Coca-Cola Company Struggles With Ethical Crises Term Paper

Length: 5 pages Sources: 3 Subject: Business Type: Term Paper Paper: #62218093 Related Topics: Burger King, Coca Cola, Antitrust Practices, Pepsico
Excerpt from Term Paper :

¶ … Coca-Cola Company. Specifically it will discuss and analyze the case study, including relevant facts and recommendations regarding the study. Coca-Cola is one of the most well-known and famous brands in the world, and it has been in existence since the late 1800s. This case study indicated that it faced several ethical issues in the last decade that eroded its credibility and created strife inside and outside the company.

Facts

The facts of Coca-Cola are legendary. One writer notes, "Both the Coca-Cola brand and company took an early lead in the soft-drink industry, for the brand achieved national distribution early on and the company has consistently dominated the industry" (Wolburg, 2003). Coca-Cola is one of the world's leading soft drink manufacturers, and they sell their product in at least 200 countries worldwide. They were the leading soft drink company for decades, and their main rival is PepsiCo, who they have been engaged in "cola wars" for many years. The case study notes, "Coca-Cola estimates that more than 1 billion servings of its products are consumed every day. For much of its early history, Coca-Cola focused on cultivating markets within the United States" (Author unknown, YEAR, 2). Coca-Cola has been admired for creating a massive distribution system around the world, but they have also been very aggressive in their marketing and finance areas, which is why the ethical problems they face have harmed their reputation and made some investors wary of their business methods. In fact, financial wizard Warren Buffet resigned from their board of directors because of his concerns about their practices and seeming inability to deal with them (Author unknown, YEAR, 1). The company has been through several CEOs in the last 15 years, some have been quite ineffectual, and the company has faced numerous ethical issues that have harmed its stellar reputation. The company prides itself on its social responsibility and involvement in local communities, and has several programs that benefit everyone from college students to community leaders, but their ethics problems have been overshadowing their commitment to social responsibility.

Ethical Issues

Coca-Cola has faced several major ethical issues in the last decade or so, both internal and external in nature. Some of the most severe include the 1999 contamination issue in Belgium and then France, antitrust issues in their European markets, allegations of racial discrimination internally and problems with unions, tampering with market testing results, internal reports of inflated earnings, and issues with distributors. All of these issues affected Coca-Cola's reputation, and affected earnings and the company's reputation, as well. In 2006, PepsiCo had a greater market value that Coca-Cola, and that was the first time that happened, which indicates how severe these issues were to the company's bottom line.

Did Coca-Cola react too slowly to the contamination scare in Europe? In 1999, several children got sick after drinking Coke products in Belgium. Coke recalled the product they thought made the children sick, but people continued to get sick, and governments decided to recall all Coke products. Coca-Cola eventually discovered that a bad batch of carbon dioxide, an ingredient in the products, was to blame, but they took several days to comment on the problem, and that turned into a public relations fiasco. The case study notes, "Coca-Cola initially judged the situation to be minor and not a health hazard, but by that time a public relations nightmare had begun" (Author unavailable, YEAR, 6). To make matters worse, the problem spread to other countries, and other contaminations were found, leading to a ban on all Coca-Cola products in several other countries. This severely harmed their reputation, especially because of their slow response times, and they lost ground in European sales. They also attempted an aggressive comeback marketing campaign that Belgium officials said violated antitrust laws, which further damaged their reputation.

Coca-Cola reacted unethically in their slow response to these health issues, and it made it seem as if the company was not concerned about people's health. It was not fair or right to the people that were involved and it certainly did not fit in with the company's "social responsibility" commitment. People's health and well-being should be the highest concern for any food or beverage manufacturer, and the company's slow unethical behavior like this is viewed as even worse than that directed at competitors. Three writers state, "Moreover, some evidence exists that questionable business practices, if directed at customers, are considered to be more unethical -- by managers and students -- than those directed at other parties, such as competitors or the organization" (Dubinsky, Nataraajan & Huang, 2004). Thus, this is one of the biggest ethical issues that has confronted Coca-Cola in the last decade or more.

Another extremely important ethical issue was falsifying market-testing outcomes in a Burger King marketing test campaign. Did Coca-Cola forget its' corporate responsibility to its business partners? The three writers continue, "Or consider a higher-level Coca-Cola manager's falsifying the results of a test market so that Burger King would be induced to spend $30 million in preparation for its selling Frozen Coke" (Dubinsky, Nataraajan & Huang, 2004). Coke created a new product called Frozen Coke, and convinced Burger Kings in Richmond, Virginia to test the product for three weeks. The first test results were terrible, and a Coke executive paid $10,000 to someone to take hundreds of children to Burger King to order the meals with the coupons for a free Frozen Coke. This skewed the numbers, and if Burger King had been convinced, they would have spent millions in equipment to sell the product at all their locations. However, someone inside the organization leaked the news of the fraud. The case study states, "But when the U.S. attorney general for the North District of Georgia discovered and investigated the fraud, the company had to pay $21 million to Burger King, $540,000 to the whistle- blower, and a $9 million pretax write-off had to be taken" (Author unknown, YEAR, 8-9). Clearly, this affected the company's bottom line, but even worse, it showed how cutthroat they were in competition and market share, and how they would defraud their business partners to increase their sales. It is a terrible statement for the company.

This was clearly unethical for any number of reasons. The company could have caused Burger King to lose millions of dollars by giving them false numbers that showed Frozen Coke would actually sell. They damaged their own bottom line because they had to pay out so many fines, and they showed they were an unethical and profit-based ruthless competitor who did not care about their partners or anything else but making a profit at the cost of others. This again goes against their "social commitment" philosophy, and puts them in a very bad light.

In the first issue, the stakeholders were certainly the company's stakeholders and employees, who were negatively affected by the company's choice to react slowly to the contamination issues. However, the major stakeholders were the people who became ill, and the rest of the population who became afraid to drink Coke products. It affected the company's market share, but it made them look inhumane and uncaring.

To solve the problem, Coke should have been 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. It created bad PR, but it tarnished what the company stood for, as well.

They should have voluntarily taken all their products off the shelf themselves, instead of the governments having to do so, that was another major snafu in the issue. Coke reacted too slowly, and governments became much more aggressive, putting the company and its' reaction in a poor light. The PR people should have seen this, and reacted much more quickly and aggressively. In addition, they should have had a plan in case such a situation developed, so they could swing into action immediately and do damage control instead of causing more damage.

Finally, they should not have engaged in such an aggressive marketing plan when the situation was over. It was so aggressive that it seemed like they were bent on eliminating the competition. Europe has strict antitrust laws, and the company violated them, which showed that even though they were a global company, they did not understand the business practices of other countries, and that made them look bad yet again.

In the second issue, the stakeholders were again the Coke stakeholders and employees, who suffered from the financial burden and fines, but the major stakeholder was Burger King, who could have spent millions of dollars on machinery to sell a product…

Sources Used in Documents:

References

Author Unknown. The Coca -- Cola Company Struggles with Ethical Crises.

Dubinsky, A.J., Nataraajan, R., & Huang, W. (2004). The influence of moral philosophy on retail salespeople's ethical perceptions. Journal of Consumer Affairs, 38(2), 297+.

Meyer, K.E. (2004). Perspectives on multinational enterprises in emerging economies. Journal of International Business Studies, 35(4), 259+.

Wolburg, J.M. (2003). Double-cola and antitrust issues: Staying alive in the soft drink wars. Journal of Consumer Affairs, 37(2), 340+.


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