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Coca-Cola Company. 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?

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issues for corporate governance
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?
governing process and factors
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

Increase in transparency

Change in mgt style

Decision making, transactions

Check and balance against

the market

Change of mgt goals

revenue, s.prices, dividends etc.

Rule set-up

against major influncers(SH)

Changing in biz structrure,

group governance, etc.

development of corporate governance
Development of Corporate Governance

Regulation on

Rampant Evil

Rules on

External Board

Members

Sarbanes-Oxley

The Lawless

(Beginning of

20, no govern.)

CEO World

(Ownership)

Corruption/

Problems in CG

(Enron etc.)

Systematic

Survaillance

on CG

Woodruff

Austin and

Goizueta

Ivester

Daft1

Daft 2

Dictatorship

????Perpet by

Financial

Committee

Compliance to

the board

Advanced

Governance/

Management

features of board of meeting
Features of Board of Meeting

Woodruff

(1923)

Austin and

Goizueta

Ivester/Deft1

(1997)

Daft 2

(2002)

CEO

18 (70?)

Internal 40%,

firm CEOs /

after ’83, more

diversified

18 (no info)

Internal cir 38%,

holding coms

(local investors)

13 (58)

most from

external firms

except CEO

16 (age 63)

well balanced

with experts

Board

Running & Interest

Listening

????peppet/

no governing,

Expansion

In the wars

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/

cooperative/

inclusive

direction of corporate governance changes
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
investing for g rowth and strategy
Investing for Growth and Strategy
  • Sales Force And Sales Capability; Marketplace Execution
  • Route To Market
  • Supply Chain
  • Portfolio Expansion
  • Key Strategy
coca cola business vs pepsico business
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
coca cola vs pepsico governance
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 ”
coca cola vs pepsico governance1
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
comparison
Comparison

Source: ValuEngine analyst report

goverance and market performance
Goverance and Market Performance
  • McKinsey’s 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