Coca-Cola Company

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Coca-Cola Company
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Issues for Corporate Governance

• Questions are
• List the corporate governance changes at
  Coca-Cola that are internally Sarbanes-Oxley
  initiated and discuss how they are presented in
  HBS case?
• How has Coca-Cola performed strategically and
  financially since 1999? How do you explain this
  performance and how does compare with Pepsi Cola?
  

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Governing Process and Factors
Agent Problem between Ownership and Management

• Internal Mechanism (Organization) board
  meetings, shareholders voting
• External Mechanism (Market) stock market,
  ownership market

Change in Governance
Impact on Management
Change in mgt style Decision making, transactions
Increase in transparency
Change of mgt goals revenue, s.prices, dividends
etc.
Check and balance against the market
Changing in biz structrure, group governance,
etc.
Rule set-up against major influncers(SH)
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Development of Corporate Governance
Regulation on Rampant Evil
Rules on External Board Members
Sarbanes-Oxley
CEO World (Ownership)
Corruption/ Problems in CG (Enron etc.)
The Lawless (Beginning of 20, no govern.)
Systematic Survaillance on CG
Austin and Goizueta
Ivester Daft1
Woodruff
Daft 2
????Perpet by Financial Committee
Compliance to the board
Dictatorship
Advanced Governance/ Management
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Features of Board of Meeting
Austin and Goizueta
Ivester/Deft1 (1997)
Woodruff (1923)
Daft 2 (2002)
CEO
18 (70?) Internal 40, firm CEOs / after 83,
more diversified
13 (58) most from external firms except CEO
18 (no info) Internal cir 38, holding
coms (local investors)
16 (age 63) well balanced with experts
Board
Listening ????peppet/ no governing, Expansion In
the wars
Running Interest
Controlled by finance com. representing Woodruff,
Increasing conflict/change growth, M.fiasco
communcative/ decisive/ Adating period, Tough
time/ confrontation against Pepsi
Introduction of new standards/ advanced/ cooperati
ve/ inclusive
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Direction of Corporate Governance Changes

• Complying with NYSE standard, Independent board
  directors
• Expensing the stock options and grants
• Discontinuation of earnings estimates
• Disclosure committee,Internal reviewing committee
  
• Independent auditing committees, Expanded
  responsibilities by Financial expert
• Procedures for handling whistleblower complains

Corporate Governance after Sarbanes-Oxley

• Accounting/auditing standards have
  demonstrablybeen less good than we might
  reasonably wish them to be
• Regulatory environment is not perfect
• Ethical and cultural dimension is more
  fundamental
• Human frailty rather than human law lies at the
  heart of the corporate governance problem

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Investing for Growth and Strategy

• Sales Force And Sales Capability Marketplace
  Execution
• Route To Market
• Supply Chain
• Portfolio Expansion
• Key Strategy

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Coca Cola Business vs. Pepsico Business

• Coca Cola
• Equity Investment in bottlers
• Manage bottling operations
• No divestiture until acquirer has
• Aligned, Long-term Strategy For The Business
• Strong Financial Capability
• Depth Of Management Talent

• Pepsico
• Franchise system (No equity investment)
• Authorised bottles
• Independent distributors
• Party bottlers
• Below 50 ownership no control

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Coca-Cola vs. Pepsico Governance

• When Coca-Cola was facing charges about
  accounting irregularities and had disappointing
  earnings
• I.e.Forbes gave Pepsico A in corporate
  governance.
• Tom Lardieri, general auditor of PepsiCo
• "companies that have stronger governance
  practices generally demonstrate stronger
  financial returns

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Coca-Cola vs. Pepsico Governance

• Independent board
• Board nominated by outsiders
• Meet frequently separately from management
• 12/14 directors are considered independent
• Shareholders vote on the full board each year
• Driving corporate governance
• Web-based training programs
• Reporting of misconduct made easy (internet, toll
  free numbers)
• Database for tracking complaints at facilities
• More documentation and controls testing to ensure
  sound processes
• Processes for vendors
• Third party auditing

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Coke vs. Pepsi Share Prices
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Coke vs. Pepsi Operations
Pepsico
Coca Cola
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Comparison
Source ValuEngine analyst report
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Goverance and Market Performance

• McKinseys Global Investor Survey
• 80 of the institutional investors would pay a
  premium for a well governed company
• Well-governed companies, may benefit from a lower
  cost of capital
• Companies scoring high in corporate governance
  have outperformed markets in the 1990s
• No link between a single standard (like board
  composition) to performance

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• Thanks