Corporate Governance: Coca-Cola Amatil - Case Study Example

Corporate Governance: Coca-Cola Amatil Name Professor Institution Course Date Corporate Governance: Coca-Cola Amatil Introduction Coca-Cola Amatil is a non-alcoholic beverage company that was established in 1910 in North Sydney, Australia (CCA 2014). This company is regarded as one of the biggest companies dealing in ready drinks. It has its presence in Asia-Pacific region mainly in Australia, Indonesia, New Zealand, Papua New Guinea Samoa and Fiji (CCA 2014). CCA has a diversified product portfolio, including spring water, carbonated soft drinks, energy drinks, coffee, tea, iced tea, fruit juices, flavored milk, SPC Ardmona and vegetable snacks. CCA (2014) confirms that currently, the company has more than 14,900 employees in all its divisions all over the world. As a company that deals with many employees and customers, the group managing director faces a lot of challenges as far as corporate governance is concerned. Based on the information, this paper identifies and assesses three Coca-Cola Amatil’s corporate governance framework and how it positions the firm to engage with stakeholders on local and international levels. These frameworks include remuneration practices, transparency and disclosure, board diversity and social responsibility, among others. Remuneration practices In the history of human resource management, employees remain one of the most important assets of the organization (Dandino 2004, p.41). In fact, without employees, running the organization will be impossible. To make the employees perform well, the manager must ensure the human resource practices are favorable to motivate these players. One of the elements that motivate employees is the remuneration package they take home either weekly or monthly. Lengnick-Hall et al (2009) argue that remuneration practices determine the type of employees the company recruits and even retains. For a big company like Coca-Cola Amatil, to hire the best talents in the beverage industry, it must be offering competitive remunerations. Similarly, retention of the best employees depends on the reward and benefits on top of the monthly salary. This will also determine how it competes with big international market players such as Coca Cola and Pepsi. Coca-Cola Amatil Australia practices an institutionalized of pay for performance (CCA 2014). Employees comprehend that their performance considerably influences their pay, recognize that higher performers get higher remuneration, and the managers are also rewarded for creating high performers. However, as a company which operates in six different nations with different HRM practices, it cannot be then held that remuneration practice of Australia is similar to that Indonesia (CCA 2014). What the managers have managed to do is to convince the employees, both locally and internationally to perform well on the job and get a good remuneration. Transparency and disclosure Corporate transparency has become an important function of the company and is regarded as the crucial point of societal expectation (Ali et al. 2007, p.238). More and more, multinationals are facing pressures from the stakeholders to be transparent concerning their commitments, performance and values. In the “confirm me” world of today, stakeholders require to understand who the firm is, where it is heading, what is its vision, and if it is standing by commitments to the public (Ali et al. 2007, p. 243). What aspect that makes Coca-Cola Amatil report exceptional is its degree of transparency it offers – both an insight into the corporation’s success and failure in an accountable business demeanor; meaning that investors, the Governments and communities too have a rational basis to cooperate with Coca-Cola Amatil and check human rights concerns that could emerge in line of its daily operations (CCA 2014). Coca-Cola Amatil shows notable commitment to disclosure; however, it lacks the organizational arrangement to gather the report that covers every topic needed to get a higher rating as far as transparency is concerned (REC 2012, p.61). Nonetheless, it is apparent there are positive programs all through the corporation, there was inadequate information offered to the public. In their disclosure, CCA provides some environmental statistics, but do not provide more details on the majority of its programs and most of all, the company does not explain in the report the critical concerns like the conservation of habitat of diversity and CO2 emissions (REC, 2012, p.60). Maybe these can be attributed to the fact that the company operates in different countries and can be very difficult to come up with a comprehensive report The inadequacy of a broad report touching on the social and environmental policies, accompanied by quantitative information, led to a poor depiction of the corporate responsibility of Coca-Cola Amatil (REC 2012, p.61). For community advocates and society now require to hold Coca-Cola Amatil to its higher standard of disclosure and transparency and compel it to always enhance its future reports. People ought to capitalize on the information Coca-Cola Amatil has revealed to engage this company to further improve its social responsibility performance. Okpara (2011, p. 186) claims that Perhaps most significantly, people have to use the annual report to remind the company transparency is not an issue to be troubled of, but that it is the only means for multinational corporations to work responsibly in new markets and other high-risk settings. The annual report of this company shows that the company actually complies with tax laws and remits it as required. Social responsibility In the recent past, corporate social responsibility has drawn a great public interest owing to its obvious significance to the economic well being of companies and the entire society (Aguilera et al 2006, p.188). Aguilera et al (2006, p.152) maintains that the CSR is one aspect that demonstrates that the company is not only concerned with making profits, but is also determined to improve the social issues affecting their customers and society at large. Generally, socially responsible business adopts activities where social and environmental concerns are incorporated into the corporation’s performance. Over the past, Coca-Cola Amatil has been involved in activities that aim at improving the lives of the places they operates. In 2008, Coca-Cola Amatil started a water conservation program that would make sure that every other person can be able to access and use water (CCA 2014). CCA (2014) asserts that in 2010, the company registered an improvement of 3.2% in the water utilization ratio. For this reason, Coca-Cola Amatil Australia was considered as one of the top most resourceful water users in the global System. The same year, the staff of Coca-Cola Amatil Papua New Guinea participated in the reduction in malaria by 17% by offering free mosquito nets (CCA 2014). Other social responsibility that Coca-Cola Amatil has taken part in is the donation of 85,000 kilograms of food and 1 million bottles of water and SPC Ardmona to victims of natural disaster in Christchurch and Queensland in 2011 CCA (2014). As such, the company has a good track in the appreciation and involvement in the society’s well being. Shareholder rights A company is always considered to be very important element in the society because it provides their needs (Dandino 2004, p.41). For the company to grow, it must provide the needs of the public at any given time rest they lose faith in it. When the company satisfies the societal needs, members gain confidence in it and even some members of the same society wants to own it (Fan & Wong 2002, p.407. In such a case, they buy shares so as to be partial owners of the company. Normally, when they buy shares or stock they are given certain rights by the constitution for the company. However, the rights of the shareholder usually vary from country to country (Lowengrub, Luedecke & Melvin 2004), and for that matter, Coca-Cola Amatil as a multinational company cannot be said to have a common shareholder rights. This itself is a challenge to the governance of this multinational. Generally, the class of share held by shareholders at Coca-Cola Amatil determines who vote in new company board (CCA 2014). They also have the right to endorse transactions that basically impacts on the governance of the company (Lowengrub, Luedecke & Melvin 2004, p.115). These transactions comprise of dissolutions, mergers, sales of substantial of the assets, and changes made to the documents of governance of the corporation. The eligible shareholders who vote on issues have only one vote. The constitution provides that the shareholder who holds preference has a similar right to attend members’ meeting. However, preference shareholders have the right to vote on the major issues which influences the performance of the company (CCA 2014). These issues involve dividend, share capital, disposal of the assets and company wind up. There is also some circumstance where two people register as joint shareholders. When such happens in Coca-Cola Amatil, the company constitution provides that one of the two joint shareholders whose name appears first on the register has the right on major issues described above (CCA 2014). Board diversity Every company today operates in an industry which is deemed to be very competitive (IOU 2009). IOU (2009) claims that due to stiff competition, these companies need to change strategy regularly so as to sustain competition. In every moment, the company must have a direction so that it may not stumble. In such cases, board of directors becomes very important because they provide direction to the manager and the company as a whole. The board holds a strategic role in presenting the mission, vision and objectives of the company (IOU 2009). These are frequently determined jointly with the general manager of the CEO of the company. Just like any other big organization, Coca-Cola Amatil, also have a board of directors comprising of eight people (CCA 2014). The board consists of one executive director who is the group managing director and seven independent non executive. It should be noted that among the eight directors, there are six men and two women (CCA 2014). This is a sign that board diversity is actually maintained in terms of gender, even though gender diversity is not a requirement in the constitution. Coca-Cola Amatil group managing director is a woman. From the perspective of workforce diversity, it can be argued that women bring some unique talents, and can also be used to target shareholders and customers. Another form of diversity in the board is that, these people have different areas of expertise. According to IOU (2009), this is an advantage to move from “old boy network’ and make the company an all-round entity. For instance, the managing director Alison Watkins posses a degree certificate on commerce while the chairman David Gonski AC, who is also a member of the board is a degree holder in both Commerce and law (CCA 2014). The diversity is also good because it ensures that the board comes up with different strategies which is in the interest of the shareholders and the company. Audit processes In the current business climate, an internal audit role has turned out to be a key player in ensuring the responsibility of the management, company auditor, company board of directors, and other major stakeholders (IOU 2009). The audit process is one aspect that Coca-Cola Amatil management conducts to enhance the effectiveness of the duties and maintain shareholders’ confidence (CCA 2014). In all Coca-Cola Amatil divisions in six countries, the audit and risk committee have been set to conduct audit processes to ascertain whether internal control processes, governance and risk management are functioning effectively (CCA 2014). This audit committee at Coca-Cola Amatil normally comprise of board of directors sub-committee who are non-executive directors. Audit processes help the company uphold objectivity pertaining to audit of the financial statements and financial reporting (CCA 2014). These processes are not only internal but also external to observe how they affect the company in both spheres. Remember, the board is the representative of the shareholders, meaning the whole audit processes are done on behalf of the board that is accountable to the shareholders. As such, audit process creates an atmosphere of control and discipline, and reduces the incidences of fraud (Dandino 2004, p.41). Stakeholder issues Currently, companies are asked by the stakeholders not just to boost the profit, but also assist in addressing some of the issues that affect them directly like environmental problems and corporate value. Coca-Cola Amatil as processing industry uses some machines that emit excess gas such as Carbon II oxide and sulphur II oxide in the air that pollutes the environment, cause global warming and also diseases (REC 2012, p.59). To help minimize them, the CCA (2014) states that Coca-Cola Amatil Sydney, has invested in new technology which self-manufactures a lighter PET plastic beverage which reduces carbon footprint in every bottle by 22%. This initiative was to reduce carbon emission in the air with the aim to conserve the environment. This is equal to removing 1700 cars from the Sydney roads annually. On the other hand, research points out that soda and other sweetened drinks manufactured by Coca-Cola Amatil could be the major sources of calories in people’s diet (REC 2012, p.60). The experts also claim that some of this company’s products are low in calcium ascorbic acid, and vitamin A. In that case, nutritionists advise soft drinks are harmful if consumed excessively. To quell this bad reputation, the company must desist from corporate negligence and make products that provides shareholder value. Ethical challenges Ethical issues are one of the challenges that have attracted a lot of interested in reference to organizational management in the 21st century (Okpara 2011, p.189). One thing that managers must understand is that as much they are continuing to focus on making profits without much emphasis on the ethical issues, the stakeholders are also continuing losing confidence in the company. This statement is true in the Coca-Cola Amatil. REC (2012, p.61) argues that this company looks to be a very ethically conscious organization. However, it lacks important policies on human rights such as employee discrimination, forced labour, sexual harassment and child labour. All these issues, if not addressed can lead to the downfall of this beverage company. Conclusion Corporate governance is truly a significant factor for organizational success and will keep on serving as a blueprint for Coca-Cola Amatil success and effectiveness in the 21st century. However, the company must create a disclosure and communication channel which can answer some lingering issues such as environmental and human rights concerns. As such, the corporate governance of this company might be in real threat and even lose touch with customers and shareholders. Efficient corporate governance is achievable by embracing set best practices and principles which depends on the remuneration practices, transparency and disclosure, board diversity, shareholder rights, social responsibility and audit processes. References Aguilera et al 2006, Corporate governance and social responsibility: a comparative analysis of the UK and the US, Corporate Governance: An International Review, Vol. 14 No. 3, pp. 147-58. Ali et al. 2007, Corporate disclosures by family firms, Journal of Accounting and Economics 44(1-2): 238-286. Coca-Cola Amatil (CCA) 2014, The Constitution of Coca-Cola Amatil Limited CAN 004 139 297, Viewed on 16th March 2014 http://ccamatil.com/Pages/default.aspx Dandino P 2004, Corporate Governance: Something for Everyone, Franchising World, 36(1), pp 41 Fan, J & Wong, T 2002, corporate ownership structure and the informativeness of accounting earnings in East Asia, Journal of Accounting and Economics 33(3), 401-425. Iowa State University (IOU) 2009, Business Strategy and the Board of Directors, Viewed on 16th March 2014 http://www.extension.iastate.edu/agdm/wholefarm/pdf/c5-74.pdf Lengnick-Hall et al 2009, Strategic human resource management: The evolution of the field, Elsevier Journal of human resource management, 19(2), 64-85. Lowengrub, P., Luedecke, T & Melvin, M 2004, Does corporate governance matter in the market response to merger announcement? Evidence from the U.S. and Germany, Advance in Financial Economics, Vol. 9, p. 103-135. Okpara, J.O 2011, Corporate governance in a developing economy: barriers, issues, and implications for firms, Corporate Governance, Vol. 11 Iss: 2, pp. 184 – 199. Roberts Environmental Center (REC) 2012, 2012 Sustainability Reporting of the World’s Largest Beverages Companies, pp 1-152, Viewed on 16th March 2014 http://www.roberts.cmc.edu/psi/PDF/Beverages2012.pdf Read More