f Part Comprehensive Cases Case 1 - Coca-Cola’ Business Practices: Facing | the Heat ina Few Countries _. The Unters of Michigan has sid is commited o working ony wih companies that have chica and responsible plates yet the Coca-Cola Company tin obvious van of thse standards Coce-Col neds 1o be accountable for their actions, and unl they are, we demand that they are taken off our campus. We refuse to support businesses that are unable to promote basic human rights amongst their employees and the public! Krusty Pury, The Coke Coalition, University of Michigan, in 2005 Coca-Cola isa frequent violator of union rights and that’s why several universities in the United States have decided to protest their conduct2 Fasio Anas, Vice President, CUT Trade Union Confederation, Colombia, in 2006 itis very unfortunate. The actual volume in terms ‘of sales is small but its the larger issue of our reputation. These allegations are\false but we do share the concerns with issues INTRODUCTION From January 1, 2006, the University of Michigan in the United States put on hold the sale of the products of The Coca-Cola Company (Coca-Cola) in all its campuses, thus becoming the tenth US. university to do so. The ban ‘was the outcome of a relentless campaign by student activists and trade union groups, who accused Coca-Cola of violent labor practices in Colombia and of creating environmental problems in India. ‘©2006 ICAI Center for Management Rescarch. All rights rescrved. No art of this publication may be reprodiced, sored in a retrieval system, used in a spreadsheet, or transite in any form or by any ‘eans—elecronis or mechanical without permission, ‘To order copies, call 091-40-2343-0462153 or write to ICEAL Center for Management Research, Plot $49, Nagarjuna Hills, Hyderabad S00 082, Inia or email iemr@icfai org. Web ste: ve iemrinis oe ‘Tiscase was writen by Soorya Tejomoortula under the direction of Rajiv Fernando, ICFAI Center for Management Research (ICMR). I is intended to be used as a basis for class ‘usin ater thn tls either eetve or ineffective andling of a management situation. Iwas compiled from Published sources "Students campaign to ban Coca-Cola products on campuses” ‘onwindiaresoures ong, Api 19,2005, Colombian workers support US. universities’ ban on Coca-Cola” ‘Nora timesleade.com, Janay 02,25, ‘Univ in US to tess Cea-Cola" wonfnanalexpressom, nua 2, 9 Kari Boris, Spokeswoman for the Coca-Cola Company, in 2006 ‘University of Michigan issued the orders for the ban based on the recommendation of its University Dispute Board. This was following the inability of Coca-Cola to meet the deadline of December 31, 2005, that required agrecing on a protocol on the findings of the commission formed by a set of universities in the United States. The commission had offered to investigate the company's labor practices and that of its bottlers in Colombia. Coca-Cola did not want the findings of the commission to have any Jegal consequences but the attorneys in an earlier lawsuit against Coca-Cola and its bottlers in Colombia insisted that the findings should be legally admissible in court of Jaw in the US. Other prominent U.S, universities that had banned Coca-Cola on similar grounds were the New York University, the largest private university in the United States; Rutgers University in New Jersey; and the Santa Clara University in California. The University of Michigan and The New York University were Coca- Gola’s largest campus markets in the United States. Coca-Cola's annual contracts with the Universi Michigan, which had over 50,000 students, were worth aroundtUSS1.4 million in sates in 2005, ‘The campaign by student activists and trade union ‘groups to ban Coca-Cola had been going on for several ‘years indifferent countries Coca-Cola was accused, along with its bottling partners, of hiring paramilitary death squads in Colombia to kidnap, intimidate, or kill ts union leaders and other workers at its bottling plants. Since60 PARTI Comprehensive Cases 1989, approximately eight union leaders of Coca-Cola's, plants in Colombia had been murdered and many others abducted and tortured. In India, Coca-Cola had to face opposition from the local people around its factory in Plachimada, Kerala.* who charged that the company was responsible for the “raining” of the-underground water table. In 2003, a BBC* report revealed that Coca-Cola was distributing improperly treated sludge containing toxic carcinogens and heavy metals such as cadmium and lead, as fertilizer to farmersin the region, Coca-Cola shut down this plant . in Mareh 2004 owing to mounting pressure. The com- pany then decided to shift its operations to a nearby industrial zone, the Kanjikode Industrial Area. ‘There were also protests at Coca-Cola's Mehdiganj plant in North India over similar issues. In addition to these accusations, in 2003 the Center for Science and Environment (CSE)® made public the findings of its study wherein it reported that the products of both Coca-Cola and PepsiCo Inc. (Pepsi) that were sold in India contained a cocktail of harmful pesticide residues. In an official statement, Coca-Cola denied that it had used death squads in Colombia. The company said that two judicial investigations in the country had not found any evidence in support of such allegations. Coca- Cola also claimed that there was no evidence linking it or its bottlers with the groundwater problems at its fac- tory locations in India. Responding tothe allegation that its products contained pesticide residues, it said that the products that it sold in India were perfectly safe and were in accordance with global quality standards, ‘Over the years, Coca-Cola, one of the largest non- alcoholic beverage companies and the world’s most widely recognized brand, had been facing a string of problems that could seriously damage its brand image. ‘The company had also faced allegations related to anti- competitive business practices in Mexico and had to pay heavy fines and penalties BACKGROUND NOTE, ‘The Coca-Cola drink, popularly referred to as “Coke,” isa kind of cola,a sweet carbonated! drink containing caramel® and other flavoring agents. It was invented by Dr. John ‘Smith Pemberton (Pemberton) on May 8,1886,at Atlanta, Georgia, The beverage was named Coca-Cola because at ral isa state in the southern part of India ‘The British Broadcasting Corporation (BBC) ia publicly funded radio and television broadcasting corporation ofthe United Kingdom. (Source: hapfen. wikipedia ore/wik/BBC) Center for Science and Environment (CSE) is independent, 0 ‘governmental rgenization that aims to increase public awareness on Science, technology envionment, and development. CSE was estab- Iished in 1980 and is based in New Deli, "Carbonation, which involves disol¥ing carbon donde used in aqueous solutions ike soft drinks to make then effervescent. Caramel isa food that has a brown color and a sweet tossed flavor (Caramel eat be made rom supa by heating slowly to around 170°C. that time it contained extracts of coca leaves and kola nuts? Frank M. Robinson (Robinson), Pembertons bookkeeper and pariner who came up wit the name forthe drink, sug ested that tbe spelled Coca-Cola rather than Coca-Kola because he thought the two Cs would look better while aivertising. Robinson designed the now world famous Coca-Cola trademark aswel Pemberton later sold the business toa group of bust nessmen, one of whom wes Griggs Candler (Candler), By 1888, several forms of Coca-Cola were in the market competing against each other. Candler acquied these businesses from the other businessmen and established The Coca-Cola Company in 1892, He aggressively mar- keted the product through advertising, distribution of coupoas and souvenirs, and promoted the brand name Coca-Cola. Sales grew rapidly. and by 1895 the product was being sold actos the United States In the initial years, Coca-Cola was sold through soda fountains!” wherein the Coca-Cola syrup, carbon dioxide, and water were mixed and given to customers. Jn 1894, fountain seller named Toseph A. Biedenharn introduced the concept of selling the prepared drink in boitles. He thus beeame the first bottler for Coca-Cola. Yin 1899, large-scale botling of Coca-Cola began when Benjamin ‘Thomas and Joseph Whitehead won a contract from Candler to sell Coca-Cola throughout ‘America in bots They started sibeontractng the task of botling and distribution, which led to easy availabil- ity and rapid growth of sales. The Coca-Cola bottling system grew to become one ofthe largest, widest pro- duction and distributions networks inthe world oweverthe rapid increase of Coca-Cola's poplaity Jed to many counterfeits flooding the market, and Cocs- Cola had to spend huge sums of money on educating its customers on how to recognize the genuine product ‘The company realized that ft needed a uniquely designed bottle tha the customer would instantly recognize. In 1916, the hobble-skirt desin bottle was designed by Root Glass ‘Company, Indiana,!! and was approved by the bottlers (Refer to Exhibit fr a photograph of the hobble-skirt design bottle). The design of the bottle was so distinctive that it would be instantly recognizable as a Coca-Cola bole by the customer even twas felt in the dark ori the bottle was broken, The design of the Coca-Cola botle became as famous as the Coca-Cola trademark. Tn 1919, a group of investors headed by Emest Woodruff and W. C, Bradley purchased Coca-Cola for US$25 milion, In 1923, Robert Winship. Woodruff (Woodruff) ,son of Emest Woodruff, was elected company. The Kola nut asa bitter flavor and high caffeine content,and is primarily obtained from some West African or Indonesian trees "pico soda fountain refered to sd shops and the part of seustre (pharmacy) where sodas cream, sundaes hot beverages bed ‘everaes aed goods and ight meals were prepared and served. Now ‘he tem ees tthe eubonid rink dispensers found in ast fod ‘restaurants and convenience sre ia the United States and Canad "pana i LIS. state with Indianapolis asthe eapitalCASE | EXHIBITT HobbleSkin Design Bove SOURCE: htpuhinwwcbrandinecomfimages president. He was widely credited with making Coca-Cola ‘one of the world’s most recognized brands and a mulfina- tional company with huge revenues and profits Woodrufl believed in product quality and started “Quality Drink” campaign wing a staf of highly tained service people The tain focus ofthe campaign was to encourage and assist fountain outlets in aggressively sling and corectly ser- ing Coca-Cola, To make the cmpaign more successful @ distinctive bell-shaped fountain glass was introduced along the lines of the popular Coca-Cola bot This design also became very famous (Refer to Exhibit I fora photograph Of the bell shaped fountain glass), In 1933, Coca-Cola Introduced automatic fountain dispensers that automat cally prepared the finshed drink Woodruff als initiated steps to inerease sale of Co olan botes With the assistance ofthe bottlers he estab lished quality standards for every phase of bottling ‘Advertsing and marketing support was als inereased and by the end of 1928, Coca-Cola's bot sles exceeded foun- {ain sales for the first time Tnovative merchandising con- =pis wore introduced for bottles, Sicbottle cardboard cartons were introduced to make it easier forthe consumer to take Coca-Cola home, A metal, open-top cooler was introduced to serve ice-chilled Coca-Cola at retail outlets. The coolers were later modified and became self-operated Automatic eoin control machines. They were installed At factories, offices railway stations and other institutions. Under Woodruff leadership Coct-Cola took several initiatives to expand rapidly info international markets Earlier, Coca-Cola's international operations had not been properly organized. In 1926, Woodrufl established the Foreign Department to organize the international perations: his later became a subsidiary Known as The (Coca-Cola's Business Practices: Facing thé Heat in a Few Countries “61 EXHIBITIT al Shaped Fountain Gla SOURCE: pswingersinfoimensiCoke Coca-Cola Export Corporation. Coca-Cola sponsored the Amsterdam Olympie Games in 1928 to promote its prod- Ut in other countries From then on, it regularly sponsored. the Olympic Games. During the World War Il, there was difficulty in shipping the Coca-Cola syrup to Germany. This led to the birth of the brand Fanta in Germany, which was manufactured locally: Coca-Cola also positioned itself as an American drink when it supplied Coca-Cola for a nominal price of five cents to American soldiers during the war and later identified with the American way of life. World War II also provided an ideal platform for Coca-Cola to expand to other countries by setting up bottling plants to serve the American soldiers stationed there, After the war, these lants were used to establish its operations in those countries. The period 1940 to 1970 was one of rapid interna- tional growth, and Coca-Cola became a symbol of friendli- ness and refreshufent across the world. In 1955, Coca-Cola bbecame the first company to introduce the sale of the soft drinks in metal tins a concept originally developed for the American soldiers. In 1960, Coca-Cola acquired the ‘Minute Maid Corporation to add fruit juices to its product portfolio. In 1977, PET (Polyethylene Terephthalate) !2 bottles were introduced, During this time, the company also introduced various brands like Sprite and TAB, which ‘went on to become bestselling soft drink brands. In 1980, Roberto Goizueta™? became the Chairman and CEO of Coca-Cola. Business analysts described him as ‘(olyetiyene terephthalate) ia thermoplastic resin ofthe poly «ster family that is used to make beverage, food and her Lai contin ers syntheticiber; a5 well as for some ether thermoforming applications Roberto C Goizact,a Cuban inangrant, hd work up the rnks at (Coc Cola an wasits Chain and CEO rom 1980 to 197, Under his leadership, Coa-Colr' stock value increased by more than 7.2 percent:@ - PARTI Comprehensive Cases ‘2 man with a global vision and credited him with taking steps that made Coce-Cola popular across the world. Tn 1985, Coca-Cola changed its old formula to make is prod: uct taste sweeter and t0 compete more effectively with Pepsi. This new formula was launched with a lt of publicity and was marketed asthe “New Coca-Cola.” However, the new product waa commercial failure and was described as ‘one of the biggest marketing blunders ever. Customers were vociferous in their demand for the original taste and demonstrations were held agains the company. Coca- Cola reintroduced the Classic." In 1982, ‘Diet Coke” was introduced as a low- calorie soft drink for health-conscious customers. In 1986, oca-Cola merged the company-owned distr- bution network with two large ownership groups that were for sale—the John T: Lupton franchises and BCI Holding Corporation's bottling holdings~to form an independent entity, Coca-Cola Enterprises Ine. (CCE). CCE, which mainly operated in America and Europe, distributed two billion physical eases of produets, representing 21 percent of Coca-Cola's volume worldwide, in 2004, The total revenues of CCE for the same year were USSI8 billion In 2005, Coca-Cola had operations in over 200 coun- tries selling more than 400 brands in categories like packaged drinking water, coffees, juices, sports drinks, and teas, apart from its main soft drink products. The company owned four of the top five soft drink brands in the world, Coca-Cola, Diet Coke, Fanta, and Sprite. It also had other popular brands like Bara's, Fruitopia, Minute Maid, POWERade, and Dasani water. Coca-Cola had became one of the biggest beverage ‘companies in the world by 2005, selling around 1.3 billion bevefage servings per day. The main reasons for Coca- Colas enormous sucess were its advertising campaigns (efer to Exhibit IN for a list of popular advertising slogans of Coca-Cola) and its massive production and distribution operations spread across the world (Reefer to Exhibit IV for brief financial information). COCA-COLA'S BUSINESS PRACTICES, ‘Coca-Cola had always believed that it conducted its busi- ness with responsibility and ethics. The company’s business practices were aimed at creating value at the marketplace, providing excellent working conditions, protecting the environment, and strengthening the communities in (SE Teac A ae sO IOUT Ci USS December 31, 2005 23,104 14309 6085 491 EXHIBIT HIT | Poplar Advertsing Slogans of Coca-Cola Drink Coea-Cols Pause that Refreshes es the Refreshing Thing to Do es che Real Thing Global High Sign Sign of Good Taste Be Really Refreshed Go Better Refreshed ‘Things Go Better with Coke’ Jes the Real Thing (revived from 1942) {Like to Buy the World a Coke Have a Coie and 3 Smile We've Got Taste for You (New Coke) ‘Amerex’s Real Cholee (Coca-Cola Classic) Always Coca-Cola ™ Enjoy Cocs-Cola Life Tastes Good Make fe Real Note:The lit is nt exhaustive Compiled from various sources the places of operation. Commitment to quality anda code of business conduct were evolved to ensure good business practices. ‘According to Coca-Cola, its commitment to quality was reflected in every facet of its business. These included commitment to product quality, quality in busi ness processes, and in its relationships with suppliers and retailers. The quality system was reviewed constantly so that the performance bar for these standards was always kept high. The quality guidelines were communicated to all business units and their implementation reviewed ‘The company introduced the Coca-Cola Quality (TCCQS) to achieve these quality objectives (Refer to Exhibit V for details on TCCQS). Coca-Cola prepared a code of business conduct for all its employees that incorporated the company’s core values such as honesty, integrity, diversity, quality, respect, responsibility, and accountability. The code of stem ion) Deceiber31,2004 December 31,2003, 21,044 M4304 13282 5698 5221 4347 4g47 Compiled trom various resourcesCASE 1 Coca-Cola's Business Practices: EXHIBITV The Coca-Cola Quality Sysiem (TOCQS) oe ing the Heat ina Few Countries “63 The Cocs-Cola Quality Stem (TCCQS) was developed bya global cam of profesional and approved by the fenior management ‘of top franchise boring partners. The quality system reflected che integrated approach to managing quality the environment. and heath and safet-The system formed the guiding principles encompassing al the business processes and activities, helped the manage- rant in decision maling.and drove the company toward continuous improvement and qual. Based on che quality system, fur guideline BBoks wore published in the key areas of quai, esvironment safety. and suppliers. They ‘were Qualiy Management System Standard, Enwiennental Mangement Stem Standard, Softy Management System Standard. and Supplier Expectations. TQS was found to be on a par with SO in quality standards (SO 900|:2000) environmental standards (SO .14001:1996) and occupational health and safety standards (OHSAS 18001:1995) Peo “The quality system was constant revised to meet the ltost and most striagen food and safety regulations Including the Glos Food Safety Inidatve!*(GFSI) Guidance Document. Coca-Cola believe inthe promise of refreshing and benefiting the customers and strove to keap up this promise chrough the Qualy Sytem, ss £ SOURCE: Adapted from www2.coee-colacom, business conduct was uniform for all the company’s value of this brand had been built over a century by the ‘operations across the world and it clearly defined poli- commitment and integrity of its employees (Refer to cies and procedures to help employees handle various Exhibit VIfor Coca-Cola's code of business conduct). contingencies. Coca-Cola believed that the company’s Coca-Cola aso laid out extensive policies and proce- ‘most valuable asset wasits trademark brand and that the dures with respect to labor relations The company’s policy 7 vas to comply with all applicable labor and employment Jaws of the countries in which it operated. In its bor poli cies, the company said that it respected the workplace human rights ofits employees in accordance with interna- ‘Goca. Cola considered ies employees to be the represenaae | tional lor standards The company was also committed to tives ofthe company ad expected thom to acz with honesty | its employees’ right to form unions and thei right to join and integrity in all ye matters percaining to the company. the union or not, The company said that it ensured these The cade of conduct covered various sipects sich a5: 77 | sot were exercised without far of retaliation, repression, Employee responses ‘of any other foom of discrimination from the management. 1 Conficts of ierest Coca-Cola also believed that any disputes relating Bf Fencal records to labor relations were best solved inthe place of origin Use of company asexs ‘Through experience, it had learnt that labor relations 1 Working with curtomers and suppliers ‘Were matfers that were best handled at the place of ori- (PERIMBIT VI Coss. Cola Code of Business Candee fl ‘Working with governments | gin because the best capability and knowledge to man- 1H Protecting information | age such issues existed at that level. However, any loeal A Administration of code issues having broader implications (both nationally and Employees were encouraged to ask fr guidance when in doube. | internationally), would be reviewed at the higher man- ‘on issues relating tothe code of business conducrethsand | agement levels depending on the merit of the case. ‘ompllance matters and to report possible violations The com. However, while Coca-Cola held that it was completely any created an exclusive Internet Web ste, wwrwKOethiscom, | committed to ethical practices, there were several moder- and had an inerraorl tle lephone number for guance Sd reporting of uch ssuee The company arranged for ans | frsor employees who could not speak English over the pro- vided ilephone ine The employes abo had the choice of Feaning srommou na were required Ruagecens festa eben coaice ate to severe allegations made against it regarding trade practices and labor relations over the years. The allega tions about Coca-Cola's business practices ranged from 2 ‘monopolistic and anti-competitive trade practices, discrim- res of bu pe inatory employment practices, depletion of groundwater ‘Managers had the primary responsiblity to maintain the“) tabtes and environmental pollution. In 2008, the campaign ade of conduct inthe company. Managers had to understand the x See cones ind bast oeael aaoaN TERE against Coca-Cola's business practices became intensified jet an ions f any employee ‘iolute the code of conduct wih the knowledge of tee marager, | with more student activists, labor unions, and environmen- Aen both would be held equly responsi forthe ofencs. tal organizations actively supporting a campaign to ban 2 Coca-Cola's products at various colleges, schools, and SOURCE: Adapted from www7.coc-colacom. organizations in Europe and North America. in April 2000, group of international retsiler CEOs identifi the ‘ced t0 enhance food safety ensure consumer protection, and LABOR PRACTICES IN COLOMBIA strengthen consumer confidence sot quirements fr fondsafety Sea schemes and to improve cost efficiency throughout the foodsupply Colombia is widely considered as one of the most dan- ‘tin. Following thir lead, the Global Food Saety Initiative (GSI) _-B6TOUS countries in the world for trade union activists was launched in May 2000 and union leaders. The country was in the midst of a64 PARTI ive Cases Comprche four-decade-old civil war involving leftist guerrillas > right-wing paramilitary groups! and_ government forces. The civil war claimed approximately three thou- sand lives a year, including those of many trade union leaders and workers. It was reported that in 2000, three ‘out of every five trade unionists killed in the world were from Colombia. In 2001, SINALTRAINAL” a Colombian labor union, charged that Coca-Cola and its bottlers Panamerican Beverages (Panamaco), Bebidas y Alimentos De Uraba, and Coca-Cola Femsa were linked to the violence against its union members in Colombia. Around eight union leaders of Coca-Cola's plants in Colombia had been murdered since 1989, and many others had been abducted and tortured. Coca-Cola was accused of hiring para nillitary death squads to kidnap, torture, or kill union leaders and intimidate worker union aetiviss tits botling plants. Of the total of eight murders, four occurred atthe bot- ting plant Bebidas y Alimentos De Uraba in Carepa City between 1995 and 1996, Of these four, the most widely publicized was the killing of Isidro Segundo Gil (Isidro. a member of the union executive board, on December 5, 1996, at the entrance of the plant. It was alleged that after killing Isidro, paramilitary squads kidnapped another union leader from his home and torched the union offices. Ii was further alleged that the following day the paramilitary squads returned to the plant and mace the workers sign a statement on Coca-Cola letterhead that they were resigning from their membership of the union. The workers were given a deadline and threatened with dire consequences if they refused to sign. The union ‘members alleged that since they had no choice, most of them resigned on the spot. It was furthet said that some members quit their jobs and fled to other cities fearing for their ives. Another allegation was thatthe then pres- ident of the union had been summoned by the plant ‘manager and, in the presence of paramilitary men, asked to leave the city along with other union leaders, SINALTRAINAL charged that apart from these eight killings, 48 members had been forced into hiding and 65 members had received death threats. In 1995, five union members working in a Coca-Cola plant at the city of Bucaramanga were jailed for six months on charges of terrorism. They were accused of planting an explosive device in the factory. However, these charges could not be proved and were later dropped for lack of evidence. ‘The trade union also alleged that the bottlers were systematically targeting permanent workers so that they ‘SLeftstguerrils were armed groups with socialistic ideologies waging a war agains the Colombian government epight wing paramilitary groups were armed groups supporting ‘spitalistic ideolopies opposing leftist guerillas ‘Sindieato Nacional de Trabajadores Ge Indstrias Alimenticis (SINALTRAINAL) ithe National Food Workers Union, which represents Coca-Cola employees in Calum. could be replaced by contract workers, who would do more work for lower wages. In January 2004, a New York City Fact-Findi Delegation! went ro Colombia to verify these allegations, The delegation concluded that Coca-Cola's involvement inthe violation of human rights and labgy rights could not bbe excluded. The report estimated that there had been 179 major human rights violations of Coca-Cola's workers including the murders. Union members and their family ‘members had been kidnapped and tortured; workers had been fired for attending union meetings: many had been asked to denounce their legal rights According to the report, the violence and intimida- tion had occurred with the knowledge or under the directions of the company’s managers at the bottling plants. The paramilitary groups had had free access to the plants and had cordial relations withthe plant man- agers. The report said that Coca-Cola's Colombian ma agers had admitted that they had never investigated the relationship between the plant managers of their local bottlers and paramilitary groups in spite of so many complaints and allegations. The report concluded that this lack of action on Coca-Cola's part clearly showed the company’s utter disregard for human rights and the well-being of its labor personnel in Colombia, TRADE PRACTICES IN MEXICO. Mexico was an important market for Coca-Cola as the ‘country was second, after the United States in terms of per capita. consumption of soft drinks in the world ‘The Mexican market for soft drinks was estimated at US$6. billion for the year 2004. Over the years, some of the highest profit margins for Coca-Cola in its overseas operations came from Mexico, Coca-Cola was the number ‘one eller of soft drinks in Mexico, with a 70 percent market share. Coca-Cola’ largest bottler in Mexico was Coca-Cola Femsa (CCF), in which Coca-Cola had a 40 percent stake. Itsstock was listed on the New York Stock Exchange. The chief competitor for Coca-Cola in Mexico was Pepsi. However, Coca-Cola also faced stiff, competition from Big Cola, a beverage manufactured by the Ajesroup."? Big Cola was priced very low when com- pared to the price of Coca-Cola. This low-pricing strat ‘egy made a big impact on the Mexican soft drink market because half the population was poor and had low pur- chasing power. By 2004, it was estimated that Big Cola had cornered around 5 percent of the market and was ‘growing rapidly. To counter Big Colas rising popularity, Taary 2004, New York City Council Member Hiram Monserrat and delegation of tion workers aswell stent. ‘community acts traveled to Colombia t invest allegations aint Coca Coa "Ajegroup, privately hell company hase in Pry is involved inthe beverage husiness 4CASE Coca-Cola resorted to lowerin, fallin its profit margins. twas alleged that CCF resorted to monopolistic and anti-competitive trade practices to deal with the threat of Big Cola. Small retail operators were warned to stock its prices, which led to a and sell aaly Coca-Cola's products. Failure to. do so estimated that every day, 15 million liters of ground would result in supplies being stopped. These retailers ‘would also stand to lose freebies like refrigerators and other gilts that they otherwise received. Operators who did not heed these warnings were lured to exchange theit Big Cola stock for Coca-Cola. CCF was accused of insult- ing Big Cola and its customers, most of whom belonged to the poorer sections, with advertisements like, “You are not ugly, you have personality, drink Coca-Cola," CCF was also accused of bribing local government offi- cials with gifts to get permissions for setting up bottling plants. ‘On July 4,2005, the Federal Competition Commission, (FCC) in Mexico charged Coca-Cola and its bottlers for violation of anti-monopoly laws and indulging in anti- ‘competitive business practices. Fines of US§15 million and 'USS5S million were imposed in two separate cases, which amounted {0 one of the largest fines ever imposed in Mexico. The USS15 million fine was imposed in response to a complaint by a small retail operator, Raquel Chavez (Raquel), when Coca-Cola refused to sell her its products because she was selling Big Cola’s products FCC investi- gated her complaint and found evidence in similai main pesticides found were Lindane>* DDT Malathion2" and Chlorpyriphos2” It was believed that the use of groundwater which had high pesticide residues and which had not been properly treated by the companies was the main reason for such high pesticide levels These residues could cause cancer, damage to the nervous and reproductive systems birth defects and severe disruption of the immune system in the long run, The same study concluded that no such residues were found in the Sage apunstCoce-Cola in Kerala” wwwamagore Seplmber 1, 200. the European Economic Commision ia branch of the governing body f the European Union (EU) possessing executive and some legislative powers I fs icated in Brussels Belgium, 2"Lindane san insetcide, which has heen banned in 52 counties cross the world ais believed o use gander SDDT (Dichlore-Diphenp-Tihloroethane) was the first modem pesticide ands tho most wellknown. alo believed to case cancer 2Malathion fan snsectcie wit relatively fow human toxicity Hoyevet-malathion beaks down, espésally n indoor vironment, into malsoxon, which is 6 tints more tone than malathion PCilrpyip hos tosic insecticide thai widely wed in pest conto.66 PARTI Comprehensive Cases EXHIBITVIT Osher Allegations Against Coca-Cola In 1998, Coca-Cola was accused of discriminating aginst Afsican- American employees in pay and promotions anda clas action race The International Labor Rights Fund (ILRF) established in 1986s an advocacy organization dedicated to achieving jas and humane treatment for workers worldwide, he Alien Tort Claims Act (ATCA) of 1789 grants jurisdiction to US. Federal Courts over “any civil action by an alien fora tort (reach of ei contract only commited in violation ofthe law of| nation or a treaty ofthe United States” Colombia but approved the charges against the local bot ters in Colombia. This prompted SINALTRAINAL to issue an inter- national appeal for the boyeott of Coca-Cola's products until it got justice in Colombia. On July 22,2003, a boy- cott campaign was started by major trade unions in Colombia and it was supported by the World Social Forum,® student activists, and other various social activist organizations around the world. The eal for the boycott attracted instant attention from student groups, trade unions, and other organizations all over the world In October 2003, in response to the boycott, the stu- dent union of the University of Dublin, the largest uni- versity in Ireland, decided to ban Coca-Cola's products from outlets that were controlled by it. An attempt by Coca-Cola to reverse the ban failed and the boyeott spread to other colleges Jike Trinity College and the National College of Art and Design. The Union of Students in Ireland, which represented 250,000 students, ihe Barger King Corporation a large international cain of fast-food ‘gtaurans predominantly sells hamburgers French rcs and soft aks ‘World Socal Forum isan annual meting against plobaliztion. tis «platform for information exchange on ant-lobalzation movements fan campaigns around the worldcasi 1 Coca-Cola's B passed a resolution (0 support the ban on Coca-Cola ‘After this, the Teachers’ Union of Ireland, the Irish National Teachers Organization, and a number of other trade unions und political organizations supported the boycott af Coca-Cola The call forthe boycott of Coca-Cola's products alo Tad a significant impact in England. In 2004, UNISON, the largest trade union in the United Kingdom, passed a resolution during its National Delegate Conference to Support the boycott. In March 2005, ECOSY.™ an organi- Zalion for young European socialists and a member of the federation of youth wings of all mainstream socialist and socal democratic parties in the European Union, voted to support the boycott following a motion tabled by the Trish Labor Youth delegation. In addition, a number of other trade unions and organizations joined the Coca-Cola boy- eat campaign, (Refer to Exhibit VILL fr a ist of organiza- tions that boycotted Coca-Cola.) _ England also witnessed an active student campaign to boycott Coca-Cola. The National Union of Students, which represented 750 unions, passed a resolution to verify the allegations against Coca-Cola in Colombia and India, The National Union of Students held a 25 percent stake in the procurement agency that had con- tracts with Coca-Cola; therefore the decision was signif- icant in monetary terms for the company. If these allegations were proved to be true, then Coca-Cola ‘Vi “List bf Orgsnizaions that Boveoted CocaCala dpe 4 Name of the Organization Membership UNISON (United Kingdom) ‘lion Seree Employees Inernational Union EIU) 17 milion Communications Workers of Amerie (CWA) 07 millon Areccan oss Workers Union (APU) 027 millon Labor Coun for Latin American Advancement (cian) 17 ition “American Federavon of Teachers (AFT) 13 milion inernatinal Longshore and Warehouse Union 096 millon Norther Iretnd Public Series Associaton Not Avalable SOURCE: Adapted fom wyewedveationnews orpforchrstmas ht, SONISON isthe largest trade union in the United Kingdom, wth, ‘ner L3 million members Iwas formed in 1993 by the merger of Aree previous public sector Wade unioas~the National and Local Government Officers Assocation (NALGO), the National Union of Public Empioyees (NUPE), andthe Confederation of Health Service Employees (COHSE), MECOSY or Youne European Soca is an association of socialist and socal democratic yotth organization in the European Union. I isthe youth arm ofthe Party of European Socialists (PES) and isa tember of the International Union of Socialist Youth (TUSY) based inBrusels, Belgium Jusiness Practices: Facing the Heat ina Few Countries 67 could be possibly banned from almost every college and university in England In May 2005, following agitations from student unions and other organizations, 12 universities in ‘America, including large universities such ss the University of Michigan, New York State University, Rutgers University, and Santa Carla University, formed a Commission and discussed the issue with Coca-Cola The Commission offered to investigate the allegations against Coca-Cola in Colombia, However. Coca-Cola and the Commission failed to reach an agreement on ‘whether the Commission's findings would be admissible in the earlier lawsuit against Coca-Cola in Florida, While Coca-Cola did not want the findings to be admissible, the plaintiffs of the lawsuit insisted that they should be admissible. Coca-Cola spokeswoman Kari Bjorhus said, Iuhough we have reached an impasse on the Commission's assessment protocol, we are exploring ‘other ways that we might be able 10 conduct an addi- tional credible, objective, andimpartial independent, third-party assessment in Colombia without incurring legal risks”"® The negotiations between the universities Commission and Coca-Cola reached a deadlock and hence Coca-Cola's products were banned from those universities in America The boycott of Coca-Cola also had an impact in ‘Canada, In October 2005, the students union of McMaster University voted to reject a renewal of the USS6 milion 4 year exclusive deal the university had with Coca-Cola, Coca-Cola sent senior executives for negotiations with the student union but they failed in the effort Similarly, students at the University of British Colombia, “University of Guelph, and Ryerson University started their campaign against Coca-Cola and were considering a boycott ‘Coca-Cola tried to contain the campaign by saying that it could lead to a loss of local jobs due to lack of demand, Kerry Kerr, public relations coordinator for Coca-Cola, said, “We're always concerned that these allegations could continue to spread. One of the main concerns, especially for our bottlers in areas like Canada, is that these boycotts are actually affecting ‘workers in the local area.” The City Council of Turin, Italy, took a controversial {decision when it approved a boycott of Coca-Cola products ‘The city of Turin hosted the February 2006 Winter Olympic games The decision created a controversy because Coca- Cola had donated US$10 milion to the Torino (Turin) ‘Olympic Committee and was the sponsor of these Games In another setback to Coca-Cola, the organizers of the Live 'SGversiy of Michigan gives Coca-Cola the boo, woillingsgazettcom, December 31,205, Colin Perkel-Coca Cola hits back as boyeot over alleged hum rights abuses gathers stan,” wwewicbe.ca, December 27,205,68 PARTI sive Cases Comps EXHIBIT IX Interbrand Top Ten Brand Rankings from 2001 0 2005, [Brand Name [Coca-Cola Microsoft Ie ce local Nokia Disney McDonalds Toyota Marboro {1 2008 2004 «200320022001 1 SOURCE: bwntbusinesweek con/trand2008 8 concerts pulled out of negotiations with the company ‘over sponsorship deals because of public opposition. Coca Cola was also banned from the Make Poverty History March® held at Edinburgh, Scotland, on July 2, 2005, attended by approximately 300,000 people. “The impact ofthese bans and boycotts on Coca-Cola in terms of sales and profits was very little when com- pared to its overall business revenues and profits. However the impact was far reater in terms of the com- pany’s brand image and public relations. Coca-Cola was, ‘one of the most widely recognized brands in the world and had been consistently ranked by Interbrand? as the number one brand in the world from 2001 to 2005. (Refer to Exhibit IX for the Interbrand top ten brand rankings from 2001 to 2005.) COCA-COLA'S RESPONSE Coca-Cola opened an exclusive Web site, wwwcokefacts org, to address these allegations, especially those related to Colombia and India. In an official statement featured ‘on the Web site, Coca-Cola claimed that the allegations against the business practices in Colombia were false. + ‘Two different judicial enquiries in Colombia, one by a Live Swasa series of concer that took place in July 2005 in the 8 nations and South Africa They Were timed to precede the GS Conference and Summit that ws held in Pertshie, Scotand, from July 6-8,2005. The objective of these concerts wast pressure world leaders to write off the debt ofthe worlds poorest nations increase andTimprove aid, and negotiate for fairer trade rules inthe interest of poorer counties. Ssake Poverty History March was «program organized by The Make Poverty History campaign The campaiga is «British and ish coalition of chaties religious groups, ade unions, campaigning {groups and celebrities committed 1 increasing awareness and pres ‘uring governments nto taking action o alleviate poverty Pinterband ia company dedicated! 0 identifying building. nd ‘expresing the right idea fora brand. The company was established in 1974.1 London ands now headquartered in New York Colombian court and the other by the Colombia Attorney General, had found no evidence against Coca- Cola or its bottiers linking them to the murders of the union members. Coca-Cola also quoted a judgment in the lawsuit in Miami, Florida,*? wherein the judge had dismissed the charges against Coca-Cola, Columbia. A workplace assessment condueted-in-Cotombia by-Cal Safety Compliance Corporation, a respected, indepen- dent third-party assessor, too had found no instances of anti-union violence oF intimidation at the bottling plants ‘Coca-Cola and its bottlers conducted an internal inves tigation and said that they found no evidence regarding the allegations The company claimed that on the contrary, the bottles enjoyed normal relations with 12 separate unions in Colombia and had collective bargaining agreements in place with all the unions that covered wages, benefits, and working conditions. The local bottlers were working along with local unions and the Colombian government for the workers’ safety and uplift. They provided transportation to and from work to any worker who felt unsafe. The bottlers ‘were providing loans for seeure housing ofthe workers and increasing the security of union offices. Employees were also given paid cellular phones for emergeney use and were protected from shift and job changes with legal aid, ‘The Colombian Vice President, Francisco Santos, who was in charge of improving the government’s human rights record, including investigating cases of violence against trade union activists, said, “This (SINALTRAINAL vs, Coca.Cola) is not a labor union fight, it's a politica fight. You can’t justify the death of a union leader. (But) they took a myth and built a campaign out of it. They found a model that works, and they've been very successful at (promoting) it They've been able to build this (martyr- dom) image." He declared that the government was committed to investigating and stopping the killings of the Tabor union leaders. “We know there are problems, we're trying to solve them. It’s not as easy to get away with killing a labor leader as it was five years ago. But we're (tll) not satisfied at all with the results Coca-Cola also rejected the allegations made against it of monopolistic business practices and anti- competitive trade practices in Mexico. The company said that it would appeal to a higher authority against the fines imposed by the FCC. Company spokesman Charlie Sutlive said, “As we stated before, we respect the deci- sions. However, we have used the appeal processes open. to us to present arguments that our business practices ‘WForda ea state in the Southeastern region ofthe United States. ‘cal Safety Compliance Corporation (CSCC), based in Los Angels, isa global provider of socaly responsible supply cain coasting, services which include monitoring taining and education, program evelopment and management, and research eapabiites The ‘company bas operations 110 counties Geri Smith, Inside Coca-Cola’ labor struggles swarbusnesineek com, Jamar’ 23,2006 “SG Smith “side Coca-Cola’ labor strug swabusneseek com, Janey’ 23,2006| | CASE 1 comply with Mexican competition laws, and to demon- strate that our commercial practices are fair ~ In another official statement, Coca-Cola rebutted the ‘charges against its bottling plant at Plachimada, Kerala, ‘The company said the plant was not responsible for the depletion of the underground water table. The company quoted a study conducted in October 2002 by Dr. RIN. ‘Athvale, emeritus sciemtist at the National Geophysical Research Institute (NGRI),* which concluded that there ‘was no field evidence of overexploitation of the ground- water reserves in the area surrounding the plant. The report added that any underground depletion could not be attributed to the water extraction in the plant area, Coca-Cola also quoted another report prepared by the Palakkad District Environmental Protection Council and Guidance Society in June 2002, The report had coneluded that the factory did not cause any environmental damage at any level. A report prepared by the Kerala State Groundwater Department too had rejected these allega- tions and attributed the depletion to a deerease in rainfall ‘over the years Coca-Cola claimed that the plant hadl estab- lished an advanced system for rain water harvesting 10 replenish the under groundwater table atthe plant. ‘The company also rejected the allegation that its, factory had released untreated industrial effluents, Coca-Cola stated that the technology used for waste- water treatment at the plant was among the most advanced in the world, equivalent to the technology used at its bottling plants in America and Europe. ‘Moreover, the procedures for treatment and discharge of effluents complied with the standards and norms set by the Kerala State Pollution Control Board (KSPCB), PERSE Act Wonty Gecccab int Coca-Cola's Business Practic ing the Heatina Few Countries 69) In response to the allegations that it supplied toxic sludge to farmers as fertilizer, Coca-Cola said that the dry sediment slurry waste or sludge, a by-product of its ‘operations. was not harmful. The sludge was made up of organic and inorganic material that would not contami: nate the land. The sludge was wsed around the world, luding by Coca-Cola, as a soil enhancer. The genera ‘ion of sludge in all the company’s plants was monitored for composition and was disposed of properly. Further, the KSPCB had concluded in a detailed study that the ‘concentration of cadmium and other heavy metals in the sludge were below prescribed limits and therefore could not be considered hazardous. Coca-Cola also rejected the charge that its products in India contained high levels of pesticides and insecti- cides. The company said that testing for pesticides in fin- ished soft drinks was a complex process and often produced unretiable and unrepeatable results. The aceu- rate way of carrying out the test was to test each of the separate ingredients for its soft drinks before they were combined to make a finished soft drink. Coca-Cola rou- tinely tested its ingredients in this way to ensure that the final soft drink product remained safe, Furthermore, the company quoted a study conducted by the Department of Family and Child Welfare, Central Government of India, after the allegations were made in August 2003, which found that the products sold by the ‘company were perfectly safe. Coca-Cola-said-that it was a responsible corporate citizen in India and mentioned that ithad won many awards with regard to environment man- agement and community development in India. (Refer to Exhibit X for awards won by Coca-Cola in India.) Category Award Coal recede Bagi ward Fam Chl nti of Da Shel Dia or be onan storaand combos svar conan despmen propor ‘ewer Emon Fanon (WEP) ord hres ole Pac Encomet urgent rar 305 Gren) oe bang pnt Fao nx ipsam ot Ieyotecis eae paces ‘Coca-Cola's Dasna plant in India received che Golden Peacock Environment Management Award 2004, Cock recede oeraton an plan cna ard toms Ana Pradesh Gorrie onWor Eo crn Daye 0 “The Gotan ok Avra was ven bythe Wer Emma Fodaon br elcome rol og tpt Se Ametnpr inguea yood Coca-Cola was recogilzed by she Rav Gandhi Foundation (RGF)" for participation ina motorized ‘wleyliseler scheme forthe csabiec ‘Community Development ‘NoteThe list isnot exhaustive ‘SOURCE: Adapted from wnweoketietsors AMerican woman bates Coke wins” wow englishaluscerat November 15,2005 “SNGRI. based in Hyderabad Inc is an institute dedicated to basi ‘and applied research in he field of geophysics groundvater exo "ton, environmental information, es ‘Dasa isa cty inthe stat of Uttar Pradesh North Ini "The Rajiv Gandhi Foundation (RGF), established in 1991 alms to work and act seals in promoting effective, Practical and sustainable progeams i areas of national ‘evelopment ia dia1% PARTI. Compreheniive Cases Atul Singh, Coca-Cola India President and CEO, felt that the environmental and pesticide allegations against the company in India were stl being debated because of Coct-Cola India’s failure to communicate with its con QUESTIONS FOR DISCUSSION 1. Discuss the nature of the allegations that led to the f Coca-Cola's products by many US. 2. Was the boycott by student activists and trade unions against Coca-Cola justified? Will it have a significant impact on the company in the long run? ‘What should Coca-Cola do to protect its brand. image in light of these allegations? 3. Discuss the company’s stance towards CSR (conporate social responsibility) around the world, ADDITION {AL READINGS AND REFERENCES, “World: Europe Belgium considers lifting Coke ban,” hittp:/Inews bbc.co.uk, January 16, 199. “Coca-Cola to pay out $192.5 million to employees,” ‘www.wndu.com, November 16,2000. ‘Struggle against Coca-Cola in Kerala,” wwazmag.org, September 10,2002. “Toxic pesticides found in Indian soft drinks,” ‘www.ens-newswire.com, August 05, 2003, “Pepsi, Coke contain pesticides: CSE,” http rediff.com, “August 05,2003, “Coke, Pepsi India fight pesticide residue claims in court,” www.ens-newswire.com, August 08,2003, John F. Borowski, “For Christmas, will Coca-Cola stop act ing like Big Tobacco?” www.educationnewsorg, December 22,2004 “Coca-Cola in Chiapas labour rights,” www.ciepacorg, January 13,2008. “Students campaign to ban Coca-Cola products on eam- uses,” www.indiaresource.org, April 19, 2005 “US: Coke to examiné overseas. labor practices” wwcorpwatch.org, June 20,2005, “Did Coca-Cola torture and kill workers in Latin “America?” www straightdope.com, November 04,2005, “Mexican woman battles Coke, wins” english aljazeera net, November 15,2005, Chad Terhune, “Isdell could lose Coke's cola crown,” ‘wwwlaborrights org/, December 7, 2005, ‘Thomas Gary, “Coke ban heais-up across. countr ‘wwznyunews com, December 08,2005. Colin Perkel, “Coca Cola hits back as boycott over alleged human-rights abuses gathers steam,” wwwicbe.ca, December 27, 200. ‘Wipteview with Atul Singh, We jut failed to communicate” Business Sundard, February 7,2006 sumers, nongovernment organizations (NGOs), and even its own local employees He suid,“It (communication fi ure) not just with consumers and NGOs on the pesticide | controversy; even staffers were not getting the message." Who are Coca-Cola’s many stakeholders, and ‘What is the company’s relative responsibility to each of them? = 4, Discuss the company’s reputation (justified or not) in light of the concept of “managing interdepen- dence around the world.” What does it take to be “good citizen” in host countries? How well has Coca-Cola fared in this regard? What does the company need to do now? Marla Dickerson, “Upstart firm in Peru taking fizz out of cola giants Coke, Pepsi face unlikely challenger,” wwwsfgate.com, December 30,2008, “University of Michigan gives Coca-Cola the boot,” ‘www. illingsgazette.com, December 31,2005. “School bans Coca-Cola,” www.chicagotribune.com, December 31,2005 Gaurav, “Coca-Cola banned from University of Michigan,” httpsigbytesgsood.com, December 31,2005, “US varsity suspends Coke sae,” http:/inhome:rediffcom, December 31,2005, “Colleges boycott Coke over labor concerns www.taipeitimes, com, January 01,2006, “Univ in US to toss Coca-Cola,” wwwsfinancialexpresscom, January 02,2006, “Colombian workers support USS. universities’ ban on Coca-Cola,” wwwtimesleader.com, January 02,2006, “Coke should make U-M pay for cola ban, www.detnewscom, January 11,2006. Geri Smith, “Inside” Coca-Cola's labor strugeles,” ‘www businessweek.com, January 23,2006, Elizabeth Woyke, “How NYU chose Colombia over Coke,” www-businessweek.com, January 23; 2006, “Killer Coke’ or innocent abroad? Controversy over anti-union violence in Colombia has colleges ban- ning Coca-Cola,” www-businessweek.com, January 23,2006. “We just failed 1 communicate—Interview with Atul Singh,” Business Standard, February 7, 2006. “Questions and Answers re: Coca-Cola," www.umich.edu, “April 11,2006, Benjamin L, Weintraub,"University of Michigan retracts ‘Coke ban,” wwv.thecrimson.com, April 12,2006. Parama Majumder, “Michigan University revokes ban on Coke.” www.merinews.com, April 18, 2006.