Coke - Ethical Issues

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Themes: Ethics in Business
Period : 1999-2001
Organization : Coke, Belgian Health Ministry
Pub Date : 2002
Countries : Belgium
Industry : Food & Beverages

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Case Code : BECG014
Case Length : 12 Pages
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The Recall Contd...

The recall had a significant negative impact on Coke's financial performance with its second-quarter net income coming down by 21% to $942 million. Moreover, the entire operation cost Coke $103m (£66m) while its European bottling venture showed a 5% fall in revenues.

Analysts felt that the Belgium recall was one of the worst public relations problems in Coke's history. One analyst³ alleged that the company had information about people who had become ill weeks prior to the above incidents. Coke had an opportunity to disclose this information but it did not do so.

He blamed Coke for being unethical in not disclosing the information, "The instinct is to pull information in, and that is almost always wrong. The right move is to focus on the health of the customer.

Even though you don't think this information is relevant, you should get it out - because that allows people who might think it is relevant to go through whatever process they want to go through. Coke might have done a lot more than it did in the opening days of the crisis."

Another issue, which worried analysts, was the illness caused to the innocent school children. They blamed Coke's promotion strategy to sell soft drinks to school children which had raised lot of controversies in the US.

Background Note

Dr. John Pemberton, an Atlanta-based pharmacist, developed the original formula of Coke in 1886. It was based on a combination of oils, extracts from coca leaves (cola nut) and various other additives. The ingredients were refined to create a refreshing carbonated soda. Pemberton's bookkeeper, Frank Robinson, suggested that the product be named 'Coca-Cola'.

He even developed a way of lettering Coca-Cola in a distinctively flowing script. On May 8, 1886, Coke went on sale for the first time in the Joe Jacobs Drug Store. The first Coke advertisement appeared in 'The Atlanta Journal' on May 29, 1886. Pemberton, with modest help from several investors, spent $73.96 on advertising, but was able to sell only 50 gallons of syrup at $1 per gallon. The product slowly gained acceptance after a heavy outpouring of free sample drinks.

In 1888, after Pemberton's death, Asa Candler, Pemberton's friend and a wholesaler druggist purchased a stake in the company. Coke sales soared even without much advertising and as many as 61,000 servings (8 ounces) was sold during 1889. Sensing the potential of the business, Candler decided to wind up his drug business and be associated with the Coke full time. As the business expanded, Candler also increased the advertising outlay.

By 1891, Candler had complete control of Coke for $2,300. In 1892, Candler formed 'The Coca-Cola Company' and, a year later, registered 'Coca-Cola' as a trademark. Only Candler and associate Robinson knew the formula. It was then passed on by word of mouth and became known as the 'most closely guarded secret in the American industry'. Despite occasional rumors, company sources maintained that cocaine was not an ingredient in Coke's formula.

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3] Thomas Donaldson, professor of legal studies at Wharton and Director of the Wharton Ethics Program, in an interview with Knowledge@Wharton.