Corporate Governance Codes and Regulatory Framework of Coca Cola - Assignment Example

Corporate Social Responsibility and Governance: Case Study of Coca-Cola Corporate Social Responsibility and Governance: Case Study of Coca Cola Introduction The business platform has undergone massive dynamism in the last century, and there are new ramifications that are shaping the manner in which operations are run in the business sector. Corporate social responsibility and corporate governance are emerging trends that are dictating the way in which organisations conduct their activities with the interests of its stakeholders at heart. To begin with corporate social responsibility is an integral part of entirely every business firm since stakeholders are increasingly expecting the organisations to conduct their activities in a sustainable and ethical manner to create an enabling environment for all. Wealth creation is not the sole objective that firms should pursue rather they are obliged to other goals that are aimed at ensuring the enterprise gives back to the society that has been supporting it through its journey to success (Aras, & Crowther, 2012). Corporate governance, on the other hand, is the mechanisms that stakeholders of a business utilise to conduct internal control of the affairs of the organisation so as to ensure their interests are well safeguarded. Corporate governance is frequently premised by two circumstances the first one if through the agency problem or rather a conflict of interests between various parties that necessitated for an oversight role to be implemented by the stakeholders. Additionally, if the transaction costs are too high or rather are in such a manner that the agency problem cannot be adequately solved then corporate governance will be necessary to safeguard the interests of the company’s stakeholders (Simpson and Taylor, 2013). Corporate Governance Codes and Regulatory Framework Coca Cola is a global organisation that conducts its operations in numerous countries across the world. For the purpose of this report, we are going to focus on the Coca Cola International in India on how it conducts its corporate governance. Since it is an international organisation Coca-Cola implements a rather similar corporate governance mechanism for all its affiliate companies in all countries with slight modifications to fit the regulatory requirements for the individual nations where the company is conducting its operations. The company has governance codes that guide them in the presentation of their corporate report. The code addresses a number of issues that are going to be elaborated as follows. To begin with corporate governance is all about internal control; that duty is bestowed on the directors of the company. The corporate governance code of Coca-Cola addresses the roles and duties of directors in the relation of how internal control should be implemented. It is through their internal management role that the report will be compiled and made public so that the efforts of the organisation can be made evident to the external environment (Akerstrom, 2009). Relatively, the code addresses the issue of accountability concerning the manner in which the report is compiled and presented. Board members are obliged to exercise a high level of integrity and accountability to ensure that their role as the internal watchdog for the organisation is implemented diligently without any form of manipulation to protect the interest of the company’s stakeholders. In that regard the board of directors is independent and conducts its duties in unregulated manner by taking into account the input from each of its members to come up with a report that depicts the real situation at the company (Fernando, 2009). Similarly, since at times the role of the board can be jeopardised to adopt reports that do not imply the actual condition of the organisation, the code has stipulated issues regarding effectiveness. The code has provisions that only allow individuals who possess relevant skills and knowledge to sit at the company’s board so as to enhance quality of internal control and at the same time issues regarding to remuneration are addressed so as to fill all loopholes that might emerge to prevent the board from being influenced as a result of benefits and other allowances. Under the code non-executives have the duty to monitor and control the manner in which internal control is implemented by the company, ideally they provide a regulatory framework to ensure the governance report is prepared in time with due diligence and presented as per the provisions of the code. The company has been trying to adhere to the corporate governance codes as past practices can demonstrate it; however, at times it tends to drift away from the code to due to certain circumstances that come up in the business environment. Generally, it is prudent to note that Coca-Cola has fashioned its corporate governance operations fit the provisions of its code and that is why it has been able to maintain its market leadership for a considerable period due to the sound business practices that it is accustomed to (Aras and Crowther, 2009). Governance Issues Based on the corporate governance report of Coca Cola a number of issues have been addressed in the report concerning the management of the organisation. Some of the key elements that have been outlined in the report include; organisational investments, duties of the board of directors, executive remuneration, audit committees just to name but a few. We are going to make an in-depth evaluation of duties of the board of directors and executive compensation concerning Coca cola’s corporate governance report. The organisation implements a two-tier kind of board whereby the board has two levels that are the executive board of management and the supervisory board. The two levels are distinct to each other since they have different roles that they play to pursue the overall corporate governance objective of the company. Members of the board are elected by the shareholder on the democratic principle of one-share-one-vote. Ideally, the board of directors plays both managerial and supervisory roles based on the responsibilities that have been bestowed on each of its members (Montgomery, 2000). According to the report of Coca-Cola the board of directors have a number of duties that are elaborated below. To begin with the board is mandated to ensure that the financial reporting systems of the company together with all the internal control systems are functioning appropriately to ensure the organisation is efficient in the manner in which it undertakes its operations. Similarly, it is the duty of the board of directors to ensure that the organisation generally complies with the legal frameworks that are in place in the particular country of operations and for our case here it is the legal systems of India. Compliance is no only restricted to the laws of the nations but also other business or rather economic provisions and conventions that govern the manner in which corporate affairs are run in the country. Ideally, the board of directors is tasked with the duty to ensure the company is being run by a team of qualified executives who possess the prerequisite skills and knowledge to run organisational affairs so as to drive it to new levels of success through the implementation of sound corporate strategies (Martin, 2006). Similarly, nearly all the directors that are elected represent particular stakeholder on the board. Thus, in line with their internal control responsibility the directors are mandated to ensure accountability of the organisation to their stakeholders by making sure all the strategic decisions that the company implements are all meant for the right or rather the benefit of the stakeholders. Additionally, the directors provide an overall oversight for the organisation by giving strategic guidance to the company that will ensure it grows to achieve its objectives (Akerstrom, 2009). The supervisory guidance that is offered by the board is normally based on an informed opinion of the ramifications in the business environment thus meant to enable the company obtain a competitive edge over other market players through strategy. The non-executive directors have their equal share of responsibilities in Coca-Cola Company as provided by their corporate governance report. They are tasked with duties such as monitoring the general performance of the company in terms of fulfilling its legal obligations, as well as ethical obligations (Aras and Crowther, 2009). Apart from profit maximisations organisations need to embrace sustainability in their operations. Thus, the non-executives have the responsibility of checking on the progress of the organisation in fulfilling its ethical and legal obligation to enhance sustainability. Similarly, the non-executive directors have the duty of monitoring the firm’s strategy implementation and overall performance by analysing the kind of strategies and policies that are enacted to spur the success of the company. Conversely, the non-executive directors provide advice to management of the firm regarding formulation of policy and its implementation to ensure the company stays ahead in the market (Rosam and Peddle, 2004). Additionally, the report outlines the various committees of the board together with their roles and responsibilities. In Coca Cola’s board there exists three primary committees namely; audit, nomination and remuneration committees. The nomination committees are tasked with designing the mechanism for transition in the top management of the company by outlining the how ranks will be shifted after the retirement of senior executives. The audit committee is very crucial as it is mandated to ensure integrity and openness in the financial systems of the organisation as well as assess them to identify any potential risks that might be inherent to prevent unperceived events that might lead to financial losses. The remuneration committee is responsible for designing the peaks for the board and other top executives by outlining their pay and bonuses to avoid any form of conflict of interest (Simpson and Taylor, 2013). Corporate Social Responsibility Practices of Coca-Cola Coca cola implements corporate social responsibility by ensuring its operations are sustainable, and they create good for the majority in the society whereby it is conducting its activities. The corporate social responsibility practices of this organisation are premised on a five pillar paradigm that incorporates five aspects that act as the foundation of the initiatives. The first pillar is people whereby the operations of the company are aimed at creating benefit or rather improving the conditions of people in general. It is accomplished by the company coming up with healthy products that are safe and useful for the people with the least impact on the environment to ensure the lives of its consumers are prolonged through the health formulas in their products. The second pillar concerns partners; Coca-Cola is an organisation that has various stakeholders worldwide. Thus, in line with its sustainability initiatives the company strives to satisfy the needs and expectations of all its stakeholders equitably by ensuring there is a balance between profit maximisation and sustainable practice. It is prudent that the fundamental objective of all corporate organisations to create wealth for their owners but the company insists on doing so in an equitable manner without affecting other stakeholders in a negative way. The third pillar is products as the company is committed to manufacturing safe, and healthy and environmentally friendly products that meet the nutritional needs its clients. The products are designed in a manner that they are eco-friendly and create maximum benefits to the consumers (Aras, & Crowther, 2012). The Coca-Cola utilises a substantial amount of water for its production processes, thus to maintain ecological sustainability the firm has initiated projects that are aimed at recycling, reusing and replenishing water in its operating environment to ensure that commodity is not depleted. The company recycles all of its wastewaters and reuses it in the manufacturing process in activities such as washing of the bottles and other uses that can be deemed safe for that kind of water. Since it utilises a substantial quantity of water from the environment the organisation has come up with initiatives that ensures the societies within its locality of operations do not miss clean drinking water through the provision of tanks for harvesting rainwater as well as sinking boreholes for communal water use (Doh and Stumpf, 2005). Conversely, the company has come up with energy conservation initiatives aimed at utilising energy resources in a sustainable manner to conserve the little reserves that are in place. Furthermore, the company has invested in research and innovation activities to come up with sustainable refrigeration equipment that are capable of working without emitting any trace of ozone gasses. That notwithstanding, Coca-Cola engages in community health clinics whereby it conducts health camps in various societies by providing free medical check-ups and treatments to areas that do not have accessibility to these services. Similarly, the organisation has invested in sports like the Copa Coca-Cola Football initiative whereby it scouts talent among the youth in various communities and goes on to train them to become world class superstars. All these initiatives that the firm conducts are not merely meant to create a positive image for the company but to incorporate the society indeed in sharing its success with the community since they are part of its primary stakeholders (Akerstrom, 2009). How Coca Cola’s CSR Practices Have Been influenced By the National Institutional Environment and Other Stakeholders The operations of Coca-Cola are based on environmental resources such as water and energy and thus the company has an obligation to utilise those resources in a sustainable manner to avoid depletion. To a large extent, the sustainability initiatives that Coca-Cola has implemented over the period of its existence are influenced by environmental bodies and other stakeholders in its environment. Just like any other ideal organisation the company is always working to reduce its cost of operations so as to create more wealth for its owners. However, at times the pursuit for wealth generations conflicts with the interests of other stakeholders since they are negatively affected in one way of the other. When it commenced its operations in India, the company sunk numerous boreholes to tap underground water to supplement its massive water requirements for its industrial processes. Since it used to draw millions of litres on a daily basis its actions jeopardised the well-being of the neighbouring community since all other rivers and streams run dry as a result of Coca cola’s massive exploitation of underground water. The people demonstrated to express their dissatisfaction of the company’s move. To quell the discontent that was evident from the community the company launched a nationwide initiative that was meant to provide safe drinking water for the people in marginalised communities. The action of the people influenced the company to come up with the clean drinking water project for the people. Ideally, if the people had not protested, it is prudent that the organisation would not have launched the project. It was a damage control measure that was meant to salvage the corporate image of the firm at the same time it gives back to the society as it is its social obligation (Utting, Marques, & United Nations Research Institute for Social Development, 2010). Conversely, environmental groups have been on the company’s case due to allegations of pollution through mass chemical wastes and use of a non-biodegradable material in its packages. The issue of chemical pollution was reported in India whereby environmental watch group accused the company of discharging untreated chemical wastes to nearby rivers thus endangering the lives of the consumers of that water. The moved to explain its public image by offering a press statement defending its position as employ sustainable mechanism in all its industrial processes thus the issues of water pollution was malice meant to destroy the public image of the company. Similarly, the company went on to introduce recycling of waste water by coming up with technologies that treats the used water and the same water is utilised for lesser activities such as washing of bottles (Mullerat and Brennan, 2005). Additionally, Coca-Cola introduced free medical clinics for the society whereby it would visit remote areas and offer free medical check-ups and treatment to ensure the society was healthy and thus able to benefit from its health initiative. It is prudent that a significant number of the corporate social responsibility activities that are conducted by Coca-Cola are as a result of influence from third parties and thus the company implements initiatives to quell some form of dissatisfaction that is rife among its stakeholders. Ideally, these parties have been able to keep the company I check since through their influence they have been able to ensure the company has adopted sustainable practices that benefit the whole society in general. However, in some instances the company has come up with initiatives that are purely out of their innovation meant to give back to the society. For example, Coca-Cola came up with the Copa Coca Cola program, an innovative football competition that was intended to identify talent among the society and then nature them by enrolling those who made the cut in a football academy to train them in professional football. The program was not initiated due to influence from any stakeholder, but it was the idea of the company to identify and support local talent among the youth in the society (Gottschalk, 2011). Recommendation Coca Cola is a global brand and thus needs to integrate corporate social responsibility as one of its key strategic objectives. In so doing the sustainability initiatives that will be conducted by the company will be out of the needs assessment that it would have performed in the field and thus initiated them to satisfy particular social needs of the people. It would be advantageous for both the company and its stakeholders since the corporate image of the firm will be enhanced at the same time the stakeholders will be satisfied with the efforts that the firm is making to ensure sustainability. Similarly, the company should devote some resource to be meant for analysing the social environment and thus able to determine how the operations of the organisations affects other parties and what action needs to be done to solve those issues. The move is more of a mitigation strategy since it will assist the company to know the implications of its activities beforehand and thus come up with a solution before the national institutional environment or any other group comes up with complaints. It will enhance the image of the firm as it will be regarded to be sustainable in its operations as well as increase public trust since it will be perceived to hold the interests of the society at heart. Conversely, corporate governance should be integrated with corporate social responsibility to make it a pertinent issue that is being continuously monitored. Such a move will enhance the relevance of sustainability to the company’s objective as al operations will have to be viewed from a sustainable perspective before any major decision is made. References Akerstrom, A. (2009). Corporate Governance and Social Responsibility: Johnson & Johnson. München: GRIN Verlag GmbH. Aras, G., & Crowther, D. (2009). Global perspectives on corporate governance and CSR. Farnham: Gower. Aras, G., & Crowther, D. (Eds.). (2012). A handbook of corporate governance and social responsibility. Gower Publishing, Ltd.. Doh, J., & Stumpf, S. (2005). Handbook of Responsible Leadership and Governance in Global Business. Cheltenham: Edward Elgar Pub. Fernando, A. C. (2009). Corporate Ethics, Governance, and Social Responsibility: Precepts and Practices. Pearson Education India. Gottschalk, P. (2011). Corporate social responsibility, governance and corporate reputation. Hackensack, NJ: World Scientific. Martin, D. (2006). 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