COCA COLA: A CASE STUDY

Company

Coca-cola initiated the business in 1886 in Atlanta as local soda producer. Georgia (US) is selling around nine beverages each day. In 1920s, the organization had started increasing globally, selling its items first in the Soviet Union and America. In the end of 20th century, the organization was selling its items in each of the country present in the world. In the year 2005, it became the largest marketer, distributor, and manufacturer of syrups and non-alcoholic beverages. Coca-Cola is the organization which is listed in the Stock Exchange of New York (Pendergrast, 2013).

In the year 2007, Coca-Cola launched the framework of sustainability Live positively embedded into the system at all of the phases from development and packaging to final distribution. The CSR policy of organization, Live positively develops seven core regions where the organization set itself measurable targets for improving the practices of organization. The core regions are workplace, water stewardship, sustainable packaging, climate, energy, community, beverage advantages and healthy livings (Foster, 2012).

2. Brief Summary of Case

The case study corporate governance’ issues will be written that are faced by Coca Cola during its operations. The key issues that will be examined in this case are disclosure of information, accounting issue, remuneration of directors and CSR policies post conflicts. In order to evaluate these issues two theories; agency theory and stakeholder theory will be used for linking the issues with core concepts. The identification of corporate governance issues will be helpful in giving recommendations to the management of Coca Cola for avoiding these issues in future. The management of Coca Cola will be able to get guidance from this case study.

2.1. Issues/Challenges

  • Disclosure of Information

Coca Cola faced an issue regarding disclosure of information. The shareholders were not satisfied with the information provided in accounting statements. All necessary details were not found in financial statements. Due to which in 2002, shareholders of the company showed negative attitude towards the firm and this resulted in creation of negative image in minds of shareholders.

  • Accounting Issues

The issue with Coca-Cola's accounting today revolves around whether there will be any changes made to the Equity Method of accounting. The proposed changes to this model would force Coke to consolidate the results of its bottlers with its own results. The basis for the change relies on the contention that Coke does, in fact, control its bottlers --even though it owns less than 50% of them.

 

  • Remuneration of Directors

The remuneration of directors was not made transparent by management of Coca Cola Company. These were not arbitrarily determined. This resulted in creating a conflict between management and board of directors of Coca Cola.

  • CSR Policies

Although the management of Coca Cola focuses considerably on CSR activities but it faced scandal in 2007. Coca-Cola was boycotted by locals of India because local communities of India were suffering from droughts.

3. Identified of Theories

3.1. Agency theory

According to Todd et al (2013), Agency theory is a supposition that describes the link in between agents and principals in business. Agency theory deals with resolution of issues that are present in agency links because of unaligned objectives or different aversions risk level. The basic agency relationship in finance exists due to the executives of organization (agents) and shareholders (principal). In general terms, an agency is the link in between two of parties, where one is agent who depicts the principal in transaction with the other parties and the other one is the principal. Agency theory deals with the hiring of agents by principals for performing a service on behalf of principal. Principals mainly delegate the authority of decision making to agent. Due to the fact, that decisions and contracts are made with other parties through agent that influence the principal, agency issues can arise. It is important for Coca Cola’s top management to focus on formulation of aligned objectives and those strategies must be implemented that are in best interest of organization as well as shareholders.

3.2.Stakeholder theory

Stakeholder theory is the theory of business ethics and organizational management that deals with the values and morals in management of a company. In traditional view of an organization, the shareholder perspective, only the shareholders or owners of an organization are important. The organization owns a binding fiduciary duty of putting their requirements first, for increasing value (Harrison and Wicks, 2013). Stakeholder theory states that there is an involvement of other parties too, involving trade unions, trade associations, political groups, governmental bodies, communities, financiers, suppliers, customers, and employees. Competitors are sometimes counted as stakeholders; their status is derived through capacity of influencing the organization and stakeholders. The nature of what actually forms a stakeholder is contested with different definition present in the literature.  The stakeholder perspective of strategy does the integration of both market-based view and resource-based view, and it further adds up a socio-political level. The major version of theory of stakeholder is to explain the particular stakeholders of an organization (the normative theory of identification of stakeholder) and then observing the circumstances under which such parties are treated by managers as stakeholders (Bridoux and Stoelhorst, 2014). The management of Coca Cola should ensure green management practices for the benefit of all of its stakeholders. All stakeholders should get maximum value by the firm.

4. Key Literature Relevant to Case

Acharya, V.V., Gottschalg, O.F., Hahn, M. and Kehoe, C. (2013) Corporate governance and value creation: Evidence from private equity. Review of Financial Studies, 26 (2), 368-402

Bridoux, F. and Stoelhorst, J.W. (2014) Microfoundations for stakeholder theory: Managing stakeholders with heterogeneous motives. Strategic Management Journal, 35(1), 107-125.

Foster, R.J. 2012. Coca?Globalization.John Wiley & Sons, Ltd.

Harrison, J.S. and Wicks, A.C. (2013) Stakeholder theory, value, and firm performance. Business ethics quarterly, 23(01), 97-124.

McCahery, J.A., Sautner, Z. and Starks, L.T. (2016) Behind the scenes: The corporate governance preferences of institutional investors. The Journal of Finance.

Pendergrast, M. (2013) For God, country, and Coca-Cola: The definitive history of the great American soft drink and the company that makes it.Basic Books.

Todd, S.Y., Crook, T.A. and Lachowetz, T. (2013) Agency Theory Explanations of Self-Serving Sales Forecast Inaccuracies. Business and Management Research, 2 (2), 13.

Tricker, B. (2015) Corporate governance: Principles, policies, and practices. Oxford University Press, USA

5. Summary of Work completed

At this stage, the key issues being faced by Coca Cola have been identified with the help of thorough research. Moreover, the linked theories have also been examined that are used for understanding the core concepts.

6. Draft Timeline

Time Period

Work Done

4thweek

Submission of Action Plan

5th week

Analysis of lack of disclosure of information and directors’ remunerationas issues

7th week

Analysis of CSR policies and accounting issues

9thweek

Addressing discussion questions

10th week

Summary of Findings

12th week

Providing Recommendations

 

 

 

 

 


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