen the relationship between the company and their distributors by involving the latter in the activities of the company, creating an opportunity to regain the trust and confidence between the two. Also, the sense of Corporate Social Responsibility would be felt by the beneficiaries of the activities, conducted by the partnership of Coca-Cola and its distributors, thereby, increasing patronage of its current customers. This is also a pathway to gain new customers and investors, for the partnership would be able to showcase an image that is made of compliance, selflessness and sensitivity.

Aside from this, we also would recommend that the company comply with some of the provisions which may be found in the Sarbanes-Oxley act such as the stricter externality of the auditors in order to ensure that the decisions made by the auditors in approving or rejecting the financial statements made by the management are not influenced by the fact that the auditors are employed by the company.

We would also recommend that in further compliance with the Sarbanes-Oxley legislation, the firm may take further steps in the auditing such as actually showing the very projects and operations from which the company earns the profits and from which the company incurs expenses. Also, the further auditing for the acquisition and disposition of assets and the auditing of the liabilities whether or not they are factual in order to show the investors that the management makis it a point to represent faithfully all pieces of financial information which are material.

VII. Conclusion

The business practices and the application of business ethics of a company, whether it is big or small, is a great factor that affects the outlook of the public towards any specified enterprise and thus will affect their image, identity, reputation and eventually, their relations. Even though businesses are usually created to generate profit, it must give way to fortifying its

sense of responsibility to the public, for this is a determining factor that affects the principle of going concern, which is mainly concerned with the life expectancy of a firm.

Any wrongdoing or mishap concerning the business should be addressed with swiftness and full-cooperation, so as not to further create any element of doubt and uncertainty with the other parties who are directly associated with the company. Failure to do so is detrimental to the reputation of a company.

Proper business practices must also be reminded to each and everyone in the company, whether towards their co-workers, their partners or their customers. Every individual of the company is a representative of the company. Any misconduct committed by any individual of the company could greatly affect the whole system.