Coca cola is the worlds leading soft drinks company. Coca cola invested over $1bn between 1993 and 2004 on their bottling in Kerala. Most businesses have to consider the impact of their activities on stakeholders. Coca-Cola is no exception but their operations in the southern Indian state of Kerala have caused widespread concern and a string of claims and counter-claims by residents of the local community and the company.
The company faced severe criticism from activists and environmental experts who charged it with depleting groundwater resources in the areas in which its bottling plants were located, there by affecting the livelihood of poor farmers, dumping toxic and hazardous waste materials near its bottling facilities, and discharging waste water into the agricultural lands of farmers.
Despite all the criticism, the company continued its operations and decided to implement a wide range of initiative such as rainwater harvesting, restoring groundwater resources, sustainable packaging and recycling, and serving the communities where it operated.
Tuker's 5 model
Is it profitable?
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Yes, the investment has enabled coca cola to make a higher return. Coca Cola reported a modest growth in the profit margin from their conducts in India.
Is it legal?
Yes. Coca cola received £1.5m subsidy and help with its legal issues by the local government in India as an encouragement of their investment in India. It's difficult to create a direct link of the overexploitation of ground water by Coca cola.
Is it fair?
The fair decision depends on who you are. The issue is that Coca cola makes money as an ambition. It does so within the local law, and provides to the local community, hence is tacitly supported by the local community at large.
If we take the local people prospective who will be working in the company, the bottling plant in their village have provided them with job.
However, their conducts have drastically reduced availability of water for irrigation purposes.
Is it right?
The decision maker has to make an ethical assessment of the rights of the poor community, the issues concerning human health and environment caused by Coca cola bottling operations against the economic benefits of the investment. Other information that can be helpful in making a judgement would include Coca cola's range of initiatives to improve the quality of life of its customers, the workforce, and society at large.
Is it sustainable?
The sustainable answer is a difficult one, as it means using less water to create coke or shipping it in which has adverse affects on national water levels as well as fuel transportation affects on environment.
Profitability vs. corporate social responsibility
Definitions of profitability and Corporate Social Responsibility?
Profitability is the ability of a firm to make profit.
Corporate Social Responsibility (CSR) is the decision-making and implementation process that guides all company activities in the protection and promotion of international human rights, labour and environmental standards and compliance with legal requirements within its operations and in its relations to the societies and communities where it operates.
R.H. Gray, D.L.Owen & K.T.Maunders, Corporate Social Reporting: Accounting and accountability (Hemel Hempstead: Prentice Hall, 1987) p. IX.
Not all businesses behave in socially responsible manner. There are people who would argue that it is not the job of business organisations to be concerned about social issues and problems.
There are two schools of thought on this issue:
In the Free market view, the job of business is to create wealth with the interests of the shareholders as the guiding principle. The companies see profit as their main objective.
Â R Freeman,Â Strategic managementÂ :a stakeholder approach(Pitman 1984)Â
The corporate social responsibility view is that business organisation should contribute to the economic, environmental and social sustainability of communities through the ongoing engagement of stakeholders, the active participation of communities impacted by company activities and the public reporting of company's policies and performance in economic, environmental and social arenas.
Habisch, André; Jan Jonker, Martina Wegner, R. Schmidpeter (eds.) (2005). Corporate Social Responsibility across the Europe. Heidelberg: Springer.
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If we take the free market view "the social responsibility of business- to use its resources and engage in activities designed to increase its profit so long as it stays will the rules of the game, which is to say, engages in open and free competition, without deception or fraud." [Milton Friedman,1970, American economist]
From an investor's perspective, the purpose of the business is to maximize profits. But that's not the purpose for other stakeholders--for customers, employees, suppliers, and the community. Each of those groups will define the purpose of the business in terms of its own needs and desires, and each perspective is valid and legitimate.
Many people will readily accept the arguments that caring about customers and employees is good business. But they might draw the line at believing a company has any responsibility to its community and environment.
After all, the corporation's assets legally belong to the investors, don't they?
Management has a fiduciary responsibility to maximize shareholder value; therefore, any activities that don't maximize shareholder value are violations of this duty.
The corporate responsibility view
Businesses do not have an unquestioned right to operate in society. Those who are involved in the management of business activities should realise that they depend on the society. They rely on inputs from society and on socially created institutions. There is a social contract between entities and society involving mutual obligations that society and business recognise each other.
The profitability against corporate social responsibility:
The moral imperatives of the company are simply to maintain the production of products and services in profitable manor.
The only social responsibility of business is to maximise its profit. The efficient use of resources will be reduced if businesses are restricted in how they can operate.
The pursuit of social goals has an effect on business's primary objectives which is to make maximise profit. Corporate management cannot decide what is in the social interest. The cost of implementing CSR will be passed on to consumers resulting in a reduced economic efficiency and profit. The corporate social responsibility puts unnecessary responsibilities on businesses rather than on government or individuals.
(Smith's, The Theory of Moral Sentiments)
The argument for socially responsible behaviour would be that it is ethical thing to do; it improves the entity's public image which will be beneficial to the firm in long term. It helps to correct the social and environmental problem caused by the businesses such as wastes, water consumtion, Co2 emission etc..
It aids the attraction and retention of staff
It attracts green and ethical investment
It attracts ethically conscious customers
It can lead to a reduction in costs through re-cycling
It differentiates the firm from its competitor and can be a source of competitive advantage
It can lead to increased profitability in the long run
The CSR behaviour attracts ethically conscious customers who are concerned in green and more ethical investments.
Branco, M.C.; Rodrigues, L.L. (2007). "Positioning stakeholder theory within the debate on corporate social responsibility". Electronic Journal of Business Ethics and Organization Studies 12: 5-15.
The conclusion is there are many conflicting interest in a capitalist system.
There are some parties affected adversely by the externalities caused by the activity of the firm. Some people benefit from the activity of the firm, some people who are affected adversely as well as positive manor by the conduct of the firm, and it is the government duty to moderate all these conflicting interest.
How successfully an outcome is achieved depends on the availability of solutions to the externalities, the extent of the demand of the product for the company and amount damage the companies conduct causes to the environment
This is balanced against the tax revenue and the opportunity cost of moving the factory or production of the company. In essence the moral imperatives of any party involved are different depending on how they benefit or are affected by the conduct of the company.