Coca-Cola Learns a Tough Lesson About Corporate Sustainability
In January 2006, the University of Michigan suspended the purchase
of Coca-Cola products on its campus. Corporate decision-makers should
pay heed: this event is notable on several dimensions.
First, this decision was not due to any problems with product or pricing.
Instead, the university cut the contract because of concerns over
environmental issues in India and labor issues in Colombia. Second,
and more amazingly, the decision was prompted by one man and the small
nonprofit he runs out of his home in Southern California. Amit Srivastava
and his India Resource Center have mobilized students on the Ann Arbor
campus and elsewhere to petition their administrations to ban Coke
from their campuses, and they are succeeding. Third and finally, this
unusual form of pressure is leading the company to do something it
would never have previously agreed to: open its overseas facilities
to independent, transparent, third-party environmental and labor audits.
While the contract has been temporarily reinstated, the future of
Coke's relationship with the university rests on the results of those
audits. All eyes are on the outcome of this process, as it sets a
precedent for other vendors with the university -- and other universities
across the country.
The story of Coke and the University of Michigan holds clues to the
emerging face of corporate sustainability, one facet of the business
environment in the 21st century. And it is not a scenario unique to
Coca-Cola. Many other companies, particularly large-branded, multinational
ones, are finding themselves in the crosshairs. While many debate
the meaning behind the concept of corporate sustainability, this is
where the true definition of the issue will be played out -- in the
The Weight of the Word
What does sustainability mean? While we see the term everywhere, everyone
-- whether corporations, governments, foundations, individuals, or
NGOs -- uses it differently. For some, the definition lies in the
Brundtland Commission call "to satisfy the needs of present generations
without sacrificing the ability of future generations to satisfy their
needs." For others, the definition lies in the triple bottom line:
the three E's of environment, equity, and economics, or the 3 P's
of people, planet, and profits. But these definitions remain cloudy,
and have problems in practice.
For instance, what kind of metrics will be used for each of the three
legs? The Global Reporting Initiative is one attempt to standardize
metrics, but other organizations are developing their own. And how
will the three legs be prioritized? For many, the triple bottom line
becomes economics with a capital E and environment and equity with
small e's. Finally, how will these three E's combine to inform a go/no-go
decision on strategic investments? Companies live and die on singular
metrics like net present value and internal rate of return, but no
similar metric for sustainability carries equal weight.
In short, a precise definition of sustainability remains elusive,
the term being seen by some as merely an aspiration with limited practical
value. Some even suggest it be thrown out, as it seems to mean everything
to everyone and therefore nothing at all.
But for Coca-Cola, sustainability is real -- and it lies beyond the
theoretical discussion just described. It goes to the core of business
in the 21st century. Sustainability boils down, in its essence, to
business strategy with a long view.
Has the corporate-responsibility movement lost sight of the big picture?This
is not an easy concept to grasp, and one that many quickly dismiss
without full understanding. For example, The Economist published a
cover story in January 2005 that derided corporate social responsibility
(CSR) as a misguided concept driven by people with little knowledge
or a downright fear of capitalism. But the article made serious errors
in defining the focus of study. Presenting a two-by-two matrix considering
social and economic benefits, the article was quick to separate the
upper-left quadrant -- good for society and good for profits -- as
"good management." The other three boxes (good for society, bad for
profits; bad for society, good for profits; bad for both society and
profits) were labeled as CSR -- and therefore, by definition, ill-informed
This was a gross misrepresentation that missed some important points
of corporate strategy. Good management that creates both social and
economic benefits is not easy -- but the lines between quadrants are
also blurry and shifting. Ten years ago, restricting greenhouse gases
was not widely considered good for society. Today it is. Last year,
the actions of a tiny nonprofit mobilizing college students over foreign
environmental and labor issues was not considered relevant to the
bottom line of Coca-Cola. Today, the decision of the University of
Michigan (and more recent decisions by some Indian states to close
Coke plants and ban both Coke and Pepsi products) has moved the issue
squarely into the good-management quadrant. As Coke is learning, the
skills and strategies for operating within this quadrant are new,
undefined, and difficult.
The fact is, sustainable development is rooted in business strategy.
Even Milton Friedman, the oft-cited defender of self-interested capitalism,
wrote much more than the overused argument that "the social responsibility
of business is to increase its profits." He also wrote, "There is
one and only one social responsibility of business: to use its resources
and engage in activities designed to increase its profits so long
as it stays within the rules of the game." Sustainability is merely
another way of saying that the rules of the game are changing.
In Good Company
It is time to look beyond sustainability, CSR, and the tired debate
over shareholder versus stakeholder value in favor of a more broad-based
and emerging understanding of what constitutes good management. To
neglect the natural environment or the welfare of your local citizenry
is bad management. To neglect your customers, local community, employees,
government, or NGOs in today's world is bad management. In the 21st
century, these groups can impose tremendous pressure to affect your
company's reputation, markets, and operations.
Consider the list of companies dealing with this new reality. Construction
and mining-equipment giant Caterpillar is being drawn into the Israel/Palestinian
conflict as activists hold the company accountable for the Israeli
military's use of Caterpillar bulldozers to demolish Palestinian homes.
An Israeli general even announced that one of his army's best weapons
was the Caterpillar D9. More than a PR nightmare, this became a lightning
rod for activists trying to force the company to stop selling bulldozers
Shell experienced perhaps the most prominent activist pressure of
this sort with the Nigerian government's 1995 crackdown and execution
of nine Ogoni Indian activists in defense of the company's oil fields.
To avoid a similar catastrophe, ExxonMobil and other oil companies
forged an unusual agreement with the government of Chad to contribute
revenues from a major pipeline operation into an account managed by
the World Bank, to be put toward schools, clinics, roads, and other
basic human needs. While the deal was renegotiated in July after the
government reneged, the precedent creates powerful pressure for others
The list goes on. The mining company Anglo American is establishing
clinics around its African operations to treat employees and community
members infected with HIV. In a recent issue of The Lancet, the CEO
of Heineken argued that companies are not doing enough to stem the
tide of HIV/AIDS.
Even in the U.S., calls for sustainability can be heard. In the weeks
following Hurricane Katrina, companies found themselves under scrutiny
for how they treated their workers and the community. CVS, the country's
largest pharmacy chain, ignored the economic incentives to close its
devastated shops and leave. Instead, according to The Boston Globe,
it "set up mobile pharmacies; gave away thousands of medications to
people without prescriptions or even identification; flew in employees
from Florida, Michigan, and Illinois; kept stores open 24 hours a
day to meet demand; and set up a hotline to locate and help evacuated
So as some work out the definition of sustainable development, these
companies are dealing with its reality. They are striving for sustainability,
even if they don't call it that.
The reality is that the business environment is changing. New types
of pressures and demands are leading to new types of business practices.
And this change will only increase. We live in a shrinking world where
global sourcing brings corporate interests into ever-increasing contact
with peoples and issues around the world. This contact makes vivid
the disparities between rich and poor, between developed and developing
Gristmill.Information technology makes it impossible for business
activities to remain hidden by geography or contractual arrangements.
It also makes it possible for activists to gain the power necessary
to mobilize a response to those activities. Raging issues of child
labor, forced labor, hazardous work conditions, environmental contamination,
public health, access to clean water, and corrupt and oppressive regimes
are being forced onto the business radar screen. As companies respond
to the pressure to address these issues, they are being forced to
define sustainability in practical terms. Issues like transparency,
social equity, and environmental protection are joining economic growth
in corporate discussions.
But the real question for these corporate strategists is not whether
this is happening -- it is -- but rather, what will be demanded of
companies next year, in 10 years, in 50 years, and how to get ahead
of it. Real sustainability requires a long view. It requires conscious
attention to where the business environment is going, and what is
taking it there. Sustainability is not a value projection, it is not
CSR, and it is not an aspiration. It is real market pressure. And
responding to that pressure means success and good management in the
Andrew Hoffman is the Holcim Professor of Sustainable Enterprise
at the University of Michigan.
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