Corporate Governance of Coca-Cola Company - Case Study Example

Corporate Governance of Coca-Cola Company Introduction The Coca-Cola governance structure is the key to its success. Depending on the three approaches to Capitalism, the roles of an organizational Board in corporate governance are classified in different ways. Corporate governance and board controls both public and private interests of an organization (Fernando, 2009). There are three main paradigms of a corporate structure, which include neoclassical, mixed liberal, and radical. These three governance perspectives are difficult to integrate into an actual organization. This is because they address the functions and nature of an organization’s board in a varied way and have different choices of organizational governance (Joshi, 2004). For an organization to use these paradigms effectively, the board of directors should acknowledge that the three overlap, understand the basics with each paradigm, articulate their similarities and differences, and accept the organizations vision and visions of other organizations. Coca-cola organization and its governance Although standard economics state that the economy depends on the price mechanism, this is just a partial description. When the price mechanism challenges, organization’s decision making process, then corporate governance takes the forefront. In general, corporate governances refer to the process of organizing, co-ordinating, and motivating the crucial components of an organization, with the aim of contributing to the coca-cola goals and objections or create change in the organization (Fernando, 2009). Corporate governance of Coca-Cola Company focuses on the allocation and definition of decisions and organizational control to ensure good governance, hence ensuring the organization attains its goals and objectives. In turn, this determines how to allocate the organizational residual income. The decision-making power of Coca-cola corporate governance allocates rights and determines employee duties. However, decision-making alone is not enough to ensure smooth running of an organization (Joshi, 2004). Therefore, corporate governance of Coca-cola organization must ensure incentives, motivations, co-ordination, and organization of all those shareholders who have any relation with the organization. The determination of the better solution to a firm is not a simple task. This is because the corporate governance is not clear on the organization’s relevant boundaries (Fernando, 2009). To begin with, Coca-Cola Company comprises of a number of actors, which include board of directors, suppliers, investors, creditors, subsidiaries, managers, affiliates, employees, and many others. All these actors have their own powers to take place in the decision-making process of the organization (Joshi, 2004). In short, this means that all these actors influence the company’s performance and value in one way or the other. In addition, the current summarized analysis of the organizational governance is somehow related to reality and history. It also distinguishes the definition of organization, distribution and production. It disregards the notion that, transaction integration in an organization is under the umbrella of corporate governance but not the owners. In reality, an integrated organization has two forms of relationship, (i) between investors and corporate headquarters, and (ii) and between division managers and corporate headquarters (Fernando, 2009). The current standard analysis of corporate governance also has challenges in defining two crucial developments. These developments include (i) an organization depends on highly qualified personnel who have human knowledge and capabilities to carry out the activities of the organization, and (ii) the ageing population and increment of the institutional investors’ role in the global economy (Joshi, 2004). Background of Cocacola directors The main roles of the Cocacola board of directors involves consideration of finance and human resources issues in order to ensure the company’s success.The Cocacola company’s board of directors consists of thirteen members who plays key roles in the company such providing the management team with the appropriate strategic approaches, CEO elections, allocating compensations to major executives of the company, taking all the risks the company faces, and supervising the financial status of the company. This means that the company’s board of directors serves both the financial and human resource services in the company. It ensures that there is always good strategic planning and controlling to govern the organisation towards profit maximization and growth. Responsibilities of the board of directors According to the former general coca-cola chair, the board of directors in an organization is responsible for the organization’s success. The responsibility of board of directors cannot be similar to that of management. The board of directors plays key roles such as CEO election, providing the management team with the strategy’s advice, setting compensations of major executives, supervising the financial status, and risk taking. Additionally, the board of directors of Coca-cola company has various committees such as Audit, Nominating, and Compensation committees (Fernando, 2009). Stakeholders’ interests All organizational parties have either direct or in direct key interests in the economical status of the organization. The employees, managers, and the board must be salaried, while the investors should enjoy financial returns. Lenders should receive their interests. Customers should be able to enjoy goods and service with high quality, while suppliers should receive compensation and ensured long-term partnership. The Coca-Cola Company’s board ensures all these parties enjoy their rights since they add value to the development of the organization in terms of finance, physical, and even capital contribution (Joshi, 2004). Ownership and control structures Control and ownership structure generally indicates the forms of corporation’s shareholder composition. Ownership typically refers to cash flow rights while on the other hand; control is possession of voting and control freedoms. Some main aspects of control and ownership of Coca-Cola Company comprise of webs, rings, and cross-shareholding. However, many of the company’s corporate groups have varied ownership and control structures due to their engagement with stakeholders and shareholders (Coca-Cola, 2012). The company’s board/principals select the company’s agents/executives and allocate their roles of shareholder representation. Code of business conduct The code of business conduct of Coca-Cola Company defines how the company’s workers are supposed to carry out their daily duties. All the company’s employees undergoes several training to enable them fully understand the code of operation and they receive a yearly letter outlining the new operations approaches. Employees can raise arguments concerning the company’s code of conduct via several mechanisms such as the company’s email (Coca-Cola, 2012). Composition of board of CCHBC directors and its role The Coca-Cola board of directors consist of thirteen members, which include non-executive chairperson, executive director, and eleven other non-executive directors. The company believes that their balance of directors influences the effectiveness of the board of its directors, whose existing composition has competent personnel with industry knowledge. The main role of these directors is to exercise their governance judgement in an appropriate way that ensures success of the company (Fernando, 2009). Division of responsibilities The division of responsibilities of the board of directors enables the company achieve its maximum potential of the board. According to the UK CGC (Corporate Governance Code), Coca-Cola Company ensures that there is a well-documented division of the board’s responsibilities. The role of the chairperson is to manage the board’s business and that of CEO is to run this business, gives priority, and directs the sustainable development and operations of the company (Coca-Cola, 2012). Board independence The Coca-Cola board of directors makes considerations of the engagement of non-executives and robustness of their critique and problem in the boardroom to ensure there is a good balance of the board. The company also reviews the independence of its board of directors annually. This review includes an assessment of the directors’ commitment, judgement, and performance. During its review, the board takes into consideration of the UK’s code of corporate governance (Fernando, 2009). The current governing bodies of Coca-Cola Company Meetings, materials, and developments The board of directors of Coca-Cola Company together with its committees meet regularly to discuss on certain matters such as policy, strategies, and approval of the company’s regulations such as business plans, committee charters, authority chart, and many others. The following is the organizational chart of Coca-Cola Company (Coca-Cola, 2012). The process of appointing directors The Coca-Cola Company ensures that there is a transparent, rigorous, and a formal procedure of electing the members of the board. The members elected should be able to bring changes to the company and have new experiences. Directors are supposed to address the chairperson and the CEO on any new changes to the board and give them advices. The Coca-Cola Company has various Committees with different responsibilities (Coca-Cola, 2012). These committees include operation committee and audit committee. The operations committee ensures that there is effective decision-making and controls and it is comprised of senior management and chaired by a CEO. The audit committee on the other hand, ensures that there is maximum protection of shareholders interests in relation to internal controls and finance. Other committees include nomination committee, remuneration committee, and disclosure committee. The following is the governance structure of Coca-Cola Company (Fernando, 2009). Cocacola governance structure paradigm The Cocacola company uses radical paradigm structure. In order for the company’s board to increase the organization’s profit it ensures that there is increase of total sales (revenues). This is done through setting reasonable prices for its products and also through other measures such as advertising and promotion. The board prefers this type of paradigm since it is a crucial tool that ensures that the organization seizes the necessary opportunities towards success. The paradigm serves to the advantage of an organization since the board of governors and the management are able to establish any environmental changes that may threaten the organization’s existence (Coca-Cola, 2012). Governance structure paradigm Organizational paradigm refers to a comprehensive or a clear representation of knowledge. Transformation of the neoclassical paradigm means that the theory or model and strategies of the neoclassical economics had a main role of ensuring a sustainable development in the current areas of politics, technology, and business with a view of well being of materials (Joshi, 2004). Neoclassical paradigm states that the society is good when the organization’s consumers have free rights to maximise their utilities, and the organization is free to maximize its profits. According to neoclassical paradigm, the role of the Coca-Cola corporate governance board is to ensure the organization makes the possible highest profit and gives rewards to those who have a financial stake in the organization (Fernando, 2009). The board of directors of Coca-Cola Company ensures that the organization’s concentration is more on private interests than on public interest. This form of counter-revolution structure (neoclassical paradigm) currently attracts most of the world’s economies and enterprises. The company comprises of various components which includes, free market, public-choice, and market friendly approach (Joshi, 2004). In the year 1980, the political dominance in the United States, Britain, West Germany, and Canada introduced the Neoclassical Counter Revolution in the theory and policy of economic. On the other hand, the traditional economics of neoclassical paradigm were poorly worked under market determination perspective, conservation, and material preservation (Fernando, 2009). In most developed nations, neoclassical paradigm favours the suppliers, policies of macroeconomics, and privatization of public organization. However, this paradigm called free markets in developing countries and dismantle of public ownership. Free market Free market states that market alone are efficient. This is to say that, markets offer the significant signal for investing new activities. This means that the society is good when the organization’s consumers have free rights to maximise their utilities, and the organization is free to maximize its profits. In such situations, market competition is effective and therefore, any government interaction in the market economy will lead to market distortion and counter production (Joshi, 2004). Public-choice theory Public choice theory indicates that the government cannot do anything right towards development of a country’s economy. This theory states that since the politicians, state solely makes choices considering their self-interests’ perspective, making use of government powers, and authority to please them, the public should have the authority to make choices (Joshi, 2004). People make use of political influences to acquire special benefits “rents” form governmental policies that limit access to significant resources (Fernando, 2009). This not only results in restriction of resources, but also decrease in individual freedom. Arguably, one can conclude that minimum form of government is the significant government. The market friendly approach This neoclassical approach recognizes that they are much perfection in low developing nations that needs governments to play a key role in ensuring effective market operations. This approach supports non-selective intervention whereby investors can invest in educational institutions, social infrastructure, and healthcare facilities (Tricker, 2012). This approach differs from free-market since it accepts the notion that failure of the market is widely in low developing countries. Therefore, this neoclassical paradigm approach fails to show the decoupling progression between environmental damages and economic changes. This is because the economic proxies such as Gross Domestic Product do not reflect the rate at which the environmental and ecological services influence the rise of Gross Domestic Product. As a result, this leads to market failure as well as lessoning the welfare of the society. Mixed paradigm According to the mixed paradigm, the private interest of an organization to generate more profits is supreme. However, both environmental and social impacts need to be included in the process of decision-making. This is because, social and environmental effects can influence organizational development or negatively affect it growth (Fernando, 2009). Mixed paradigm argues that both social and private interests of an organization will always occur and they is need to weigh them relatively while making decisions of organizations responsibilities and its goals and objectives. On contrary, most organizations’ corporate governance tends to concentrate only on the internal matters affecting the organization (Tricker, 2012). However, this should not be case; organizational boards must make sure that it incorporates both environmental and social factors in the decision-making process of the organization. Radical paradigm Radical paradigm argues that, the main role of an organizational board is to make sure that social interests govern the profit motivation. This paradigm entails that, in order for an organizational board to increase the organization’s profit it should increase the total sales of the organization (revenues). Radical paradigm in governance is a crucial tool in ensuring that an organization seizes the necessary opportunities towards success (Joshi, 2004). The paradigm serves to the advantage of an organization since the board of governors and the management are able to establish any environmental changes that may threaten the organization’s existence (Fernando, 2009). Similarly, the organization is capable of cultivating strategic resolutions at the short run to adapt to the changes, and halts the threats changing them to opportunities. Researches indicate that radical paradigm is an important aspect of governance as it enables the organization to identify emerging technologies, the threat of competition, and future financial constraints (Joshi, 2004). These attributes enable the paradigm to serve to the benefit of each organization since they are capable of planning strategies, and implementing appropriate solutions to restrain the threats from posing negative impacts to the organization. The approach was common in the late 20th century when groups of researchers in governance identified that the fast implementation of resolutions through the paradigm was incremental to institutional successes (Tricker, 2012). Therefore, the theoretical knowledge presented by the paradigm concerning governance changes is vital towards the acknowledgement of the ever-changing environment and adapting equally best alternative to resuscitate the organization from collapsing. Eventually, the paradigm’s strategies may not abide by the organizational plans since they are used as remedies upon the presence of threats in the organization (Fernando, 2009). Conclusion In conclusion, Coca-Cola corporate governance forms a structure in which the board of directors of an organization controls and directs its operations (Tricker, 2012). The organization, governance plays a key role of distribution responsibilities and rights of all shareholders and stakeholders of the organization. The role of the board of directors is completely different from that of management. An effective board of directors should be able to monitor performance of the organization and offer financial feedback to the management team. It should also ensure that all shareholders and stakeholders freely enjoy the rights. The organization’s structure also follows the three organizational paradigms. References Coca-Cola. (2012). Corporate Governance: 2012 Integrated Report. Coca-Cola HBC .Retrieved on 2nd March, 2014 from:http://integratedreport.coca-colahellenic.com/pages.asp?pid=6&subid=22 Fernando, A. C. (2009). Corporate governance: Principles, policies and practices. New Delhi: Pearson Education. Joshi, V. (2004). Corporate governance: The Indian scenario. Delhi, India: Foundation Books. Tricker, R. I. (2012). Corporate governance: Principles, policies and practices. Oxford: Oxford University Press. Read More