The Corporate Social Responsibility Initiatives On Coca Cola Business Essay

Huirao Rong

B135151

Introduction

Traditionally, in order to fulfill the goal of a firm, the company should maximize the value for its stockholders. To some extent, maximizing the value of firm is equivalent to fulfill the goal of value maximization for stakeholders (Wang, 2011). Recently, increasing number of firms begin to consider corporate social responsibility in their business environment.

This article begins with the overview of the development of Corporate Social Responsibility, presenting the conceptual framework of Corporate Social Responsibility. Then with reference to one international firm -- Coca-Cola, discussing whether the international firms implement Corporate Social Responsibility initiatives to enhance their global image, and how the company’s CSR initiatives reflect a managerial commitment to some pollution issues.

Literature

According to Raynard and Forstater (2002), Corporate Social Responsibility can be defined as variously version:

‘The continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as of the local community and society at large (World Business Council for Sustainable Development).

Being socially responsible means not only fulfilling legal expectations, but also going beyond compliance and investing more into human capital, the environment and relations with stakeholders (The European Commission).

Operating a business in a manner that meets or exceeds the ethical, legal, commercial and public expectations that society has of business (Business for Social Responsibility).’ (p.5)

Business Ethics and Corporate Social Responsibility

The earlier academic definition of corporate social responsibility was defined back to the 1960s. Carroll (1991) presented that, CSR can be described as a multi-layered concept and include four interrelated aspects: economic, legal, ethical and philanthropic responsibilities. This dimension of corporate social responsibility was proposed a pyramid structure by Carroll, as shown in Figure 1. The bottom level of the pyramid was economic responsibility, implying that the basic social responsibility of a firm was to provide products and services to create a profit in economy. Specially, economic responsibility was the base of implementation of other corporate social economic responsibility. The second level is legal responsibility which means the company should obey the laws and follow the rules. In the third level of CSR pyramid, the ethical responsibility implies that companies should abide by the rules of business ethics for purpose of keep the society peacefully. Lastly, at the top of the pyramid dimension was philanthropic responsibility. It indicates that firms should be expected to serve as a good corporate citizen and to improve the quality in human society (Wang, 2011).

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Moreover, business Ethics is also called corporate ethics, which applied to the application on analyzing the problems in company activities from the perspective of morality and ethics (Wang, 2011). Furthermore, the issues of business ethics could be represented to any one of the five categories: products, human resource, environment, society and others (Brooks, 1989 cited in Wang, 2011). In other word, the business ethics relate to the corporate social responsibility performance in business, affecting the benefit of company and society.

International Trends of Corporate Social Responsibility

Following the trend of internationalization, the concept of corporate social responsibility has attracted attentions by various segments of society. Many multinationals recognized that corporate social responsibility as a key component of corporate value by evaluating a firm’s socially responsible investment (SRI) in society (Wang, 2011). However, there are many issues damage reputation of multinational which ranging from environmental pollution to child labour and racial discrimination. The public scandals resulted in media attention and reflect the issues behind the operation of companies (Torres, Garcia-French, Hordijk, Nguyen and Olup, 2012). It means that corporation tends to apply corporate social responsibility strategy to maintain the competitive situation, but some problems still accomplish the operation of corporation.

Corporate Social Responsibility and Firm Performance

Recently, corporate social responsibility was known as a socially responsible investment of a company. Moreover, the implementation of corporate social responsibility would influence the performance of corporations. According to Preston and O’Bannon (1997), suggested that in order to improve the firm performance, a socially responsible company should establish a higher complete managerial system. Besides, after considering the profits of stakeholders in the decision-making process, the company would acquire a more satisfaction from business marketing. Furthermore, it would highly enhance corporate reputation on the customer side when a company realizes its corporate social responsibility.

Although most literatures on corporate social responsibility demonstrated that a corporation has a better firm performance when fulfilling its social responsibility. Nevertheless, some literature has different idea (Torres, Garcia-French, Hordijk, Nguyen and Olup, 2012). For example, Mahapatra (1984) indicated that, external investors like rational economic investors, reflecting the expenses of pollution prevention firms to stock return, which would has a negative impact on stock return. In other word, when corporation invests largely expenses in improving corporate social responsibility, it may damage the benefit of stockholders.

Nowadays, the researches on corporate social responsibility were directed to see ‘the implementation of corporate social responsibility as a dynamic process of strategic investment in a firm’ (Torres, Garcia-French, Hordijk, Nguyen and Olup, 2012, p. 791). In addition, Peters and Mullen (2009) suggested that the effects of corporate social responsibility could be accumulated and enhanced positively in the long term period, which leading to a better firm performance.

Research Method

This assignment through the desk research method to present omnifarious conflict and dilemma Coca-Cola suffered in India, to analyze the necessity that Coca-Cola enhances its global image and reputation. The article also analyzes the response of multinational toward these conflicts, and describes how the company handles and whether the company implemented specific Corporation Social Responsibility in detail.

Furthermore, the article makes use of company reports on the website of Coca-Cola over few years, academic journals and books, online statistics figure and non-governmental organization (NGO) reports. Besides, the article mainly reference primary data for getting conclusion. Combing with these information, it is useful for reader to analyze whether the corporation achieve success and enhance brand reputation.

Coca-Cola Case Study

4.1 Background

Coca-Cola Company was established as a local soda manufacture in Atlanta in 1886. Since 1920s, the firm had begun selling its products in the Caribbean and Canadian markets. After that, Coca-Cola continues extending internationally, such in Asia, Europe, Soviet Union and South America. By the end of the 20 century, Coca-Cola became a multinational that selling its goods in almost every country in the world. In 2005, Coca-Cola became the largest manufacturer, distributor and marketer of non-alcoholic beverages in the world (Coca-Cola, 2010).

Coca-Cola established Corporate Social Responsibility policy with the concept of ‘Live Positively’, which include seven core areas: beverage benefits, active healthy living, the community, energy and climate, sustainable packaging, water stewardship and the workplace. These core areas were set by firm to fulfill goals and improve sustainability practices (Torres, Garcia-French, Hordijk, Nguyen and Olup, 2012). In addition, ‘Coca-Cola has adopted some international Corporate Social Responsibility guidelines, such as Global Compact, Respect and Remedy Framework, however, these guidelines do not seem to be integrated into the code of business conduct’ (Torres, Garcia-French, Hordijk, Nguyen and Olup, 2012, p.53). Moreover, Coca-Cola implements more initiatives to enhance its reputation. For example, after the environmental conflict in India, Coca-Cola became a member of CEO water Mandate and collaborated with World Wildlife Fund (WWF), concerning the water issues of firm and the control measure.

According to Torres et.al (2012), since 2001, Coca-Cola published a separate annually report devoted to develop Corporate Social Responsibility. These reports were published every two years and verified and assured by a third party. Both annual company review report and the sustainability reports are illustrated based upon the Global Reporting Initiative (GRI) G3 guidelines. Because the corporate social responsibility is relate to the success of business, the firm also cover the progress of the environmental targets in the annual report.

4.2 The response to the water issues

In 2003, a report by the India non-government organization (NGO) Centre for Science and Environment proved the existence of pesticides, in the sample of Coca-Cola and PepsiCo beverages in India, exceeding the European standards. The NGO began to against Coca-Cola because NGO claim Coca-Cola products contain pesticides, which largely polluted groundwater and other water sources (Torres, Garcia-French, Hordijk, Nguyen and Olup, 2012). Furthermore, in 2006, the Center for Science and Environment (CSE) published the second test about Coca-Cola products which also contain high level of pesticide (Burnett and Welford, 2007). However, a study by The Energy and Resources Institute (TERI) concluded that the water used in Coca-Cola in India is free of pesticides in 2008. TERI argued that because the final products did not be tested, other ingredients could contain pesticides in process (Burnett and Welford, cited in Torres et.al, 2012).

In addition, Coca-Cola accused of causing water shortages in Kerala of southern India. Moreover, Coca-Cola was also accused of water pollution by exhaling sewage water into fields and rivers surrounding the plants of Coca-Cola. Particularly, the long legal procedures by the India government were not the only conflict faced by Coca-Cola. Furthermore, the most important is that Coca-Cola lost a great of trust of consumer in India by damaged brand image (Vedwan, 2007). For example, the turnover dropped about 40% within two weeks in India after the release of the 2003 CSE report, and the annual turnover decreased 15% in year 2003 (Pirson and Malhotra, 2008). The damaged brand reputation not only influences the customers in India, but also affects the behaviour of consumers in US. According to New York Times (2005), Ten American Universities stopped selling Coca-Cola beverage at campus facilities after the conflicts occurred in India.

Pirson and Malhotra (2008) presented that, the reason why these conflicts affect the reputation of Coca-Cola rely on its reaction to the problem. At the beginning of the conflict, Coca-Cola refused to acknowledge their products contain pesticides and denied its productive process polluted water resources. By contrast, the previous conflicts in the US and Belgium were better handled by the firm because it related to stakeholder benefit. ‘By denying all claims and trying to prove its integrity, instead of demonstrating concern towards the situation, Coca-Cola failed to regain consumer’s trust’ (Pirson and Malhotra, 2008, pp. 9-10). Over the few years, the company became aware of its mistake on the controversy. As a result, Jeff Seabright, Coca-Cola’s vice president of environment and water resources, acknowledged that the company had not adequately handled the issues (Time Magazine, 2008).

4.3 The effect on a company’s corporate social responsibility policy

The controversy in India led to reputational damage on Coca-Cola brand, as a result, the firm began to take damage-control measures. For instance, according to the Coca-Cola India report (2012), Coca-Cola published its first environmental report which covered activities from 2004 to 2007 on operation in India. In addition, the company adopted projects which could turn the firm into a ‘net zero’ user of groundwater by 2009. In the 2012 Water Stewardship and Replenish Report, Coca-Cola indicated that its operation have ‘achieved full balance between groundwater used in beverage production and that replenished to nature and communities, ahead of the global target’ (p.21). The experiences of controversy in India, it motivated the firm to grow and take corporation social responsibility policy on a global that focuses on water management.

Furthermore, Coca-Cola became a membership in World Wide Fund for Nature (WWF) in 2007. It aims to improve the water usage of Coca-Cola and develop the framework to maintain water sources (Lambooy, 2010). In addition, according to Coca-Cola Company (2011), the company also entered into a membership of the public-private initiative CEO Water Mandate in 2007, which assists firms in the implementation and disclosure of water sustainability policies

These sustainable implementations reflect the determination that improves corporate social responsibility to safeguard the image of the enterprise and economic benefits. Combing with these measures and decisions, Coca-Cola promote its brand reputation which largely influence the consumer behaviour.

Analysis

It is widely believed that high-value brand is particular important to company to operate its business. The high-value brand should include the good company performance relate to sustainability issues, it reflect a level of company corporation social responsibility, while poor performance was exposed by media or consumers. According to Business in the Community (2007) survey, it indicated that 86 per cent of customers that they have positive image of a company if the company is doing something to make the world become a better place. When the pollution issues of Coca-Cola were exposed to public, the company ignores the existed problem and denied to improve these situations. As a result, the public have negative image of the behaviour in company and reject to purchase products spontaneously. Under this circumstance, Coca-Cola has to consider sustainable project to resolve a series of issues, in order to improve company brand reputation. In other word, the main drivers that force Coca-Cola to change are public pressures. Such as the consumers, media, the government and other pressure groups, which drive the company to adjust projects and devote to improve company reputation in India. These projects mainly consider environment area, such as water shortage, underground pollution and irrational water use.

When Coca-Cola suffered the reputation crisis in the India and America, the economical and societal influences continue to affect the development of corporation. On this occasion, company recognizes that improving their reputation and handling social and environmental problems are significant in their company goal success. In order to achieve the successful goal and enhance brand reputation, the corporation should plan Corporate Social Responsibility as one part of development strategies for a long term. The macro changes below in diagram 2 indicated that the reason why Corporate Social Responsibility is important in modern society.

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Particularly, after 2001, firstly Coca-Cola put corporation social responsibility as a core part of a development strategy of company. Secondly, the company was countered by India NGO, consumers, media and government in since year 2003, therefore Coca-Cola adopts to protection to protect its brand reputation. Thirdly, when Coca-Cola join into WWF as a member, it can achieve the improvement of water usage of company operation and development of the framework to maintain water sources, which can be offset against the manufacture costs in a long time period. Since Coca-Cola through these three processes in the business operation, the corporation social responsibility is becoming greater which are increasing the value of brand to the business. As a result, the company prefers to invest more in-depth and long term approaches to reflect the company corporation social responsibility. It will become a virtuous circle when corporation social responsibility become part of the core business strategy, largely promote the development of company and society.

Raynard and Forstater (2002) also suggested that, corporation social responsibility operation at three levels: Compliance, Harm minimization and Value creation (seen as Diagram 3). The first level includes some implementation of industry standards and legal responsibilities, such as, worker rights, consumer rights and environmental regulations. The second level can be described to consider minimizing or eliminating the negative effects of business on society. Coca-Cola Company tried to minimizing the negative effect on environmental pollution issues in India, to maximize the benefit for its brand. The finally level is aiming to raise the positive effects and creating value of company, for example, innovation, investment, partnership aligned towards social. For instant, Coca-Cola became a partnership in World Wide Fund for Nature (WWF) in 2007, published the company sustainable report about water usage and protection of underground, both two behaviours enhance the brand reputation to some extent. Coca-Cola Company still devote to develop its brand reputation by other corporation social responsibility measures, it create positive effects of business towards social and public. The engagement level of Coca-Cola is the top level, which indicated the determination of enterprise to protect the environment and the level of corporation social responsibility it should have.

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Conclusion

In conclusion, corporate social responsibility initiatives can mainly enhance its global brand reputation in Coca-Cola. After experiencing some conflicts and dilemma in India and US, Coca-Cola began to implement corporate social responsibility to maintain its reputation and customers. Although the conflicts affect the corporation image to some extent, the company finally improves its brand image and reputation through a series of CSR initiatives. Moreover, the company devoted to the global environment, it reflects the positive attitude toward the society and world. Coming with these corporate social responsibility initiatives, Coca-Cola not only makes contribution to the society, but also enhances its corporation reputation and image.

If Coca-Cola has successfully applies its corporate social responsibility, it would attract a great number of consumers to accept its brand. Therefore, after the experience of some conflict, the CSR initiatives of the company increase rapidly, facilitating to improve brand reputation, which would raise sales volume and benefit. In a long term period, Coca-Cola believed that the corporate social responsibility initiatives would make a significant role in business success. Also, there still some drawbacks by using CSR strategies, for instant, the expenses of CSR initiatives would damage the benefit of shareholders. However, the advantage of CSR initiatives would overweight the disadvantage toward society and company.