Sensible business strategy

The Coca-Cola Company (Coke) is a global company with some of the world’s most widely recognized brands, its business in India is perceived as a local business (Coca Cola In Hot Water 2005). The beverages are produced locally, Indian citizens are employed, the product range and marketing reflect Indian tastes and lifestyles, and they profess that they are deeply involved in the life of the local communities wherever they operate.

However in 1993 when operations started in Mehdiganj, near the holy city of Varanasi, environmental issues started arising. Following complaints from villagers, politicians, environmentalists and scientists, that water supplies were drying up because of the massive quantities of water required by Coca-Cola and as such indicating that the firm was robbing the community of the areas most precious resource. (Srivastava 2006). This was further epitomized with the area’s farming industry being devastated and jobs, as well as thehealthof local people, been put at risk. This essay will look more closely on the management response to stakeholders, with regards to Clarkson’s principle number four; through which the organisation attempts a fair distribution of benefits and burdens.

” WATER is to Coca-Cola as clean energy is to BP.” So declares Jeff Seabright, Coca-Cola’s manager of environmental affairs (Coca Cola In Hot Water 2005). The analogy with oil might seem odd but it isn’t so far fetched. B. P has long been the target of activists clamouring for action on global farming. Coca-Cola has also been targeted by activists, but over the issue of water rather than energy. The firm has been hit hardest in India as it used 283 billion litres of water in 2004. First, experts from Delhi’s Centre forScienceandEnvironment, a green think-tank, tested various soft drinks and determined that they contained high levels of pesticide (Coca-Cola’s ‘toxic’ India fertiliser 2003).

It turned out that Coca-Cola was not the cause of the problem. But its inept handling of the accusations left the firm exposed to a much more damaging allegation: that it is aggravating the growing global problem of fresh-water scarcity (Devraj 2003). As it has hugely impacted several Indian states as Coke’s unquenchable thirst for water has been blamed for exhausting scarce underground water supplies, resulting in crop failures for local farmers, Twenty villages in the vicinity of Coca-Cola’s bottling plant in Mehdiganj, in northern India, have embarked upon an indefinite vigil on March 23, demanding that the plant shut down before summer begins, when water shortages are particularly acute.

Besides the water shortages that have been of concern, another major concern is the production and sales of sub-standard drinks in India. In august 2003 the director of the Centre for Science and Environment, Sunita Narain, a government agency, announced that 12 major cold drink brands manufactured by Coca-Cola sold in and around Delhi contained a deadly cocktail of pesticide residues, including potent chemicals which can cause cancer, damage the nervous and reproductive systems and reduce bone mineral density (Clasper 2003) . Coca-Cola of course, immediately denounced the agency’s findings, but in terms of sales, the damage had already been done. The announcement however ignited outrage around the country, including on the floor of the Indian parliament and thus was a threat to the legitimacy ofCoca-Cola.

This has resulted in many protests in India, and one such example is when over a thousand community members adversely affected by Coca-Cola marched to the Coca-Cola factory premises in Mehdiganj, near the holy city of Varanasi in India demanding that the factory shut down. The march in Mehdiganj was the end of a 10 day, 250 km march from Ballia, the site of another Coca-Cola bottling facility, to Mehdiganj, bringing attention to Coca-Cola’s negative impacts on communities across India (Stecklow 2005) . ” Coca-Cola is stealing our water, our land and getting away with it legally. And they are calling our struggle for our livelihoods, our existence, illegal,” said Nandlal Master, one of the organizers from Lok Samiti and the National Alliance of People’s Movements.

The spirit of corporate citizenship suggests that a company that derives profit from the community has an obligation to contribute to its development…. It is reasonable to expect the principle of mutual obligation to apply to the business sector – John Howard, Prime Minister of Australia, 1998. This quote is an example of what coca cola should be doing, and it relates to Clarkson’s principle four which states that ” managers should recognize the interdependence of efforts and rewards among stakeholders” (Szwajkowski 2000). Through which the organization should distribute the benefits and burdens among the stakeholders fairly. Managers inevitably have to monitor both theprimary and secondarystakeholders, making sure that they are able to identify the interdependence between the two and make sure that there burdens and risks are no greater than they are willing to bear.

In the Kerala Coca Cola plant in India, the primary stakeholders consist of almost 6000 individuals, and Coca Cola indirectly influences up to 125 000 individuals who are vulnerable to the to the effects of change and low confidence in the organization, in time of uncertainty. This principle relates to coca cola India, the managers have segregated stakeholders through unfair distribution of benefits. Selling coke that contains high levels of pesticides, as well as draining local water supplies, puts immense pressure on the consumer market, and directly affecting the primary stakeholders, which include the government, shareholders and employees.

There is a chain affect and the secondary stakeholders who are not directly involved with coca cola, however face the offsets of the organizations actions. As water is being used heavily by the organization which depletes the resource for the local farmers, as well as waste that is excreted by the organization into the water system is one the reasons for unrest in Kerala, leading to mass protests and eventually coca cola stopped production.

On a larger scale in India due to the constant protests coca cola is making an effort to regain consumer sovergnity through providing beneficial services to the people of the village they operate in. Coca colas efforts have been mainly targeted at the consumers and the secondary stakeholders, which are the occupants of the villages they operate in for example creates jobs, provides pesticides at a discounted price to farmers in their vicinity as well as partnering with NGOs, as well as the Red Cross to provide free medical facilities and information to tens of thousands of underprivileged people in seven states in India as well as several villages near Coca-Cola bottling plants.

Furthermore the Coca-Cola Company in India has been recognized for its community programs and environmental practices by prominent global organizations such as the Red Cross and has won prestigious Indian environmental awards for environmental practices. They have also responded to these allegations by ” rainwater harvesting” projects at 26 plants, cutting water use by 25 per cent and shipping in drinking water to stricken villages. But Dr Sandeep Pandey, a prominent critic, is unimpressed. ” The visible employment that Coke generates is smaller than the large numbers of hidden and unorganized people it puts out of business, like the vendors of traditional Indian fruit drinks and hence the farmers supplying them. Another goodwill attempt that backfired was Coca-Cola’s distribution of solid waste from its bottling plants to farmers in the area as fertilizer.

The British Broadcasting Corporation (BBC) had the waste tested and found extremely high levels of heavy metals such as lead and cadmium in the waste, effectively making the solid waste toxic (Coca-Cola’s ‘toxic’ India fertiliser 2003) . When confronted by the BBC reporter on their practice of distributing toxic waste as fertilizer, Coca-Cola’s Vice-President said, ” It’s good for the farmers because most of them are poor.” The Coca-Cola company was ordered to stop the practice by the government authorities immediately

Coca cola eventually undertook an environmental impact assessment and it is understood that the sludge waste from the plant was fertiliser and said the company complied with all local environmental laws and stood for the welfare of the community. It is difficult to ascertain how successful the efforts taken by the Management would help Coca-Cola regain its positive image in India, however they have been aggressive in their drive. Coca cola should have taken these precautionary measures much earlier to avoid hefty losses as well as large protests. If coca cola set up, as they have done now, various institutions to repay the villagers, througheducationas well as health benefits such a catastrophe could and could have been avoided.

Identifying stakeholders is a difficult task, and even once it is done being able to determine fair distribution of benefits and burdens of corporate activity challenging (Szwajkowski 2000). Conforming to the principle is unformidable as fair distribution is unachievable. However, in some cases, projects may have consequences or risks that cannot be fully understood or appreciated by critical stakeholders. When this situation occurs, managers haveresponsibilityto restructure projects, abolish unacceptable consequences, or if it is necessary to abandon them entirely. Coca Cola never did this, as the managers response to the situation was slow and resulted in until today the plant in Kerla having seized operationg. After all Coca cola is a public listed company with a sole motive of profit maximization at the lowest possible costs.

This would inevitable result in unfair distribution, mainly to benefit the individuals in positions of power, through which they are able to justify there actions. For example local employees are hired and fired, as and when the organization finds it acceptable, as there is such a large readily available workforce in many villages in India, there is no possible was in order to maximize production will the organization share and distribute benefits fairly.

When social responsibility in this narrow sense is conflated with social responsibility as a synonym for a business’s ethical obligations in general, it groundlessly implies that businesses do, in fact, have ethical obligations to expend business resources in ways that do not promote the business’s fundamental purposes (Donaldson and Preston 1995). Hence, taking the above into consideration, Coke has failed in its social responsibility obligation towards ensuring it preserves the environment and strengthen the confidence of the local communities.