Coca-Cola Company's ethical crises and stakeholder management

Coca-Cola Company

The Case of the Coca-Cola Company Struggling with Ethical Crises

Today's business community is the result of decades of changes. Starting with the Industrial Revolution, organizations have implemented various strategies to consolidate their leading positions, to hire the highest skilled and qualified candidates, to get access to resources, to penetrate new markets or to pursue customers to buy the manufactured products or delivered services. The course of actions followed in their endeavours were however questionable at different points in time. Whereas some strategies were simply illegal, others were just unethical.

An unethical behavior cannot be punished by law, but its effects can still be disastrous and will reach even the largest multinational. An example of such an organization suffering the impacts of its unethical behavior is the Coca-Cola Company. The reasons why they engaged in questionable actions are open to interpretation, but my personal belief is that they desired to become and remain the largest and most successful retailer of soft beverages on both national and international markets.

Today however, the past strategies have materialized in a weakened corporate brand. The only way to revive it is through a combined application of numerous strategies, aimed to satisfy the needs of several groups of stakeholders.

2. Case Summary

The case commences with a brief statement on the major role and achievements of the Coca-Cola Company within today's international market. It then goes on to make a one page presentation of the most important matter: despite its magnitude, the company continues to encounter ethical difficulties. Several individuals have occupied the position of CEO, but they efforts have yet to pay off. The company is still accused of "racial discrimination, misrepresenting marker rests, manipulating earnings and disrupting long-term contractual arrangements with distributors" (case).

The case continues with a short history of the organization, which reveals for instance that the organization manufactures four of the world's most consumed beverages and that they conduct operations in more that two hundred countries. The rivalry with PepsiCo is yet another significant matter of the past, as well as the present, and however this still exists, the competition looked to have been won by Coca-Cola with the aid of their international strategy.

Despite their statements of being driven by the need to satisfy the desires of all stakeholders, the soft beverage mogul has encountered serious difficulties. Most of them have been generated by ethical dilemmas. Some of these ethical crises are succinctly presented below:

Contamination scare - Belgian children fell ill after consuming Coca-Cola; the governments in Belgium, Netherlands and Luxembourg recalled the beverages; problems were also encountered in France and Poland - the response of the company was poor and slow and further damaged their reputation

Competition - aggressive and anticompetitive practices, materialized in the refusal of local governments to support the expansion of the company; the company once again revealed lack of cultural and legislative knowledge of the markets it operated

Racial discrimination - two thousand individuals blamed the Coca-Cola Company of discriminating against them in terms of payment, promotion opportunities and evaluation of performances; the case was settled

Burger King market test - used to increase sales; it generated fraud

Channel stuffing - generated a false high demand and inflated earnings; the case got the attention of the Securities and Exchange Commission and the company agreed to no longer engage in channel stuffing

Distribution problems - Coca-Cola bottlers accused the company of breaching the contracts as they felt left aside in the detriment of other dealers

International issues related to union - Coca-Cola was accused of somehow having participated to the death and disappearance of several employees, involved in union actions

Employees sell secrets - a final problem hereby presented is given by the cases in which Cola-Cola employees were caught in fraud operations and trading of company secrets

At one point or the other, the ethical shortages of the company's actions have impacted each and every stakeholder. Some consumers fell ill, while others lost trust in an American icon. Coca-Cola's business partners were also affected as the company's ethical crises also reflected its partners' lack of integrity and credibility in the eyes of the audience. Federal institutions were forced to take action; corporate employees had to renounce some of their rights and so on.

Intensified communications with the customers

Keeping a close relationship with the audience is a vital part of improving the corporate image, especially when the "brand is a customer relationship that is defined by all the experiences, messages, promises and performance/quality associated with it" (Brand Identity Guru). This could be achieved through a wide series of channels, all being focused on the idea of bringing the company closer to the people. Some of these approaches could include televised interviews with Coca-Cola representatives, in which they openly discuss the faced problems - they could also take calls and respond to the questions posed by the viewers. Another strategy could be that organizing festivals or celebrations in several cities and hosting performances of en vogue stars. They would attract numerous individuals, who would purchase the soft beverages and whose awareness and sympathy towards the multinational would increase.

The main benefit of this strategy is that it attracts the attention and sympathy of the customers. The downside of it however is that it implies significant financial resources; it implementation is rather time consuming and tedious. Also, its positive results could immediately be shuttered by a new scandal, which would divert the population's attention.

Ethics Divisions

After facing fraud accusations and an investigation from the Securities and Exchange Commission, the Coca-Cola Company created an ethics division, with the main purpose of verifying distribution matters (case). Today, they could expand the operations of this division to verify all organizational actions. The benefits would reside in fewer cases of ethical accusations, which would in the end materialize in an improved corporate image.

The downside of this strategy is that it requires an additional use of resources, generally as the ethics division would have to be enlarged and additional expenses with the personnel would be registered. Also, the increased numbers of internal verifications would delay the operational process and would also reduce the efficiency of the activities. This could mean that the products spend more time in stock that they should; that logistic operations are being delayed; that the dissatisfaction of the stakeholder increases as the company losses its competitive edge.

Focus on the people

However the Coca-Cola employees are not the primary focus of this paper, they have been subjected to hardships due to unethical corporate behavior. In this order of ideas, an increased emphasis on the satisfaction of their needs would help create a better corporate reputation. Because, who finds it easy to blame the creator of thousands of jobs and the best and fair working environments?

Then, the focus should fall on employees for another reason - they represent a viable link between company and customers. They are the ones able to interact with the customer, satisfy his needs and retrieve feedback. "Everyone in your organization has opportunities to do this whether they are sales people when interacting with retail customers, marketing people as they build promotional materials, or administrative staff functions as they observe how the products of their company are merchandised in the marketplace. This requires a strong internal communications effort focused on explaining what your brands mean to consumers and the importance of linking all external communication to the features of your brands" (Levine, 2007)

The disadvantage of this is again that it requires additional resources and may negatively impact the operational efficiency.

4. Decision and Defense against Weaknesses

The Coca-Cola brand is already a strong one, but the company's involvement in unethical behaviors has negatively affected it. In order to decide upon the most favourable courses of action to be implemented in the direction of brand strengthening, one has to critically analyze the proposed strategies:

restatement of the company's traditional brand values will offer an increased perception of the brand, but is likely to further generate the image of a ruthless competitor

Communications with customers will attract the sympathy of the audience, but require increased resource consumption and the results may be unsustainable

The internal investigations of the ethical division could delay the process and reduce their operational efficiency - however, this risk would not materialize if the proper measures are taken

An increased focus on people would also generate increased expenditures and pose risks on operational efficiency, but it would generate positive results on corporate image through two channels

As a result of the above presented mentions, the most favourable course of action would be the combined implementation of several strategic approaches. This would help reduce the risks of failure and negative aspects of each separate strategy and would also improve the chances of success. In this order of ideas, the most applicable scenario to improving Coca-Cola's corporate image would follow the next steps:

intensified communications with the audience better supervision of corporate action from the ethics division an increased emphasis on the Coca-Cola employees

The proposed solution has the disadvantage of implying additional costs. However, each improvement strategy generates some expenses and foremost, the organization does not afford not to take these measures. The losses they would encounter if they did not take these measures would be tremendous. Stakeholders would continually lose faith in the organization, the contracts with partners would become elusive and sales would drop. The company could feel tempted to engage in fraud operations to cover their losses, reaching in the end to situation of Enron.