Corporate Governance Assessment Project : The Coca Cola Company

2019-01-01 09:01:42 freelancer

Executive Summary
It is known that good corporate governance helps to build market confidence and establish business integrity, which plays an important role for the company
that requires access to equity capital for long term investment. For the leader of the beverage market, the Coca-Cola Company, access to equity capital is
crucial to ensure future oriented growth and balancing of the increase in leveraging. This paper is a Corporate Governance Assessment Project aimed at
providing assessment of the corporate governance and corporate social responsibility of the Coca Cola Company based on the established OECD principles of
corporate governance and other significant materials. It has been found that the Coca-Cola Company is focused on good corporate governance, as it fosters
the long-term interests of the company’s stakeholders, helps to strengthen the Board and management team’s accountability and allows building public trust.
Demir Yener (2015), a senior lecturer at Johns Hopkins Carey School of Business, provides a definition of effective corporate governance of the company –
ensuring shareholders a reasonable rate of return through considerable reduction of the company costs associated with the conflict of interest between its
shareholders and management. According to the Organization for Economic Co-operation and Development (“OECD”) there are several principles inherent to
corporate governance, known as “four pillars,” including transparency, accountability, responsibility, and fairness. The Coca Cola Company’s business model,
its management structure and the structure of the Board of Directors shows that the corporate governance structure is well-developed and efficient. The
assessment of the financial performance of company management shows that the Coca Cola has an effective corporate governance structure and identifies the
relevant areas of improvement. Finally, the Corporate Governance Assessment Project identifies the main findings and their implications for the company,
investors, regulators and the economy.

Review of the Company’s Background

The Coca-Cola Company is one of the leading manufacturers of nonalcoholic beverage concentrates and syrups in the world. This is a multinational corporation
headquartered in Atlanta, Georgia, the United States. The Company’s flagship product is Coca-Cola, a carbonated soft drink invented by John Stith Pemberton
in the 19-th century. According to Forbes, it is the “fourth world’s most valuable brand” (Coca-Cola, 2015 Ranking). The Company owns and markets more than
“500 nonalcoholic beverage brands, primarily sparkling beverages, but also a variety of still beverages such as waters, enhanced waters, juices and juice
drinks, ready-to-drink teas and coffees, and energy and sports drink” (The Coca Cola Co. Annual Report, 2015). Every day the Coca-Cola Company sells
approximately 1.3 billion beverage servings (The Coca Cola Co. Annual Report). In addition, the Company earns revenue through distributing concentrates
and beverages to its bottling partners, retailers, wholesalers, and distributors (The Coca Cola Co. Annual Report). The Coca-Cola Company’s brand symbol is
its red and white trademark. Today the Company operates as a leading distributer of beverage products in more than 200 countries. The Coca-Cola Company
operates worldwide except two countries: Cuba and North Korea. In 2015, the company’s revenue was $44.294 billion, its operating income was $8.728 billion
(2015), and its net income was $7.351 billion (The Coca Cola Co. Annual Report). Currently, the Company employs 129,200 people. The Coca Cola Company’s
mission is enduring as it provides the major goals of the company and can be used as a standard indecision making and problem solving: “To refresh the
world…To inspire moments of optimism and happiness…To create value and make a difference” (The Coca Cola Company, Official Website). The Company’s
vision can be used as the guidance for further actions as it concerns people, portfolio, partners, planet, profit and productivity in order to achieve sustainable,
quality growth (The Coca-Cola Company, Official Website). The Chairman of the Board and CEO is Muhtar Kent and Presiding Director and COO is James
Quincey. Active engagement by all Directors is supported. Coca-Cola is controlled through a vertical hierarchy, with decision-making authority residing with the
company’s upper management. The major decisions are made by line managers at the middle level, while the entire company is controlled through a vertical
hierarchy that ensures the company’s upper management to make important decisions. The industry and competition have a strong impact on the company’s
governance. The Company pays due attention to the role of the proper corporate governance materials that include the Corporate Governance Guidelines, the
Company’s Certificate of Incorporation and Bylaws, the charters for each Board committee, the Company’s Codes of Business Conduct and other materials
that help to comply with the adopted guidelines (The Coca Cola Co., Official Website, Corporate Governance). The Company’s market capitalization is $194
billion, based on 2015 annual report findings (The Coca Cola Co. Annual Report). The company’s ROE is 26.31, ROI is 14.23, PE ratio (with extraordinary
items) is 26.47 (Coca-Cola Co. Profile).

The Company’s corporate governance SWOT analysis shows the following:

Strengths: clearly defined governance responsibilities, employee benefits, employee education, the use of new technologies, comprehensive organizational
culture, effective employee motivation programs, high level of wages, the use of advertising, connection between purchase and distribution processes, support
for protection of human and workplace rights and trade unions.

Weaknesses: prevalence of the cases of racial discrimination in the workplace, the inability to address the problem of water overconsumption and pesticides,
as well as health problems associated with the quality of products (e.g. obesity).

Opportunities: the use of the system to improve cooperation and communication; and improved relationships at the global level.

Threats: increased competition, failures in the system of management and poor communication between the company’s units, conflicts of interest.

The Coca-Cola Company’s Corporate Governance Analysis

The Coca-Cola Company complies with the OECD principles of corporate governance. The Board of Directors is elected by the company’s shareowners and
provides control over the key operations and decisions to meet their interest and ensure the overall growth of the company in the competitive market. The
Coca-Cola Company conducts its operations and makes decisions within the framework of the established regulations and the Corporate Governance
Principles. Recent report shows that the company continues to strengthen its sustainability, ensuring that all business operations are conducted appropriately
and stakeholder engagement is supported (The Coca-Cola Co. Annual Report). Corporate governance policies include evaluation of the CEO’s successes and
failures in performance, as well as the Board’s performance evaluation (See Fig.1, Appendix).

First of all, the Coca-Cola Company’s corporate governance framework is aimed at promoting transparent and fair markets. In addition, it is based on
comprehensive allocation of resources. The Coca-Cola’s corporate governance framework consists of relevant regulations and practices that reflect the
company’s traditions and history. The company’s activities aimed at the proper allocation of resources include reuse of recycled bottles, cans and use of plant
bottles. Besides, the company has developed programs to prevent the spread of HIV/AIDS in Africa (The Coca-Cola Co. Annual Report).

Secondly, the Coca-Cola Company’s corporate governance framework provides protection of the rights of its shareholders, ensuring the equitable treatment of
all shareholders, including minority groups and foreign shareholders (The Coca-Cola Co. Annual Report).

Thirdly, the Coca-Cola Company’s corporate governance framework provides comprehensive incentives through investment, ensuring the opportunities for
functioning of the markets and contributing to good corporate governance (The Coca-Cola Co. Annual Report).

Fourthly, the Coca-Cola Company’s framework recognizes the established rights of all stakeholders and promotes dynamic cooperation practices between the
company and its stakeholders in order to create positive climate, create jobs, and the overall sustainability (The Coca-Cola Co. Annual Report).

Fifthly, the Coca-Cola Company’s framework ensures all important information is disclosed timely and accurately, including the information on the company’s
financial situation, performance, ownership, and governance (The Coca-Cola Co. Annual Report).

Examining the CSR initiatives using Porter and Kramer’s model of strategic CSR, it is possible to conclude that the Coca-Cola Company is based on shared
value in its business operations and decision making processes. The company recognizes that “societal needs, not just conventional economic needs, define
markets” (Bosch-Badia 12). The company assumes the effectiveness of shared-value strategies. For example, the company invested millions of dollars to help
with anti-HIV/AIDS operations in Africa. According to recent report that can be found on the official website of the company, “The Coca-Cola Africa Foundation
has pledged $2.5 million over a three-year period to further develop community HIV/AIDS programs in Egypt, Ethiopia, Kenya, South Africa and Tanzania” (The
Coca-Cola Company, Official Website, HIV/AIDS Initiatives). The outcomes of corporate activity of the company in relation to its stakeholders are positive and
based on shared-value strategy (The Coca-Cola Co. Annual Report).

Don't use plagiarized sources. Get Your Custom Essay on The terms offer and acceptance

Get custom paper

In addition, it is necessary to use the 100-question Corporate Governance Rating tool developed by Demir Yenir in the analysis. The results of the analysis
show that Coca Cola’s corporate governance rating is rather high. It helps to provide opportunities for gaining better access to capital and credit markets at a
lower cost of capital. The Coca Cola Company shows good performance in corporate governance at the local and global levels. The company demonstrates
compliance with transparency. Its board operations and practices help to achieve good performance in relation to the protection of shareholders’ rights, and
equitable treatment of all categories of shareholders. According to recent report, “The Coca-Cola Foundation donated USD $84.5 million to communities in
2015” (Jordin 1). The Company’s grants are intended to benefit more than 300 organizations in over 70 countries of the world, “with 95 percent of the grants
focused on The Coca-Cola Company’s core sustainability priorities of women, water and well-being” (Jordin 1).

Findings
Using the findings and the results of the survey provided, it is necessary to refer to the available corporate governance mechanisms that are relevant to the
company and the advantages and disadvantages of those mechanisms. The Coca-Cola Company is guided by the established standards of corporate
governance and ethics. The code of ethics is effectively used to guide employees and ensure ethical business conduct that requires demonstrating honesty
and integrity. The Company’s directors and managers are required to read and recognize the significance of the Code in order to follow the established
principles in the workplace and community. The Code of Ethics is administered by the company’s Ethics and Compliance Committee. This is a cross-functional
senior management unit that bears responsibility for overseeing the accepted ethics and compliance programs. Besides, it deals with Code violations and
discipline-related issues. The Company’s Ethics & Compliance Office bears responsibility for employee education and consultation, as well as monitoring
practices and assessment process associated with the company’s Code of Business Conduct and a wide range of compliance issues (The Coca-Cola
Company, Official Website, Code of Business Conduct).

In addition, the Coca-Cola Company supports the development and implementation of ethics and compliance training courses for employees and managers
administered by the Ethics & Compliance Office. Due attention is paid to regular monitoring and audit procedures that ensure full compliance with the adopted
principles of the Code and the established laws. Besides, the maintenance of standards allows improve governance and provide investigation of various Code
issues. The accepted corporate governance mechanisms help to act with integrity, marinating the Coca-Cola Company’s image and reputation in the
competitive market and avoiding legal challenges. People are proud to work for the Coca-Cola Company and everyone is aware of the company’s mission and
vision. This fact means that people act honestly and treat each other fairly due to good corporate governance mechanisms. Besides, people value the
company’s philanthropy. “The Coca Cola Foundation has awarded more than $820 million in grants to support sustainable community initiatives around the
world” (Jordin 1).

Actually, the advantages of the internal corporate governance mechanisms, such as independent internal audits, structuring of the Board of Directors’
responsibility, control segregation and policy development, are obvious. The Coca-Coal Company can use these mechanisms to provide efficient controls and
effectively monitor the progress of business and the major activities in order to take the proper measures in case of failures. The advantages of external
mechanisms of corporate governance, including regulatory guidelines and laws, help the Company to succeed in the competitive market, avoiding legal
challenges (Bosch-Badia et al. 11). The disadvantages of the Company’s corporate governance mechanisms include increased administrative costs, the
occurrence of conflicts when the Company’s shareholders fail to participate in business practices, attracting human resources to conduct business operations
(Coca-Cola. 2015 Ranking; Coca-Cola. Fortune 500; The Coca-Cola Co. Annual Report).

In general, the Company uses corporate governance to achieve success in the established strategic priorities, such as the use of innovation technologies and
maintain global leadership in the markets of the beverages industry. According to Fortune’s report, “Coca-Cola’s executives have called 2015 a “transition
year,” as the beverage giant makes moves to better position itself in a world where global volume for its beverages has been muted” (Coca-Cola, Fortune 500).

Conclusion
Thus, the assessment of the corporate governance and corporate social responsibility of the Coca Cola Company based on the OECD principles of corporate
governance and other relevant materials shows that the company complies with the adopted corporate governance guidelines. The Coco Cola Co. is a leading
publicly traded company from the S&P 500 list. Taking into consideration the major findings of the analysis, it is possible to conclude that the company has
demonstrated strong responsibility to its shareholders and other stakeholders, including society in general. Although the net revenues declined 2% in the
quarter, currency neutral net revenues increased 4%. The Company achieved global value share and volume share in its products in the quarter, continuing to
strengthen its brands in the competitive market. The Coca-Cola Company’s corporate governance helps to set and meet the established strategic goals. In
addition, the Company’s corporate governance structure ensures effective controls and implementation of policies and guidelines that help to achieve the key
organizational goals and satisfy stakeholders’ needs. Due to the implementation of effective business plan and strong corporate governance policies, the Coca
Cola products are in demand worldwide. There are certain implications for the firm, investors, regulators and the economy. These implications include the
challenges associated with the increase of the company’s stake in the global market, environmental concerns and health concerns caused by poor quality of
products. The company should make improvements in the identified areas, strengthening corporate social responsibility and corporate governance. Investors
should consider the challenges that may lead to financial losses. Regulators should make the laws and regulations stricter to avoid violations of human rights.
The US economy may be damaged because of the increased competition and inflation, leading to reduction in exports.

Appendix
 Fig. 1 The Coca-Cola Co. Corporate Governance

Works Cited

Bosch-Badia, Maria T., Montllor-Serrats, Joan & Tarrazon, Maria A. “Corporate Social Responsibility from Friedman to Porter and Kramer,”Theoretical
Economics Letters, 3 (2013):11-15.

Coca-Cola. 2015 Ranking. Forbes. Available from: <http://www.forbes.com/companies/coca-cola/>

Coca-Cola. Fortune 500. Available from:< http://fortune.com/fortune500/coca-cola-63/>

G20/OECD Principles of Corporate Governance. Available from:<http://www.oecd.org/daf/ca/Corporate-Governance-Principles-ENG.pdf>

Jordin, April. “The Coca-Cola Foundation Gives Back $84.5 Million in 2015,” the Coca Cola Company, Official Website. Available from<
http://www.coca-colacompany.com/giving-back/the-coca-cola-foundation-gives-back-84-5-million-in-2015/>

The Coca-Cola Co. Annual Report. 2015. Retrieved from:< http://www.coca-colacompany.com/content/dam/journey/us/en/private/fileassets/pdf/investors/2015-

annual-report-on-form-10-k.pdf>

The Coca-Cola Company, Official Website, Code of Business Conduct. Available from:< http://www.coca-colacompany.com/investors/code-of-business-
conduct/>

The Coca-Cola Company. Official Website. Mission, Vision & Values. Retrieved from:< http://www.coca-colacompany.com/our-company/mission-vision-
values/>

The Coca-Cola Co., Official Website, Corporate Governance. Retrieved from:<http://www.coca-colacompany.com/investors/corporate-governance/>

The Coca-Cola Co. Profile. MarketWatch. 2016. Available form: http://www.marketwatch.com/investing/stock/ko/profile

The Coca-Cola Company, Official Website, HIV/AIDS Initiatives. 2012. Available from: http://www.coca-colacompany.com/stories/hiv-aids-initiatives/

List of Figures

Fig. 1. The Coca-Cola Co. Corporate Governance. 2013 Proxy Statement. Available from:
<http://www.sec.gov/Archives/edgar/data/21344/000130817913000044/lcocacola2013_pre14a.htm#_N11BD3>

Sharing is caring!

Facebook
Twitter

Related posts:

1. A Proposal to Coca Cola to Use Google Plus

2. Coca-Cola’s Sustainable Management Practices
3. The PR Campaign by the Coca Cola Company In Social Media
4. The Franchising Strategy Of The Coca Cola Company Essay