The study is set to dwell specifically on the impacts of corporate governance more concisely the Board of Directors on the sustainability of the company and its environment. We studied the literature on effective structure of the board and its responsibilities and how essential is their contribution for sustainable and socially responsible organization. Effectiveness of the board has much to do with vision of the company, setting and defining goals and objectives. Our study elaborates the structure of the board and code of business conduct which is necessary to understand their commitment as a responsible organization.
Coca-cola Company is our focus of the study to analyze how effectively the board has been performing and carrying company's reputation in the society. The company's high water consumption is threat for the sustainability of society. The board of director has to keep the interest of its stakeholders for the growth of the company. Therefore our study is to analyze how the board and its chairman deal with this problem yet maintaining the interest of stakeholders. We found out that they have specified clear objectives which are to maintain the natural resources by renewing and returning it to the system. Many of the positive steps explain the seriousness in achieving this objective.
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We completely understand that this giant beverage company has left many affected societies with the shortage of water but the report solely explains how they plan to cope up for this. Our results are based on the knowledge and findings from various practical events and outcomes. The future objectives of the company are clear and show commitment towards the sustainable society. This explains the effective governance of the board.
Monks and Minow (2009) indicate Corporate Governance as the relationship among management, shareholders, employees and so on for proposing the performance and direction of the company.
Board of Directors (BOD) is a fundamental aspect to corporate governance. Mallin(2010) supposed that BOD connects managers to investors and is therefore necessary for a good corporate governance. BOD is also accountable to the governance of the company (Cadbury Reports, 1992). It can be said that, to achieve a successful business, an effective operation of BOD should be taken into account. Sustainability is also the crucial part for the success of the company. According to World Business Council for Sustainable Development (2004, p.1), Sustainable development is the relationship among economic prospect, environmental issue and social equity. It may refer that a company, which wants to be stable and develop, needs to take three elements into account. A lack of one element can lead to the instability of a company. In this paper, we choose Coca-Cola and focus on its headquarter in Atlanta as the reference in our case study. The company was chosen since its operations are spread across the globe affecting several economies and the structure of its board is well defined. Also the company is utilizing high natural resource which is threat for the world's sustainability. So study is conducted to analyze how the cola company is acting to prevent this cause. The company established an efficient board and has been issuing Sustainability Review annually for the sustainable growth in economic, environmental and social element. (Coca-Cola, 2010)
The paper is structured as follows. In the first section, the research purpose and research question and methodology are communicated. Theoretical background is presented next with the basic concepts of BOD, sustainability and effectiveness of BOD. In the third section, it is an empirical study. We focus on Code of business conduct, the governance structure of Coca-Cola and their strategies for the sustainability. In the next section, it is our analysis and evaluation on the bases of the findings. The theories will be put together with the empirical part to know if they have similarities or differences. At the end we summarized our study in the form of conclusion.
The board structure is different from company to company. It depends on the company system, the approach to control and lead the company. The purpose of our research is therefore to understand the connection between the good corporate governance and sustainability. Also, we expect to know more about the board structure and activities towards sustainability. The research question is therefore defined as:
What is the contribution of BOD of Coca-cola towards sustainability?
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With the defined research question, the qualitative method is selected for our study for the following reasons. David Silverman (2010) indicates that this method is less aesthetical and more analytic. Bryman and Bell (2007) thinks that qualitative research can be considered as a research strategy which focuses on words rather than numbers during the process of collecting and analyzing data. More specifically, we choose a case study as our approach. According to Robert K.Yin (2003), it is the way to approach empirical part. The study uses information published in document forms instead of from interviews or observations. This can be seen as a limitation of our case study as we may not have chance to connect with the enterprise. The basic theories are retrieved from mostly published books in reliable sources while the empirical information is collected from published documents and reports on the Coca-cola's webpage. Through documents and reports, we can easily get detail and exact information about the company.
Corporate Governance and sustainability
Corporate governance is gaining more importance as multinational corporations are gaining power in the globalized world. It is crucial that corporations are run ethically and efficiently so that all the stakeholders could gain and that the business would be carried out sustainably.
Christine Mallin (2010, p. 7) suggests: "Corporate governance is concerned with both the shareholders and the internal aspects of the company, such as internal control, and the external aspects, such as an organization's relationship with its shareholders and other stakeholders". By Hampel report (1998) corporate governance's importance lies in both the business prosperity and accountability. First is about achieving financial goals, the latter about transparency and disclosure about corporation's operations, relationships, remuneration and governance arrangement. Adrian Davies (2006, p. 116) defines corporate governance as the Boards responsibility to owners, shareholders and to society. He also brings out four strands of corporate governance: 1. financial accounting; 2. the board; 3. stakeholders and 4. transparency (how company does business).
Different countries and different corporations have different practices. Public companies have to firstly follow the rules of the states it operates in and then the rules of stock exchange (Colley et al. 2005).
Mallin (2010) brings out that in the last decade there has emerged a number of corporate governance codes. They vary by country and are affected by the legal background, cultural and political context, business forms and share ownerships in those countries. The aim of the code is mainly the same: to promote more transparency and accountability and therefore increase investor confidence. Financial scandals and corporate collapses have helped to develop such codes. The first of the kind was Cadbury Code (1992) which has influenced greatly the development of corporate governance (p. 26). In US, Sarbones-Oxley Act (2002) is a federal law and failing to act according to it brings penalties. In UK, such codes (The UK Corporate Governance Code) are more like a strong suggestion and failing to comply needs to be explained by the company. In sum, corporate governance codes define the effective governance and the responsibilities of the Board and promote good governance in belief that it will contribute to company's sustainability.
Sustainability is a key concept of good corporate governance. Adrian Davies (2006) suggests that corporate governance needs to focus on achieving results that are sustainable into the future. Instead of short-term success corporations should concentrate on long-term goals and building a solid reputation among its stakeholders is a way to build profitability. The main stakeholders according to Davies (2006, p.116) are: "shareholders, the board, employees, customers, suppliers, distributors and the local community. Other stakeholders are government (national and local), regulators, the wider society and the environment".
Besides the company's own business sustainability, another important aspect is social responsibility and sustainability in larger (or global) context. The World Business Council for Sustainable Development (WBCSD) (2010) argue that company's management of environmental, social and governance (ESG) factors together with company's leadership on sustainable development are the main issues of business and that these factors can enhance long-term, sustainable company value.
Effective Board of Directors
The main character in governance is the Board of Directors (BOD). The core responsibilities of the Board are leadership and control (Hampel 1998). According to Mallin (2010), the important responsibility of BOD is to issue long term strategies of the company along with policies and plans. Specific plans with detail steps must be shown to obtain the defined goals. Another responsibility is to supervise and follow the procedure strictly in order to push all the strategies in the progress. In addition, BOD also needs to select an appropriate Chief Executive Official for company. In sum, the Board is responsible for the direction of the company and determines its strategy which is carried out by the executive directors and the management (Davies 2006). BOD also represents the interests of the shareholders (owners) and is liable to a business achievement of its purpose (Colley et al. 2005).
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Colley (2005) presents a number of duties that BOD has to do in order to execute effective governance. Firstly, fiduciary duty which means being trustworthy in acting in the best interests of the shareholders. Secondly, the duty of loyalty and the duty of fair dealing as directors shouldn't use corporate position to make personal profit or gain other personal advantages. Thirdly, the duty of care which requires to act in the best interest of the company and to be informed about the company. Fourthly, the duty of not to entrench. This means that the board can't oppose to change of control. The duty helps to avoid having certain directors in the board for too long time and to make firing ineffective board members easier. Finally, the duty of supervision as the directors should know about the operations of management (Colley et al. 2005).
Board also has to follow the bylaws of the corporation. Those laws are important for solving the problems and disputes inside the board and they consist of rules about annual meeting, the size and consistence of the board, election procedures and such (Colley et al. 2005).
An effective BOD should have a balance of executive and non-executive directors and a number of independent directors in order to avoid that certain individuals or groups dominate decision making and to include a broad array of expertise to the company (Hampel 1998).
BODs often contains specialized committees that consist of small number of directors and those committees help to concentrate on specific issues in more detail and provide effective use of time and expertise (Colley et al. 2005). Examples of committees are: Audit, Nomination, Compensation and Executive committees. Most of the committees require independent directors in order to avoid frauds.
Codes for corporate governance suggest that the Chairman of the Board and the CEO should not be the same person. Such situation might provoke a conflict of interest and cause concentration of power to one person (Hampel 1998). Colley (2005) mentioned that it is more common in US to combine the Chairman and CEO, but it is very rare in Europe. In such cases the need for independent directors in the board is even bigger.
An important aspect of the Board's effectiveness is also the relationships between the individual members of it, relationships as a group, also with the leader and with the management and the CEO. An effective board has to work well as a team and be knowledgeable of the business (Colley et al. 2005).
Hampel's report (1998) suggests that director's remuneration should be grasped by the corporate governance. Failing to do so may have damaging effect on company's public and on morale within the company. The code proposes that the wage of directors and CEO would be paid by their performance and that a self-evaluation would be carried out.
In conclusion, good corporate governance is essential for sustainable development of the company and the society in general. The Board of Directors is the main actor in the corporate governance as they set the direction of the company and supervise the management. Sustainability within the corporations can be analyzed from different aspects. We have brought out two approaches: the sustainability of the company and company's approach to sustainable development of society and environment. Effective work of the Board is crucial for both of the approaches.
Brief history of the Coca-Cola Company
Coca-cola (2010) explains that, Coca-cola services started in 1886 by selling beverages in glasses for five cents. Later in 1899 the bottling system was developed and started to work.
In 21st Century the company is concentrating in satisfying local communities which made it to meet local identity as well as local market. The Company has extended its roots and relationship among Coca-Cola bottlers, customers, and communities (Coca-cola, 2010).
Coca cola Code of business conduct
Coca-Cola board of directors contains 14 members whereby 13 are none employed directors and one is the CEO and chairperson of the board. The business code of conduct for none employed directors has the same values as the one in the employees.
Code of conducts which applies to none employed directors are;
Encouraging culture of ethics and compliance
Directors are supposed to establish ethical behaviors and ensure that they are followed.
Compliance with laws and regulations and fair dealing
Directors should treat and respect all clients, rivals, dealers and other employees in respectful and ethical manners.
Conflicts of interest
Company directors are not supposed to allow conflicts of their interest and of the company, and also are not allowed to accept any form of bribery which may affect end results.
Corporate Opportunities and assets
Directors must not use their position to gain personal benefit or any other person benefit from the company.
Confidential documents or information which has impacts to customers, shareowner and the company, are not allowed to be provided without authorisation.
Any code violations in the company should be reported to the General Counsel and Chair of the Committee on Directors and Corporate Governance (Coca cola code of business conduct 2007). Code of business conduct to all employees which also applies to employed directors includes, the adherence of law, honesty, accountability, adherence of code as well as integrity conducts (Coca cola code of business conduct 2009)
Coca-Cola Board of directors
Heitkamp,(2010) suggests that, an effective board of directors knows its duties and also is effective in executing them. An effective board has to ensure that employees of the company and company polices adhere to the govermant regulations, must be able to make policies, plans and decisions which stimulate growth of business and sustainability of the Company.
According to Coca-cola (2010), the board is elected each year and is comprised by 7 committees which employs its work altogether to meet vision and mission of the company. Those committees are as follows:
The committee handle matters relating to financial statements and reassessing the effectiveness and efficiency of the company's legal, regulatory and ethical agreement programs.
This evaluates the effectiveness of CEO and other officers by assessing the achievement of company's goals, and objectives.
" The committee has the authority to exercise the power and authority of the board of directors between meetings, except the powers reserved for the board of directors or shareowners by Delaware General Corporation law" (Coca-cola, 2010)
This committee helps the board of directors to supervise, advice, and to evaluate the performance of the company's financial budgets and financial policies.
Committee on directors and corporate governance
This committee proposes individuals who are qualified to be members of the board whereby gender and race is among factors for evaluating candidates for board of directors.
Management development committee
"The Management Development Committee is responsible for succession planning and talent development for senior positions" (Coca-cola, 2010).
Public issues and diversity review committee
This committee reassesses policies and tasks which effects on public, shareowners and business opportunities. Also it monitors company's progress toward established goals and objectives.
Coca-Cola Company and Sustainability
We can analyze that plans and policies which regulate the Coca-Cola Company are made and directed by the management which ensures they are followed for the development and sustainability of the company. The Coca-Cola suggests that, "directors will also, as appropriate, take into consideration the interests of other stakeholders, including employees and the members of communities in which the Company operates" (Coca-cola, 2010). This means, BOD has much to do with the sustainability of the company as well as community. The company through established goals has planned to protect environment by installing "100,000 HFC free coolers by the end of 2010" (Coca-cola, 2010). The company has put commitment on returning 1% of annually income to "develop and sustain" societies in the world. Moreover, the company plans to protect aquatic life by returning treated water by the end of 2020. The company in 2008 has gained $ 22.8 Billion in the economic progress include global wages, shareowner payments, and taxes revenue. Whereby it's contributions to the society was $ 82MM. For instance in 2010, Coca-Cola Company branch in Pakistan received environment award from National Forum for Environment & Health (NFEH) for protecting the environment (Coca-cola, 2010).
Introduction of 'Plant Bottle' in 2009 was a major development towards the sustainable packaging, Muhtar Kent the Chairman of BOD said, "It builds on our legacy of environmental ingenuity and sets the course for us to realize our vision to eventually introduce bottles made with materials that are 100 percent recyclable and renewable."Also the Corporate responsibility (CR) Magazine named him as the responsible CEO of the year based on his practices which aligned company's interest with that of stakeholders.
Results / Evaluation
During our study we have gone through the various aspects and roles of the committees formed under each member of BOD. The companies rules and code of conduct showed us that how important is the sustainability of society and environment to this organization. But we have not based our results solely on these facts however we have tried to include the some positive steps taken towards this subject and performance of the company on practical grounds. BOD has been effectively playing their role in increasing shareholders value and building company's image as a responsible organization. They have been influencing the economy of various countries by creating job opportunities and revenues. The concern of utilization of natural resources remains intact but since the BOD is seriously handling this issue and committing to recycle water that can be reused. The results to this effort would be seen in the long run and at the moment we are analyzing the efforts and decisions of BOD which leads the company towards sustainability.
The structure of the board discussed earlier is similar to many US companies. CEO of the company is also the chairman of Board of Directors. On the contrary Hampel (1998) suggests in the code of conduct that Chairman of BOD and CEO should not be the same person as it might provoke any disagreements and cause concentration of power to one person. However Colley (2005) has mentioned that this type of structure is more common in US not in EU. Combining CEO and the Chairman is balanced by having rest of the members of the board independent.
The board has divided the tasks to seven specialized committees which as per Colley (2005) provide effective use of time and expertise. The board can establish additional committees as per the requirement. These committees assist the board to achieve the board objectives to oversee the shareholders interest and success of the business and its financial health.
The company's 2020 Vision is all about achieving sustainability, quality and growth in long-term. Installing HFC free coolers, returning 1% of income to develop and sustain societies in the world, environment award from NFEH were some of their achievements toward the vision set by the board.
Coca Cola's high ranking as world's most admired companies as per Fortune is not only due to the growth in Asia & EU and increasing revenues but also the company's positive efforts toward the environmental issues.
Coca Cola (http://www.thecoca-colacompany.com/citizenship/economic_impact.html)
Increasing rates of dividends proves the efficiency of the Board. Furthermore the company's water usage ratio has been improved efficiently so that minimum water is utilized.
(Coca cola Sustainability review 08/09)
We found Coca Cola as one of the leading organization working towards the sustainability of it's all the stakeholders which include community and workplace. As expected the company has a vision which is well communicated internally and externally. They are achieving short term goals leading towards the long term vision of sustainability.
We conclude that Coca Cola is one of the leading organizations operating worldwide towards sustainability of society. Its BODs are working efficiently to achieve organizational goals which show the company's progress towards the sustainable development. Board's self evaluation is a good measurement of their effectiveness. The current achievements provides sufficient information to support the statement that company's Board and its Chairman has been encouraging its positive image as a socially responsible organization working for the betterment of environment. The multinational business has helped and supported many underdeveloped economies.
Board operates effectively and positively towards sustainable development and there is also a possibility that their decisions might have portrayed an image that is not favorable to the company's concerns towards the society. Given enough span of time and resources we could have analyzed in a critical way in the report as well. Also we would like to study more about the self evaluation process of the board in a decisive way so that it further elaborates their transparency and justification of their position.
Its future plans support its goals but we cannot elaborate them unless the outcomes are evaluated and analyzed properly which will be expected plan of action in the future.