coca-cola company. issues for corporate governance questions are list the corporate governance...
TRANSCRIPT
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?
• 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
Agent Problem between Ownership and Management
Changing in biz structrure, group governance, etc.
Rule set-upagainst major influncers(SH)
Change of mgt goalsrevenue, s.prices, dividends etc.
Check and balance againstthe market
Change in mgt styleDecision making, transactions
Increase in transparency
Change in Governance Impact on Management
• Internal Mechanism (Organization) : board meetings, shareholders’ voting • External Mechanism (Market): stock market, ownership market
Development of Corporate Governance
CEO World(Ownership)
Corruption/Problems in CG
(Enron etc.)
The Lawless(Beginning of
20, no govern.)
Systematic Survaillance
on CG
Regulation on Rampant Evil
Rules onExternal Board
MembersSarbanes-Oxley
????Perpet byFinancial
Committee
Compliance tothe board
DictatorshipAdvanced
Governance/Management
Austin andGoizueta
IvesterDaft1
Woodruff Daft 2
Features of Board of Meeting
Controlled byfinance com.representing
Woodruff,Increasing
conflict/changegrowth, M.fiasco
communcative/decisive/Adatingperiod,
Tough time/confrontationagainst Pepsi
Listening????peppet/no governing,
ExpansionIn the wars
Introduction ofnew standards/
advanced/cooperative/
inclusive
18 (70?)Internal 40%,firm CEOs /
after ’83, more diversified
13 (58)most from
external firmsexcept CEO
18 (no info)Internal cir 38%,
holding coms(local investors)
16 (age 63)well balancedwith experts
Austin andGoizueta
Ivester/Deft1(1997)
Woodruff(1923)
Daft 2(2002)
Bo
ardR
un
nin
g &
Interest
CE
O
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-Oxley1. Accounting/auditing standards have demonstrablybeen less good
than we might reasonably wish them to be2. Regulatory environment is not perfect3. Ethical and cultural dimension is more fundamental Human frailty rather than human law lies at the heart of the
corporate governance problem
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
Pepsico• Franchise system (No equity investment)
– Authorised bottles– Independent distributors
• Party bottlers – Below 50% ownership no control
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
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 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
Coke vs. Pepsi Share Prices
Sales to Net Income
0.005,000.00
10,000.0015,000.00
20,000.00
25,000.0030,000.00
35,000.0040,000.00
Y1996 Y1998 Y2000 Y2002Y2004Y20060.00
1,000.00
2,000.00
3,000.00
4,000.00
5,000.00
6,000.00
Sales
Net Income
Sales to Net Income
0.00
5,000.00
10,000.00
15,000.00
20,000.00
25,000.00
30,000.00
Y1996 Y1998 Y2000 Y2002Y2004Y20060.00
1,000.00
2,000.00
3,000.00
4,000.00
5,000.00
6,000.00
Sales
Net Income
Pepsico
Coca Cola
Coke vs. Pepsi Operations
Comparison
Source: ValuEngine analyst report
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
Thanks