This paper focuses on the nature of the relationship between organizations and stakeholders. It investigates how business leaders view their relationship with a particular stakeholder group, namely, society - Coca Cola India.

University Degree Business and Administrative studies

EXECUTIVE SUMMARY

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.

The purpose of the organization, however, can be perceived in a much wider context. Henry Ford has been quoted as saying that: "A business that makes nothing but money is a poor kind of business." Management theorists have supported this concept from Chester Barnard in 1938(FN5) through to Henry Minztberg in 1983. They maintain that while profits may be an essential pursuit of the company, they may also be seen as a means rather than an end. According to Handy the desirable outcome for an organization's pursuits is the continued survival of the business in order to maintain its contract with its various stakeholders, including the wider community. Most commentators now agree that business organizations have some role to play in society; however, opinions vary greatly as to the nature of this responsibility. In the last two decades, the stakeholder perspective has addressed the question of corporate responsibility extensively.

In the 1980s the classical stakeholder theory was further extended to include the concept that the organization has a moral relationship with entities other than its owners.(FN8) This claim was based on the assumption that an organization, as opposed to an individual, possesses moral status and therefore has to act in a morally responsible manner. For Evan and Freeman this concept entailed two significant principles. The first principle of not harming the rights of an individual is based on deontological ethical reasoning. The second principle, of being responsible for the effects of the organization's actions, is based on consequentiality tenets. The authors make note that both these branches of moral theory must exist in balance within the modern corporation. Thus, the stakeholder model balances the rights of claimants on the corporation with the consequences of the corporate form. Stakeholder theory can be compared with the utilitarian stream of consequentialism. The suggestion that the organization has to balance its relationships with the various groups with which it deals in order to maximize the benefits for those groups overall is supported by utilitarianism. Such an argument has high face validity.

This paper focuses on the second of these issues, the nature of the relationship between organizations and stakeholders. It investigates how business leaders view their relationship with a particular stakeholder group, namely, society. Importantly, the attention is given not only to the attributes of the stakeholder, but to the orientation of the organization and its managers. Initially, literature discussing the definition and typology of stakeholders is considered. Then there is an exploration of the concept of stakeholder orientation. Empirical work in the area is also examined. Subsequently details of the current investigation are presented. Finally several suggestions are made regarding the nature of the relationship between community and corporation.

CONTENTS PAGE

1 INTRODUCTION

INTRODUCTION

While The Coca-Cola Company (Coke) is a global company with some of the world's most widely recognised brands, its business in India is perceived as a local business. 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.

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After a 16-years absence, Coke returned to India in 1993. Its presence in India was cemented in November that year in a deal that gave Coca-Cola ownership of the nation's top soft-drink brands and bottling network. Coca-Cola India has made significant investments to build and continually improve its business in India, including new production facilities, wastewater treatment plants, distribution systems and marketing equipment.

Coca-Cola India promises to benefit and refresh everyone it touches ...

This is a preview of the whole essay

Coca-Cola India promises to benefit and refresh everyone it touches and they strive to deliver this promise by creating a stronger and more sustainable future for their future and for the community they serve. It commitment to its stakeholders is as follows:

At the heart of our business is the trust consumers place in us. They rightly expect that we are managing our business according to sound ethical principles, that we are enhancing the health of our communities, and that we are using natural resources responsibly.

It has made significant investments to build and continually improve its business in India, including new production facilities, wastewater treatment plants, distribution systems and marketing equipment. During the past decade, the Coca-Cola has invested more than US$1 billion in India. As such Coca-Cola is one of the country’s top international investors. In 2003, Coca-Cola India pledged to invest a further US$100 million in its operations.

Coca-Cola directly employs approximately 10,000 local people in India. In addition, several independent studies have documented that, by providing opportunities for local enterprises, the Coca-Cola business also generates a significant employment “multiplier effect”. In India, it indirectly create employment for more than 125,000 people in related industries through their vast procurement, supply and distribution system.

THE EVENT

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 area’s most precious resource, an investigation was conducted This was further epitomize with the area's farming industry being devastated and jobs, as well as the health of local people, have been put at risk.

As part of the probe sludge samples were sent to the UK for examination at the University of Exeter. Tests revealed that the material was useless as fertilizer and contained a number of toxic metals, including cadmium and lead. The senior scientist, David Santillo, said: "What is particularly disturbing is that the contamination has spread to the water supply - with levels of lead in a nearby well at levels well above those set by the World Health Organization." According to Britain's leading poisons expert, Professor John Henry, consultant at St Mary's Hospital in London, immediate steps should be taken by the authorities in India to ban the practice immediately. The levels of toxins found in the samples would, he said, cause serious problems - polluting the land, local water supplies and the food chain. "The results have devastating consequences for those living near the areas where this waste has been dumped and for the thousands who depend on crops produced in these fields," Professor Henry said. Cadmium is a carcinogen and can accumulate in the kidneys, with repeated exposure possibly causing kidney failure. Lead is particularly dangerous to children and the results of exposure can be fatal. Even at low levels it can cause mental retardation and severe anaemia. Professor Henry said: "What most worries me about the levels found is how this might be affecting pregnant women in the area. You would expect to see an increase in miscarriages, still births and premature deliveries."

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. "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.

This news was widely covered in the local Indian newspapers and websites created by local NGOs. The Coca-Cola website also covered the details, however more in their arguments against the accusations.

WHY DOES THE ABOVE INFLUENCE THE PERCEIVED LEGITIMACY OF COKE?

Currently, the three leading normative theories of business ethics are the stockholder, stakeholder, and social contract theories. These theories present distinct and incompatible accounts of a businessperson's ethical obligations, and hence, at most one of them can be correct. The stockholder theory is the oldest of the three, and it would be fair to characterize it as out of favour with many contemporary business ethicists. In contrast, the past decade and a half has seen the stakeholder theory gain such widespread adherence that it currently may be considered the conventionally-accepted position within the business ethics community In recent years, however, the social contract theory has been cited with considerable approbation and might accurately be characterized as challenging the stakeholder theory for pre-eminence among normative theorists.

In the business setting, 'social responsibility is often employed as a synonym for a business's ethical obligations. This is unfortunate because this loose, generic use of the phrase can often obscure or prejudice the issue of what a business's ethical obligations truly are. To see why, one must appreciate that the phrase is also used to contrast a business "social" responsibilities with its ordinary ones. A business's ordinary responsibilities are to manage the business and expend business resources so as to accomplish the specific purposes for which the business was organized. When a business is organized strictly for profit, it may be part of a manager's ordinary responsibilities to expend business resources for socially beneficial purposes when he or she believes that such expenditures will enhance the firm's long-term profitability (e.g., through the creation of customer goodwill). When the phrase 'social responsibility is used in contradistinction to this, the claim that businesses have social responsibilities indicates that they are obligated to expend business resources for socially beneficial purposes even when such expenditures are not designed to help the business achieve the ends for which it was organized.

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. 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.

HOW COKE DETERMINED THE THREAT?

Manager’s at Coke assessed the threat of this event by evaluating the damaged reputation and decreasing sales in ten states. Furthermore as Coca-Cola division president Sunil Gupta explains that its plant extracts only 300,000 litres per day even though it had permission from the government to use up to half a million litres however these figure were challenged by environmentalist, that says that 1.5 million litres of water are extracted every day through a number of tube wells installed within its premises. This should also likely influence the threat to Coke’s legitimacy.

Lastly, in August, 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. 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 of Coca-Cola.

HOW COKE RESPONDED?

Stung by a series of controversies Coca-Cola India hired Perfect Relations to help rebuild its damaged reputation and sales in ten states. This was Coke’s response following the recent controversy over pesticides in soft drinks, in a damning report filed by Centre for Science and Environment (CSE).

One of the first initiatives of Coca-Cola was to establish an 'independent' external advisory board. At the conclusion of its first advisory board meeting in December 2003, Coca Cola India announced that it had decided to establish India Environment Council to guide the company on various environment-related matters. The decision to form the India Environment Council was made in New Delhi this week at the first meeting of the newly formed India Advisory Board of the company. Justice B N Kirpal, a former chief justice of India, has agreed to lead the council as its chairman. The team's focus will be to help Coca-Cola implement and maintain it environmental plans and policies.

However, if the formation of the advisory committee was designed to deflect attention, it was of little help when two days after its first meeting the Kerala high court ordered the company to stop extracting groundwater for its bottling plant near Plachimada village. The ruling followed a 608 day long protest by local villagers who complained the water extraction by Coca Cola was so great it was drying their rice paddies out and killing their coconut palms.

Coca-Cola 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 sucessful the efforts taken by the Management would help Coca-Cola regain its postitive image in India, however its is being aggressive in its drive.

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REFERENCES

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Strategic Management, A cross-Functional Approach, Stephen J. Porth

Appendix A – The Petition

To: Coca-Cola Company

To:
Mr. Douglas Daft
Chief Executive Officer
The Coca Cola Company
Atlanta, GA

Dear Sir,

We are concerned individuals who consume a variety of Coca-Cola
products. Of late, we have come across of several serious allegations
levelled against Coca-Cola Indian operations. These allegations have
resulted in a loss of confidence among us in the brand of Coca-Cola
and Coca-Cola International as a socially responsible corporate
citizen. We have decide to defer purchasing all Coca-Cola products,
until you are able to restore our confidence in your company by taking
decisive and appropriate action.

Four recent allegations are of particular importance to us:

(i) Allegation that Coca-Cola bottling plants in Plachimada[2] in
Kerala and Mehdiganj[3] in Uttar Pradesh pass on sludge as
fertilizer causing health and environmental damage.

(ii) Allegation that excessive depletion of water table caused by
Coca-Cola bottling operations is resulting in drastically
reduced availability of water for irrigation purposes which is
devastating local communities.[3]

(iii) Allegation that security personnel at Coca-Cola plant at
Mehdiganj used excessive force against unarmed citizens
protesting the damage caused by the manufacturing unit.[4]

(iv) Allegation that Coca-Cola bottled water and drinks manufactured
in New Delhi and Mumbai contained pesticides when tested by
reputed NGO Center for Science and Environment.[1]

The response of Coca-Cola India has been less than satisfactory. For
example, in case of the toxic sludge problem in Kerala, Coca-Cola
India Vice-President Sunil Gupta asserted that the sludge can be used
safely as a fertilizer[2] which was contradicted a few days later by
Coca-Cola India Vice-President (technical) D. S. Mathur who denied
that the the sludge was being used as a fertilizer at all. The
toxicity of the sludge was verified at a European university and the
story was covered by BBC. In case of the pesticide content in the soft
drinks, Indian Government laboratories had mixed results[6] whereas
Coca-Cola India has claimed to have received a clean chit. Our most
serious concern, however, is with the loss of people's livelihood
(without consent or compensation) because of your activities. All this
is compounded by the belligerent attitude and fact distortion through
claims of political vendetta [7].

In light of the inadequate response from Coca-Cola India, we ask for
the following corrective action:

(a) Investigate the claims of ground water depletion at Coca-Cola
bottling plants in India. If found to be true, corrective
action be taken to ensure that the local communities are not
affected, and those affected are properly compensated.

(b) Investigate the sludge-related claims, and if found to be true,
take corrective action at the plant. Further, individuals at
the two locations suffering from health problems attributable
to the sludge must be provided health care and compensation.

(c) Investigate the alleged use of excessive force at Mehdiganj,
and if found to be true, (1) apologize to the protestors
regardless of the your disagreement with the reason for their
protest (2) take action on appropriate manufacturing unit
personnel, (3) provide medical care and compensation for the
victims and finally (4) address the concerns of the protestors.

(d) Test the samples of the soft drinks and bottled water across
India by reputable institutions in India and abroad to assure
us and our families that Coca-Cola products are safe to consume
in India.

We suggest that these investigations be conducted in an impartial way
(possibly in collaboration with a credible third party institution),
and the results along with any follow up action be made public.

Contact Information:

Douglas N. Daft,
The Coca-Cola Company,
One Coca-Cola Plaza,
Atlanta, Georgia 30313
United States of America
Fax: 404-515-7099
Phone: 1-404-676-2121
Email: [email protected]

Sanjiv Gupta,
President,
Coca Cola India
NK Enkay Towers,
Udyog Vihar, Gurgaon, 122106
India
Fax : 91-124-234 8136
Phone: 91-124-234 8041

Mr.A.K.Antony, Chief Minister
Government of Kerala
Room No:141, IIIrd Floor,
North Block, Secretariat,
Thiruvananthapuram, Kerala, India
Tel: +91-471-2333812, 2332184
Fax: +91-471-2333489.
Email: [email protected]

[1] Hard Truths About Soft Drinks
http://www.cseindia.org/html/press_releases/press_20030805_1.htm

[2] Coca-Cola's 'toxic' India fertiliser
http://news.bbc.co.uk/2/hi/south_asia/3096893.stm

[3] 'Toxic sludge': Coca-Cola on the defensive
http://www.hinduonnet.com/thehindu/2003/08/01/stories/2003080102431300.htm

[4] Magsaysay winner roughed up, arrested by police in Varanasi
http://www.hindustantimes.com/2003/Sep/11/181_370593,000900010004.htm

[5] Communities Reject Coca-Cola in India
http://www.corpwatch.org/issues/PID.jsp?articleid=7508

[6] Cola Muddle: CFL Backs CSE Findings
http://www.financialexpress.com/fe_full_story.php?content_id=41147

[7] No Water? Drink Coke!
http://www.corpwatchindia.org/issues/PID.jsp?articleid=1603

Sincerely,

The Petition to Coca-Cola Company was created by and written by . The petition is hosted here at as a public se

Appendix B – The Mission

The Coca-Cola Company believes our business has always been based on the trust consumers everywhere place in us—trust that is earned by what we do as a corporate citizen and by our ability to live our values as a commercial enterprise.

There is much in our world to celebrate, refresh, strengthen and protect.

Through our actions as local citizens, we strive every day to refresh the marketplace, enrich the workplace,.