Risk Management at Coca-Cola - Case Study Example

CORPORATE GOVERNANCE By Introduction - Setting the scene To have adetailed understanding of the question, it is in order to delineate the key unembellished concept ‘corporate governance’. Governance is a descriptive concept that presents some of the dynamics on the type of policy processes. It helps people remain sensitive to a myriad of actors and terrains in making taking public policy decisions (Tricker, 2012). Corporate governance is defined as different set of processes, laws, custom policies, and institutions that affects how a corporation is administered, directed and controlled. It also explains the existing relationship among a myriad of stakeholders who are involved in the management of the business and some of the reasons to which the company is oriented and the governance process. Some of the key stakeholders include management, the shareholders and board of directors. Some of other stakeholders include creditors, employees, regulators, and the entire community. It is a multi faced concept with one of the fundamental principle is to ensure that there is high level of accountability of specific personnel in an organization through methods which helps in eliminating the problem (Solomon, 2013). Corporate governance is important as its focus is on the welfare of the stakeholders. Corporate governance no doubt is one of the best tools for economic development. Some of the main principles of corporate governance include integrity, honesty, commitment to the organization, trust, mutual respect, openness, accountability, responsibility and the performance orientation. It will help in ensuring that an individual remains true to some of the organizations real objectives and goals. Ethics stands at the focal point when it comes to corporate governance (Colley, 2003). The discussion in this paper will focus on the beverage industry with a keener look at Coca Cola. The company was picked given the fact that it has been involved in various corporate social responsibilities. The firm believes in giving back to the society through various projects it is involved in. Coca Cola Company is one of the largest beverage companies in the world with its brand being regarded as one of the most valuable globally. Its mainly involved in the production and marketing of some of the main non alcoholic brands which includes Sprite, Coke and Fanta among others. The firm also produces light and diet beverages energy drinks, water and fruit drinks among others. Having one of the largest distribution channels in the world, the company has managed to remain the market leader in the industry amidst stiff competition from its main rival Pepsi. Currently, the company has presence in more than 200 countries and serving more than 1.4 billion customers in a day. The success of the firm has been attributed to strong leadership and highly organized distribution system. Across all the cultures, most people identifies with the firm (www.coca-cola.com). The company identifies with the problems facing the locals. For instance, Coca Cola is known to be sponsoring a myriad of sporting activities. The firm also assists many nations and institutions in nurturing talents which might go into waste. Coca Cola, therefore, is one of the brands which can be used in corporate governance bench marking given that it has succeeded at it. The fact that it has presence in the world makes management appreciate diversity in terms of practises and cultural views. Benchmarking process at Coca Cola: Coca Cola Company is known for its commitment to excellent governance which facilitates the promotion of interests of the shareholders, strengthens the management and board accountability that in turn promote public trust. The company’s board is elected by the shareholders to oversee the long term financial success of the company besides ensuring that their interests are taken care of. The board is the sole body that is charged with taking some of the most important decisions including picking persons to head various senior managerial positions (Brink, 2011; p22). Coca Cola Company has corporate guidelines which is necessary in providing framework for the daily management of the company. The firm is very sensitive when it comes to various cultural and diversity issues. Its point of innovation has been anchored on strong corporate governance and principles that it has put in place over the many years of existence. Some of the guidelines address issues such as the responsibilities of senior management, the mission of the board, independence of the board, separation of powers, management succession among other imperative issues. The management believes in strong code of conducts when conducting business, professionalism, respect for diversity and inclusion in all that it does. It is through the strong governance that the firm has been in a position to listen to some of the needs of its customers and in the long run address them through either bringing new products or improving on the composition of the existing ones. Coca Cola prides itself as a brand that refreshes the world. The below section will focus on the corporate social responsibility as part of the larger concept of and its application as a benchmark to the coca cola company. It begins by looking at the relevant governance theories to help paint a holistic picture of the concept. Risk Management at Coca Cola The Coca Cola Company has multiple risk management initiatives that cover workers’ compensation, casualties and an array of health related claims as stipulated by the US laws. According to the company’s 2012 audited financial reports, sums of up to $355 million were set aside to cater for insurance in the mentioned areas. As a multinational enterprise, Coca Cola employs actuarial methodologies applicable within the larger insurance industry to arrive at compensation figures for workers in the event of any loss or casualties in the future. Risk management programs at the company are a major area of governance because they revolve around the welfare of employees and determine not only the quality of their lives during their period of service to the company but go beyond to cover them after exit. As corporate governance evolves, organizations are constantly evaluated against internal structures aimed at improving the well being of internal stakeholders, something that is clearly at the forefront at Coca Cola judging by the scale of their risk management programs. Corporate Governance codes at Coca Cola Company As a company, Coca-Cola has made Integrity central to its governance code that is outlined as follows also available in 20 languages for easy understanding: Acting with integrity around the world: With market presence in 200 countries worldwide, Coca Cola expects its employees to do the right thing and not compromise the organization’s reputation but instead work towards positively projecting the company and its brands. The fine print of this governance code stipulates what is expected of managers, lower level employees and the entire coca cola workforce. Conflict of interest: Employees are expected to engage in activities that do not conflict with the core operations of the company. They must therefore carefully evaluate the investments outside the company not to be inconsistent with these provisions while watching their utterances and presentations outside Coca Cola. Integrity within the company: This covers handling of financial records and management of company assets that must be done with utmost veracity. Integrity in dealing with others: The Company codes demand that no bribery is given to government officials and that in dealing with customers, competitors and supplier, integrity must be central. What could have been done differently at Coca Cola? Even with the strict ethical and governance code at Coca Cola, a lot still must be done because from historical events, the company has not kept aspects of its codes in its global operations: 1: Ethics – From definition, ethics is a system or moral principles that define any operational realm (Hutchings, 2010). . The admission by Coca Cola that its bottled water brand-Dasani, was merely tap water brought a huge scandal and touched on how ethical the company is in its manufacturing and business processes. This scandal is best explained by Stakeholder Theory; a concept originally generated by Ed Freeman in the 1980s, but has since attained broader notes in the UK (Freeman 2010). Stakeholder theory challenges organization assumptions concerning the dominance of shareholder interests. Instead it debates that a corporation should be controlled in the interests of every its stakeholders (employees, director, shareholders, suppliers and customers). The argument that is repetitively generated against a stakeholder observation of the corporation is that it is hard to implement because of the challenges of deciding what weight must be given to diverse stakeholder interests. In conditions of corporate governance it is debated that, were management directors to be made answerable to all of a corporations stakeholders they would, in consequence, be accountable to none. Enlightened stakeholder supposition therefore proposes the practical worth of answerability to shareholders even if a committee of board takes other benefits into account in its conduct of a corporation. Compromising the manufacturing process of Dasani brought into sharp focus Coca Cola’s commitment to customers who are external stakeholders. . Theories of corporate governance Corporate governance is a widely discussed and researched subject. In this essay, perspectives and viewpoints of Dr John Roberts of the Judge Business School and the author for ‘the Performance and Reward Centre’, concerning corporate governance is analyzed in detail to provide theories of corporate governance (Berle et al 2009). There has been much documentation concerning corporate governance. Comprehensive reports have been incorporated into the compendious integrated codes on Corporate Governance in UK. This has made UK corporations some of the most systematically governed in the universe. However, some questions still linger, for example, has the governance business and its operations actually enhanced the performance of British corporations? Some think not, quoting study that seems to point out that, in spite of the WorldCom’s, Enron’s, and other scandals, it is premeditated ineffectiveness that destroys the huge bulk of shareholders money. The answer depends in a theory about corporate performance and following that a set of beliefs concerning human conduct. The customary theory is known as Agency Theory. It is the main philosophical base concerning the relationships between the quoted companies and financial markets (Berle et al 2009). Agency Theory The argument about corporate governance is characteristically dated to the early 1930s and the periodical of Berle and Means ‘The Modern Corporation and Private Property’. Berle and Means realized that with the disjointing of control and ownership, and the broad dispersion of tenure, there was efficiently no check upon the administrative self-government of corporate managers. As applicable in corporate governance the hypothesis suggests an essential problem for absent or far-away shareholders or principals who employ professional managers to act on their behalf. In line with neo-classical economics, the root assumption informing this theory is that the agent is likely to be self-interested and opportunistic. It is imperative to acknowledge that agency theory is deductive in its techniques. Its suppositions have been the topic of extensive experiential research but this has characteristically depended on the testing of a variety of propositions in connection with large data sets. Agency theorists take self-beneficial opportunism as a provision. They feel no necessity to investigate, the attitudes, conduct and interactions that actually generate board effectiveness. CSR as a benchmark at Coca Cola Coca cola Company is touted as a global leader when it comes to Corporate Social responsibility. The company has in the recent past moved to add Sustainability as a core element of their corporate responsibility in line with the global focus on sustainable business models. This alone is an indicator of the dynamism within the company when it comes to governance benchmarks. From the reports available at www.cokecce.com, the company implements futuristic projects aimed at ensuring sustainability in all aspects of its operations. It has therefore come with the term CRS that stands for Corporate Responsibility and Sustainability to replace the traditional CSR. In CRS, Coca cola works on developing a low carbon, minimal waste model that inspires change for the future. In line with this, the company has listed the following priorities to guide this benchmark: Deliver for today This is where CRS commitments are listed and made central to the company’s operations with more challenge added to each commitment so that on a daily basis, delivery on the commitments are evaluated. KPIs (Key performance Indicators) are therefore the measures against the said commitments in line with the Global Reporting Initiative (GRI) so that Lead the industry As a market leader in the beverage industry, Coca Cola commits to make a difference in the areas of Energy, global warming and recycling. The company it its reports reveal that it is investing heavily in carbon and waste minimization programs aimed at making it the leader in green business. Innovate for the future Given the ambitious nature of the company’s commitments, it is imperative that they work with external stakeholders to meet the level of innovation required in order to fulfill these commitments. Programs in the area of innovation are therefore aimed at improving both internal operations at Coca Cola and bettering the lives of innovators and their respective communities. As a governance benchmark, CRS at Coca cola is centered on specific commitments that enable the company to keep track of its progress through Key Performance Indicators. The company however, faces challenges with fizzy drinks that have been touted as main contributors to obesity among both children and adults. The introduction of diet coke was a solution to the company’s contribution towards obesity but still has not yielded much result in stemming the growth of obese people around the world. In relation to CSR at Coca Cola, Stewardship Theory that is resource a dependence concept originally created by Pfeffer and Salancik (1978) during 1970s helps understand how this has performed at Coca Cola. Unlike agency theory, their creative concepts were inductively derivative from empirical findings (Dobbin and Schoonhoven, 2010). Their key involvement is the assessment that the board, and precisely the establishment of the non-executive concept of a board, can give the corporation with a vital set of possessions: Resources can be in a variety of concepts each of which can be debated to add to the investment of a corporation. Resource dependence theory permits people to reflect on the very different requirements that corporations have at different phases of their life-cycle. Stewardship theory makes a correlated set of realizations about the intentions of senior managers. In contrast, agency theorys pessimistic suppositions about the self-serving and self-interested motives of managers, stewardship theory proposes the possibility for what it termed as the pro-organizational drives of directors. Stewardship theory rejects the assumption that administrative goals and motives are contrasting to those of the investor; both, it persists, have an attention in maximizing the lasting stewardship of a corporation and are therefore well aligned (Dobbin and Schoonhoven, 2010). CSR, on the basis of this theory, requires that Coca Cola directs its resources at fighting some of the problems created by its products like obesity through civic education and wellness centers aimed at helping victims lose weight. The future of CSR at Coca Cola CSR at Coca-Cola in the future will revolve around sustainability. This is because of the global trend that has in the recent years seen extremely adverse effects of carbon emissions and resource depletion. The sustainability model for Coca cola’s future is in the following areas (coca-colacompany.com): Energy management and climate safeguard The company plans to extensively reduce future energy consumption so that its carbon footprint in lessened to take lead among global players in the area of climate protection. This plan will be implemented with the cooperation of communities and government institutions to realize intended success. Water management A major future sustainability and business strategy is to adopt a model that reduces Coca Cola’s water footprint and the quantity of this product consumed per product. From scientific projections, water will rival major precious stones in scarcity in the future and therefore, prudent management practices of this resource must start today if sustainability is to be realised. Sustainable packaging practices In this area, Coca Cola aims at minimizing the impact on environment by increasing its packaging and material use. The company has come up with models that reduce the amount of material involve in the manufacture of one bottle and other waste cutting measure to ensure that their packaging is futuristic. Workplace To be sustainable at the place of work, Coca cola aims at providing a safe, conducive working environment while helping employees develop at personal and professional level through special programs. Product Responsibility Coca cola intends to instigate purchase, production and marketing practices from the perspective of sustainable corporate governance so that surplus is created in the entire supply chain where value is matched with value. Community interests The existence of Coca Cola a global player is because of support from communities so the company aims to support sustainable development in their regions of operation and contribute positively through special initiatives, to the welfare of these communities. From the report available at assets.coca-colacompany.com, this global company intends to skew all its future CSR programs towards sustainability for its own business and growth security. Initiating sustainability oriented programs is a clear indicator on the long term objectives of Coca Cola as a global beverage market leader. Conclusion Corporate governance is defined as different set of processes, laws, custom policies, and institutions that affects how a corporation is administered, directed and controlled. It also explains the existing relationship among a myriad of stakeholders who are involved in the management of the business and some of the reasons to which the company is oriented and the governance process. Coca Cola Company is known for its commitment to excellent governance which facilitates the promotion of interests of the shareholders, strengthens the management and board accountability that in turn promote public trust. Comprehensive reports have been incorporated into the compendious integrated codes on Corporate Governance in UK. This has made UK corporations some of the most systematically governed in the universe. This is the basis of corporate governance assessment theories. In this paper three rival theories are analyzed. The first theory is Agency theory in which, line with neo-classical economics, the root assumption informing that the agent is likely to be self-interested and opportunistic. The next theory was resource dependence and stewardship theory. Unlike agency theory, resource dependence creative concepts were inductively derivative from empirical findings. Stewardship theory makes a correlated set of realizations about the intentions of senior managers. The last set of significant ideas about performance and governance that is essential in corporate governance is stakeholder theory. These concepts were originally generated by Ed Freeman in the 1980s, but have attained broader notes in the UK. Stakeholder theory challenges organization assumptions concerning the dominance of shareholder interests (Freeman 2010). Coca cola Company is touted as a global leader when it comes to Corporate Social responsibility. Recommendations Corporate governance should be the one that take interest on satisfying every stakeholder’s interest since it prompts sustainability of the corporation. It is true it has many challenges during implementations; however, the benefits surmount the challenges. This is a confirmation that shareholder’s theory is a recommendable corporate governance theory that influences performance and success. Stakeholder theory challenges organization assumptions concerning the dominance of shareholder interests. Instead it debates that a corporation should be controlled in the interests of every its stakeholders; employees, director, shareholders, suppliers and customers. REFERENCES LIST BERLE, A. A., MEANS, G. C., WEIDENBAUM, M. L., & JENSEN, M. (2009). The modern corporation and private property. New Brunswick (N.J.), U.S.A., Transaction publishers. BRINK, A. (2011). Corporate governance and business ethics. Dordrecht, Springer Verlag. http://assets.coca-colacompany.com/51/be/fa1c9a664de5bb38e0304d6ce2af/CCI_CSR_2011.pdf COLLEY, J. L. (2003). Corporate governance. New York, McGraw-Hill. DOBBIN, F., & SCHOONHOVEN, C. B. (2010). Stanfords organization theory renaissance, 1970-2000. Bingley, UK, Emerald. http://public.eblib.com/EBLPublic/PublicView.do?ptiID=533108. FREEMAN, R. E. (2010). Stakeholder theory. Cambridge University Press. http://www.myilibrary.com?id=253644. HUTCHINGS, K. (2010). Global ethics: An introduction. Cambridge, UK: Polity. SOLOMON, J. (2013). Corporate governance and accountability. Hoboken, N.J., Wiley. TRICKER, R. I. (2012). Corporate governance: principles, policies and practices. Oxford, Oxford University Press. Read More