Coke Ethical Issues

Coke Ethical Issues Our product is quite healthy. Fluid replenishment is a key to health. Coke does a great service because it encourages people to take in more and more liquids. - Michael Douglas Ivester, Coke's Chairman and CEO. Public schools are funded by the public to educate the children as provided by state law.

It is totally inappropriate that its facilities and employees are being used by corporations to increase their own profits on public time and with public dollars. Dr. Brita Butler-Wall, Executive Director, Citizens Campaign for Commercial-Free Schools, US.THE RECALL On June 13, 1999, Coca-Cola[l] (Coke) recalled over 15 million cans and bottles after the Belgian Health Ministry announced a ban on Coke's drinks, which were suspected of making more than 100 school children ill in the preceding six days. This recall was in addition to the 2.

5 million bottles that had already been recalled in the previous week. The company's products namely Coke, Diet Coke and Fanta had been bottled[2] in Antwerp, Ghent and WilriJk, Belgium while some batches of Coke, Diet Coke, Fanta and Sprite were also produced in Dunkirk, France.Children at six schools in Belgium had complained of headache, nausea, vomiting nd shivering which ultimately led to hospitalization after drinking Coke's beverages. Most of them reported an unusual odor and an off-taste in the drink.

In a statement to Reuters, Marc Pattin, a spokesman for the Belgian Health Ministry explained the seriousness of the issue: Another 44 children had become ill with stomach pains, 42 of them at a school in Lochristi, near Ghent, northwest Belgium. We have had five or six cases of poisoning of young people who had stomach pain after drinking (the suspect beverages). In the same week, the governments of France, Spain and Luxembourg also banned Coke's products while Coke's Dutch arm recalled all products that had come from its Belgium plant. The entire episode left more than 200 Belgians and French, mostly school children, ill after drinking the Coke produced at Antwerp and Dunkirk.

The company had to assure its British customers that the products made in its I-JK factories were safe. By June 15, 1999, Coke had recalled about 30 million cans and bottles, the largest ever product recall in its 113-year history.For the first time, the entire inventory of Coke's products from one country were banned from sale. ts visit to Europe after a week of these incidents, Coke's chairman and CEO Michael Douglas Ivester said, We deeply regret any problems encountered by our European consumers in the past few days. Coke Belgium even announced that it would reimburse the medical costs for people who had become ill after consuming its products. The recall had a significant negative impact on Cokes financial performance with its second-quarter net income coming down by 21% to $942 million.

Moreover, the entire operation cost Coke $103m (66m) while its European bottling venture showed a 5% fall in revenues. Analysts felt that the Belgium recall was one of the worst public relations problems in Cokes history. One analyst[3] alleged that the company had information about people who had become ill weeks prior to the above incidents. Coke had an opportunity to disclose this information but it did not do so. He blamed Coke for being unethical in not disclosing the information, The instinct is to pull information in, and that is almost always wrong. The right move is to focus on the health of the customer.

Even though you don't think this information is relevant, you should get it out because that allows people who might think it is elevant to go through whatever process they want to go through. Coke might have done a lot more than it did in the opening days of the crisis. Another issue, which worried analysts, was the illness caused to the innocent school children. They blamed Coke's promotion strategy to sell soft drinks to school children which had raised lot of controversies in the US. [1] Coca-Cola, based in Atlanta, US, is the world's largest soft drinks company.

2] These soft drinks were bottled by Coke's bottlers which were not owned directly by the parent company. [3] Thomas Donaldson, professor of legal studies at Wharton and Director of the Wharton Ethics Program, in an interview with Knowledge@Wharton. BACKGROUND NOTE Dr. John Pemberton, an Atlanta-based pharmacist, developed the original formula of Coke in 1886.

It was based on a combination of oils, extracts from coca leaves (cola nut) and various other additives. The ingredients were refined to create a refreshing carbonated soda. Pemberton's bookkeeper, Frank Robinson, suggested that the product be named Coca-Cola.He even developed a way of lettering Coca-Cola in a distinctively flowing script. On May 8, 1886, Coke went on sale for the first time in the on May 29, 1886.

Pemberton, with modest help from several investors, spent $73. 96 on advertising, but was able to sell only 50 gallons of syrup at $1 per gallon. The product slowly gained acceptance after a heavy outpouring of free sample drinks. In 1888, after Pemberton's death, Asa Candler, Pemberton's friend and a wholesaler druggist purchased a stake in the company. Coke sales soared even without much advertising and as many as 61 ,OOO servings (8 ounces) was sold during 1889.Sensing the potential of the business, Candler decided to wind up his drug business and be associated with the Coke full time.

As the business expanded, Candler also increased the advertising outlay. By 1891, Candler had complete control of Coke for $2,300. In 1892, Candler formed The Coca-Cola Company and, a year later, registered Coca-Cola as a trademark. Only Candler and associate Robinson knew the formula.

It was then passed on by word of mouth and became known as the most closely guarded secret in the American industry. Despite occasional rumors, company sources maintained that cocaine was not an ingredient in Coke's formula.By 1895, Coke was sold in all parts of the US, primarily through distributors and ountain owners. When it was first launched, Coke had been advertised as a drink, which relieved mental and physical exhaustion, and cured headache. Later, Candler and Robinson repositioned Coke as a refreshment drink.

In the beginning of the 20th century, corporations in the US drew flak for promoting adulterated products and resorting to misleading advertising. Coke was an ideal target for such attacks. The US government passed the Pure Food and Drugs Act in June 1906.A case was registered against Coke and the trial, which opened in March 1911, attracted widespread attention. Coke, eventually, won the case.

The decision, however, was reversed in the Supreme Court. Finally, the case was settled out of court in 1917 with Coke agreeing to reduce the caffeine content by 50%. In 1919, Coke was sold to an investment group headed by Ernest Woodruff for $25 million $10 million in cash and $15 million in preferred stock. Woodruffs major decision after taking over was the establishment of a Foreign Department to make Coke popular overseas.While expanding in foreign markets, Coke faced several problems. Initially, it had to rely on local bottlers who did not promote the product ggressively, or on wealthy entrepreneurs who were unfamiliar with the beverages business.

The company also faced problems regarding government regulations, trademarks registration, languages, and culture. By 1927, Coke's sales climbed to nearly 23 million gallons. Even though Pepsi Cola emerged as a major competitor to Coke in the 1930s, Coke continued to do well and flourished during the war.By the time the US entered the Second World War, Coke was over fifty years old and well established.

became the chairman and CEO of the company. One of Austin's first initiatives was the launch of a diet drink. By 1965, soft drink sales in the US had risen to the level of 200 drinks per capita and Coke's market share had risen to 41% against Pepsi's 24%. In 1964, Coke also acquired a coffee business.

The company developed drinks with new flavors and also targeted food chains, which were fast gaining popularity. In the 1970s, Coke faced stiff competition from Pepsi.Pepsi's advertising budget exceeded that of Coke. In 1978, figures also revealed that Pepsi had beaten Coke in terms of supermarket sales with its dominance of the vending machine and fountain outlets. Coke also faced problems in the 1970s when the Food and Drug Administration (FDA) ruled that saccharin, an important ingredient in Coke, was harmful and a potential source of cancer. Coke's performance continued to decline in the late 1970s as Austin led the company into new businesses such as shrimp farming, water projects and viniculture.

The political and social unrest in countries like Iran, Nicaragua and Guatemala also affected Coke's market share. The company's poor performance and the increasing discontent among its employees, led to Austin's exit and the nomination of Roberto Goizueta, a 48-year-old chemical engineer, as the new CEO in 1980. Goizueta quickly concluded that the obsession with market share was doing little good to the company, and in certain businesses, the Return on Capital Employed (ROCE) was actually less than the cost of capital.Goizueta drafted a strategic statement, which made it clear that the company had to earn profits at a rate substantially in excess of inflation, in order to give shareholders an above average return on their investment. He sold the non-performing businesses such as wine, coffee, tea, industrial water treatment, and aquaculture.

Coke faced a major scare in 1993, when the markets reacted violently and the tocks of big companies, including Coke, tumbled. The event popularly referred to as Marlboro Friday, involved a drastic price cut by Philip Morris in response to price undercutting by private cigarette brands.Coke stock fell by about 10% in the weeks following Marlboro Friday. Coke executives embarked upon a major public relations exercise to undo the damage. They stressed that brands were more profitable than private labels at retail stores and that branded soft drinks were far less vulnerable than branded cigarettes.

In mid-1998, health experts and CCFPE in the US criticized Coke for targeting chool children through exclusive contracts. The controversy intensified further when a district administrator[4] of Coke in Colorado Springs, Colorado, sent a memo to all the school principals in the district.The memo asked the principals to encourage the sale of Coke products because the district risked failing to meet its contractual significantly reduce payments from Coke to these schools over the next seven years. Several newspapers and Journals, including Denver Post, Harper's Magazine, The Washington Post (Post), and The New York Times criticized the memo.

EXCLUSIVE SCHOOL CONTRACTS The exclusive school contracts allowed Coke exclusive rights to sell its products soda, Juices, and bottled water - in all the public schools of a district.Under the plan, the schools got $350,000 as an up front money[5] and a percentage which ranged from 50 percent to 65 percent of total sales. The exclusive contract with Coke represented one of the fastest growing areas of commercialism of schoolhouses (Exhibit l). According to the Center for Commercial-Free Public Education (CCFPE) in April 1998, there were 46 exclusive contracts between school districts and soft drink bottlers in 16 states in the US.

By July 1999, it increased to 150 contracts across 29 states. Critics said that these contracts represented the growing trend of commercialization on school campuses.When students saw products advertised in their schools, they frequently thought that it was something that the schools were endorsing. By displaying its logos prominently in public schools, Coke hoped to re- establish brand loyalty and brand recognition.

A study found that the average American teenager could identify some 1,000 corporate logos, but could not name even ten plants and animals in the area where he or she lived. Parents were concerned about the proliferation of logos on school scoreboards, walls, buses and textbooks. Some groups opposed the commercialization in schools saying that it was unethical, immoral and exploitative.