Inside Coca-Cola

by Neville Isdell

  In a draft letter written from his Ichauway Plantation in South Georgia, Woodruff replied that “I will be glad to be one of the one hundred Atlanta citizens serving as a sponsoring group for this recognition dinner.” Boisieuillet Jones, who ran the Emily and Ernest Woodruff Foundation, wrote a similar letter of support that same day. Both letters are now housed among Woodruff’s papers at Emory University’s Manuscript, Archives, and Rare Book Library in Atlanta.

  Suddenly, Atlanta’s attitude about the dinner changed dramatically.

  “All Tickets Gone for King Dinner,” read an Atlanta Constitution headline on January 21, 1965. In a complete turnaround, more than one thousand tickets were sold.

  Woodruff “politely persuaded” the Atlanta business community to support the event, recalled Sam Massell, then the city’s vice mayor, who attended the banquet and was seated at the front table. “It would not have come off if it had not been for Mr. Woodruff,” Massell said.

  Clearly, Woodruff realized that a no-show at the banquet would have been a worldwide embarrassment for Coca-Cola and for Atlanta.

  “It was of mutual interest to have the dinner,” said Massell, who later was elected mayor of Atlanta.

  The night of the dinner, King delivered to a standing-room-only, integrated audience what would become one of his most famous quotes: “If the people of good will of the white South fail to act now, history will have to record that the greatest tragedy of this period of social transition was not the vitriolic words and the violent actions of the bad people but the appalling silence of and indifference of the good people.”

  All segments of Atlanta society were there: churches and synagogues, government, private universities and business, all working together, as Massell recalled, for their “mutual interest.” That is Connected Capitalism.

  Woodruff and Coca-Cola quietly asserted moral leadership, knowing that it was not simply the right thing to do but that it would also benefit the company. Woodruff was a visionary who had expanded Coca-Cola worldwide and realized that its success transcended quarterly profit statements. Long-term success for Coca-Cola demanded that it take a strong moral leadership role in its hometown, extending outward from that base.

  Paul Austin, Coke’s CEO from 1966 to 1981, was also a visionary. A Harvard-educated lawyer who competed as a rower in the 1936 Olympics in Berlin, Austin believed Coca-Cola had an obligation to fight world hunger. He created the company’s “Nutrition Project” that developed three protein-rich drinks, Saci, Samson, and Tai, made from soy and whey, which were sold in South America and Africa.

  As a young Coke employee in Zambia in the 1960s, I participated in a trial run of Saci. I was very enthusiastic about the project, seeing it as a way for Coca-Cola to make a big dent in world hunger in a commercial/humanitarian/government joint effort. I soon realized, however, there were a few problems. Saci was too expensive and there was no way we could make a profit. We did the test on a subsidized basis, hoping in the future to find a lower cost. That never happened because another lesson was learned: It tasted awful and no one wanted to drink it. It clung to your pallet and had a terrible aftertaste. Something may be good for you but if it doesn’t taste good you’re not going to consume it. We would distribute it to schools and other locations and even when handed out free of charge, it wasn’t consumed. Decades later as CEO, I explored the possibility that new technology would allow us to create a similar product with a better flavor but it didn’t work. Despite its flaws, Austin believed that the program was morally correct and good for business in the long term and deserves credit for making the effort.

  Austin also realized that water would continue to be a worldwide issue for Coca-Cola. The company under his leadership purchased Aqua-Chem, which makes equipment to remove salt from seawater. Although Coca-Cola sold Aqua-Chem in 1981, Austin was clearly decades ahead of his time in putting Coca-Cola on an environmentally sustainable path. He realized that Coca-Cola could not simply extract profits, it had to improve the societies in which its customers lived. Critics argued that these efforts were diversions from Coca-Cola’s core business mission, and from a business standpoint, they are correct. Yet unlike Coke’s purchase of Columbia Pictures, Austin’s efforts were motivated by larger issues than profit alone. He believed that Coca-Cola had the ability to become a major player in the fight to clean the planet and fight world hunger. In that regard, he was prescient.

  “The more money we make, the less welcome we become,” Austin wrote to Woodruff in 1970. When I read that quote, I can’t help but remember Maurice Gersh, the Coca-Cola bottler in Zambia who first hired me shortly after I graduated from college. Gersh was not only the Coke bottler in Kitwe, but was also the town’s mayor. It must have been very difficult for anyone in Kitwe to feel as if Coca-Cola was a strange, foreign company unwelcome in their town when the mayor himself was a franchisee. That kind of connectivity eliminates corporate estrangement. A company can’t easily hide from society and its problems when the two are so closely melded.

  In order to remain economically competitive, Coca-Cola and many other companies have by necessity consolidated many of these small outposts which had those strong and vital ties to the community. I think back to Germany, where I devoted much time and energy whittling down the number of bottlers from more than a hundred to one. It had to be done if Coke was to remain competitive as a company. The small bottlers were built at a time when capital was hard to come by, most stores were small, and transportation costs were higher because there were fewer major highways and many bridges had been destroyed during the war. With the advent of supermarkets and interstate highways, small bottlers no longer made economic sense and threatened Coca-Cola’s ability to offer low-cost, profitable products. The reason that the cost of Coke, when adjusted for inflation, is lower now than it was decades ago is directly related to the higher efficiency achieved through bottler consolidation.

  While consolidation was necessary, I regret that we lost the connection the bottlers had with their local communities. These connections were so strong that even the promise of millions in extra profit was not enough to convince some German bottlers to sell their plants. It was prestigious to be the Coca-Cola bottler in your community and with that prestige was the obligation to be a civic and moral leader.

  The question now is: Within today’s global corporate structure, what are the opportunities for the modern-day equivalent of Maurice Gersh? They are actually far greater than they were in Maurice’s time. As the mayor of Kitwe and the local bottler, he had strong ties to the community but did not have the chance to participate in the much larger, sweeping campaigns of today, such as a worldwide fight against malaria, restoring critical watersheds, or helping mango farmers in Haiti following a devastating earthquake.

  Today, a corporate executive can do this and much more. It is Connected Capitalism on a much larger scale.

  The corporate leader of yesterday worked closely with government and nonprofits on a local level. There were civic clubs and fund-raising drives for new hospitals and other worthy causes. Today’s equivalent might be partnerships with the World Wildlife Fund or the United Nations. The project could be a local hospital or one thousand miles away in Africa. So the corporate options for affecting major change are actually far greater than they were in the time of Maurice Gersh. I was trained in college to be a social worker, yet chose a path in business. As corporations evolved, I had a far greater opportunity at Coca-Cola to affect true social change globally than I ever would have as a social worker in Africa. Capitalism now provides that opportunity. No longer are the lines drawn so distinctly.

  Much has been written about Corporate Social Responsibility, a movement which has motivated companies to do many great things. My vision for Connected Capitalism advocates going much further to create a melding, a true marriage between government, nonprofits, and global corporations to fight disease and poverty, heal the planet, improve education, and, ultimately, boost private-sector profits.

  C
orporate Social Responsibility sometimes involves a “pet project,” singled out by the CEO or the CEO’s spouse. These are often worthy projects, but not always directly linked to the company’s core business strategy or the impact the business has on society. Connected Capitalism is much broader. It is the creation of the Socially Responsible Corporation, which examines the company’s actual footprint on society and focuses on how, as part of a core business strategy, it can reduce the negative impact. If you are making a profit through excessive use or extraction of the world’s resources, you have an issue that needs to be addressed. You have to become a better caretaker of those resources. It’s in the best interest of the shareholders and of society to do so. A clear example is that neither Coca-Cola nor the communities where it operates can survive for long without adequate water. Their destinies are directly linked. That is why Coca-Cola now has a vice president for environment and water resources. Jeff Seabright currently holds this high-profile position; at one time he worked in the White House as executive director of the Climate Change Task Force and helped negotiate the Kyoto Protocol.

  The term “corporate social responsibility” carries with it a slight tone of penance, almost as if companies owe society a debt for making a profit. That is not really the core issue. There should be no shame in making a profit as long is it earned in a socially responsible way. In my career, I saw how Coca-Cola pulled millions of people out of poverty throughout the world when other efforts had failed. Afghanistan is one telling example.

  In 2006, when I was Chairman and CEO, Coca-Cola opened a $25 million bottling plant in Kabul, creating 350 jobs. A critic said the $25 million would have been better spent on a hospital. My question was this: Without jobs, without businesses, how would the hospital be able to sustain itself? Where would the money come from to pay the doctors and maintain the building?

  A thriving Coca-Cola bottling plant can help support that hospital through donations and through taxes paid by the company, its employees, and its vendors. With jobs, workers can afford to pay for medical treatment. Without capitalism, the hospital would rely forever on handouts, an unsustainable model.

  As the three key elements of the triangle of sustainability—business, nonprofits, and governments—work more closely together in the future, there should be an acknowledgment of the strengths each brings to the table. Business brings efficiency and profit, and that is not something of which we should be ashamed.

  People are often amazed at how Coca-Cola manages to deliver its products to the most remote locations of the world. I remember in Zambia, vendors would load cases of Coke in dugout canoes and row deep into the wilderness where they would post a Coca-Cola sign and sell cold drinks.

  The secret to the Coca-Cola distribution method is that everyone along the way, from start to finish, makes a profit. It may be a tiny profit, but it is a profit nonetheless and that drives efficiency. Tom Mattia, who worked for me as a senior vice president when I was CEO, once tracked a case of Coke in Kenya from start to finish.

  “The last transaction was a goat,” he recalled. “They traded a baby goat for a case of Coke.”

  In March 2011, Melinda Gates visited a Coca-Cola microdistribution center in Nairobi specifically to learn how the strengths of the company’s system could be applied in the health-care field. She was amazed with the efficiency of the operation and Coke’s use of real-time data. The sales staff in the field relays orders by text message to the distribution center and the information is stored in a database. “What lessons from this incredible data gathering could we apply to health care?” Melinda asked in a blog posting about the trip. “There are lessons to be learned from every sector, and we need to be willing to look far and wide for solutions to the challenges we face in health and development.”

  So many efforts by nonprofits involve distributing food, vaccines, and other vital supplies to the world’s most remote locations. Can companies like Coke, with their unequalled distribution systems, help in this effort? Yes. Could they do it “free”? Yes, but that is not a sustainable model. One that would work over the long term would be to develop a system that involves a profit for everyone in the chain. Could the men in the dugout canoes in Zambia also deliver condoms and medicine? Perhaps, and they could likely make the delivery at a fraction of the cost of a stand-alone delivery system. First, however, we have to embrace business as part of the three-way partnership, recognizing and respecting what business is and what it does. A business is not by definition a philanthropic entity, nor should it be, but is striving in its own interest to be a generator of long-term sustainable profits.

  Corporations, therefore, are like any other organism: They have to operate sustainably if they are to last. Coca-Cola has been in business for 125 years. If it’s to last for another 125 years, it has to maintain a business strategy that is sustainable over the long term. You, the reader, have seen in this book the many trials and tribulations of a modern corporation, the extreme pressure to remain competitive, and how quickly companies can fall apart. Think back to the comment from David Rubenstein, the investment banker, when Coke’s market cap had dropped to $96 billion: “Well, that’s a bit out of our reach, for now,” he said. If a corporation allows its stock price to dip too low, and becomes the target of a leveraged buyout, it loses control of its own future and risks being broken up and sold in parts. If that happens, the corporation ends up having to fight for its life, as opposed to assisting in the fight against malaria or AIDS or preserving critical water basins. Extreme corporate critics wonder why we don’t simply donate most if not at all of our profits to the world’s great causes. The reason is simply because we would not be around for long if we did so.

  In my vision of Connected Capitalism, you have both higher profits and progress. The two do not conflict. In fact, one demands the other.

  Obviously, corporate profits increase over the long term if unemployment rates drop from 50 percent—the current number in many countries—to even 25 percent. If the population is healthier and more educated, yes, companies make more money and can do even more to improve society. Remember that in disease-ravaged countries, local companies also suffer from the dire consequences of epidemics, losing valuable employees to such illnesses as AIDS and malaria. Companies have a direct and vested interest in the fight against such diseases.

  There are many other immediate benefits from capitalism that is connected.

  Tom Mattia recalled a bottler in Africa who, realizing that the local villagers were getting sick from drinking water out of a polluted river, decided to drill two wells. The cost was equal to a one-way ticket from Johannesburg to Atlanta, Tom said. Besides being used for drinking, the well water was also used to irrigate crops. As a result of the wells, sickness declined and farm income increased. And as the community’s fortunes improved, so did sales of Coca-Cola. It was a perfect example of Connected Capitalism.

  Governments and nonprofits should approach corporate partnerships with this type of thinking. Companies should not be considered as passive partners, simply writing checks which they can then tout in their annual reports and press releases. Just as corporations should begin to think more like nonprofits, so nonprofits should think more like businesses. They should look for opportunities that will allow companies to both increase profit and improve the world. This is not just about money. It’s about skills, engagement, and intellectual capital.

  Only when companies are financially healthy and moving in an upward trajectory can they seriously engage in long-term partnerships. If an NGO had approached Coca-Cola in the early days of my tenure as CEO, they would have come across a different, far more stressed version of myself than in the later years, when we did expand major partnerships. In the early days, my focus was on righting the ship. Only later, when these efforts proved successful, could I seriously entertain the notion of expanding the company’s involvement in projects such as digging wells. The point is that corporations have to succeed before they can help others. The adage, “T
o do good, you must do well,” is entirely accurate. It is vital for NGOs to understand that and to approach corporations with ideas and proposals that are designed with this in mind.

  The best corporate partnerships, in fact the only sustainable ones, are those which are focused on a company’s core business. For Coca-Cola, the most important issue is water, since that is a key ingredient in all of our products. It was not difficult even for stock analysts to understand the relevance and importance of spending millions of dollars on this issue. When challenged at an analysts meeting, all I had to do was hold up a can of Coke to illustrate the importance of that key ingredient. I was never challenged again. Our bottlers also clearly understand how crucial these efforts are. CCHBC, the European bottler I once ran, has worked to preserve the Danube River. Why? The river runs through most of the countries in the CCHBC territory.

  Once a company has established partnerships in its core area, it can then begin expanding to other related areas. For example, Coca-Cola joined a partnership called Nets for Life, which brings together corporations, foundations, NGOs, and faith-based organizations to distribute insecticide-coated mosquito nets in the most remote locations of Africa. Following my retirement, I launched a similar effort in Zambia along with investment banker Christopher Flowers; we serve an area of the country not covered by Nets for Life.

  Under the old model of corporate philanthropy, NGOs would approach companies, seeking only cash. Usually, the philanthropic department of a corporation was a small, separate unit divorced from the company’s day-to-day business operations.

  The new model is much different, as Carter Roberts, president of the World Wildlife Fund explains. Today, NGOs like the WWF work with the world’s largest corporations and their suppliers to help and encourage them to use less energy, water, and land, and to reduce carbon emissions as part of a long-term business strategy that will ultimately improve profits. “It’s not about throwing a little bit of money at an NGO or an environmental group,” Carter said.