Human Capital Briefs

The CEO of Coca-Cola on Using the Company’s Scale for Good

September 02, 2014

Recent research shows spending money on corporate social responsibility is no longer seen as a detriment to a company’s profitability. Stock analysts now view such expenditures as essential to a company’s long-term brand and value. Coca-Cola is one of the many companies that are making efforts to tackle the world’s greatest societal challenges — water scarcity, climate change, and even the rights of women and girls in the developing world. Muhtar Kent, the Chairman of the Board and CEO of Coca-Cola since 2009, talks about how the beverage company is imbedding sustainability into its business.

Over the past several years, corporate social responsibility (CSR) has evolved from simply being an isolated “do good” arm of a company to something more profound that’s changing the way organizations do business every day. How has Coca-Cola integrated these CSR principles into your operations?

KENT: Sustainability isn’t new to us but we’ve been intensifying our focus on it. We’re prioritizing programs centered on water, women and well-being—all three of which are essential to our business. For example, we’re working to achieve water neutrality by 2020. So far, we’ve replaced 52% of the water we use in making our beverages and reducing water usage across our 800-plus bottling plants helps reduce the overall cost of production. We have also committed to economically empowering 5 million women by 2020. This is the largest such program ever undertaken by a commercial organization. Our micro distribution centers (MDCs) in Africa, many of which are run by women, help our beverages reach small shops and kiosks that can’t be served by more trucks and vans and create value for our business, our retail and restaurant customers, and the broader communities.

Restructuring a company to focus on sustainability doesn’t happen overnight, so how long did it take to get everyone on board and how did you deal with any resistance to change?

Sustainability can no longer be a compliance measure or a “nice-to-do”; it’s now a business planning imperative with measures, goals, and explicit value connected to our programs. Because of this importance, we didn’t really experience any resistance. There were certainly people who challenged our approach and provided candid feedback on how we could improve but overall there was collective agreement that this was necessary.

If the ultimate goal is to create both economic value and social value, how do you strike that balance?

There may be an initial financial investment that doesn’t create an immediate and direct financial return—that’s OK. We know that by investing today, we will ultimately be a stronger, more sustainable business down the line. For example, developing our PlantBottle innovation — a fully recyclable packaging made of up to 30% renewable plant material — took significant upfront investment but we felt it made good sense, especially with oil prices fluctuating. And it’s helping contribute to our goal of reducing the carbon footprint of the drink in a consumer’s hand by 25% by 2020. It has also been a tremendous boost to our Dasani water brand, helping us win new customers and consumers.

Have you faced any specific challenges in measuring the social value you’re creating?

Coca-Cola operates in more than 200 countries and the needs of each market depend on a variety of factors. While some markets face economic issues, others may face resource scarcity and gender inequality, and some face all of these issues and more. It can be difficult to measure and compare. Thus, we operate a value creation model that is globally driven but locally focused.

Can you explain what you mean by a “value creation model”?

I mean one that creates value for all the stakeholders touched by our business. Consider PlantBottle. We’re able to put a package in consumers’ hands that reduces demand for oil. If consumers love our beverage more, that benefits our customers. And when the packaging is less expensive and we’re less dependent on petroleum-based plastic, this creates value for our shareowners and our bottling partners.

What is Coca-Cola doing that’s different from what other companies are doing?

There are a lot of companies and organizations out there doing great work but our scale allows us to think big and execute. It’s not just our size as a company or a brand, but the fact that we have operations in more than 200 countries. This footprint enables us to set up partnerships with organizations large and small to make the greatest local or global impact. We can fund projects at levels that make a real difference. And often times, we can use the size and nature of our operating model to address a need in a significant way.

We also have our distribution network, which connects us directly to the 24 million retail customers we visit every week. As the world strives to bridge the gap of the last mile between the virtual world and the real world, we have an opportunity to help make this connection. We’re continuously working to make the most of our distribution network as well as our virtual and physical assets.

How much of your company’s move in this direction is customer-driven vs. conscience-driven?

Today’s consumers expect companies to be socially responsible — not just on the surface either. Our brand is in our consumers’ hands but that’s not the primary reason for our sustainability efforts. Our efforts are primarily fueled by our business needs — we can only be as sustainable as the communities we serve so we’ve initiated a host of programs and partnerships to help strengthen those communities while continuing to build our business.

We also have ethical drivers for our sustainability work. Across Coca-Cola, we are parents, partners, siblings, friends, concerned citizens — and we live in the communities where we operate. We have a responsibility to help others.

How has your organization gone about partnering both at the local level and at the national level to ensure that the social value you’re creating on the ground is recognized and supported with policies and governance?

We work with governments, civil society organizations, and other companies. It’s essential to invite the groups that influence policy and governance to be part of the initial conversations so they share ownership from the start. Plus these organizations often have valuable local intelligence and experience

Consider our work in Tanzania with the Bill & Melinda Gates Foundation and The Global Fund to Fight AIDS, Tuberculosis and Malaria. In 2010 we joined forces to improve access to critical medicines. Working with the Tanzania’s Medical Stores Department and others, we were able to share our supply chain expertise, reduce medicine bottlenecks, and improve distribution as a whole.  We try to use our expertise and know-how to make a positive difference in the communities we serve.

Looking at businesses and consumers of the future—10, 20, 30 years from now—what will happen to organizations that fail to integrate social and environmental concerns into the core of their daily operations?

In my opinion, the importance of balancing social and economic value will only grow over time and organizations that don’t do this will fail. They’ll lack the resiliency to address ever-changing consumer attitudes and shifts in geopolitics, economics, and demographics.

For Coca-Cola, many of the most exciting opportunities are likely to come from the intersection of sustainability and our supply chain, giving us new ways to reduce our packaging, energy, and water footprints and improve the well-being of the communities we serve. While we’ve gained some good momentum with initiatives like 5by20, EKOCENTER and PlantBottle, we know we’re just getting started. Sustainability is an ongoing journey, one that we hope and trust will build forward momentum as we remain “constructively discontent.”

What do you mean by “constructively discontent”?

It’s my way of recognizing achievement but also understanding that we can never be satisfied with it. We must refuse to accept the status quo and continue to challenge ourselves. We have to keep setting higher goals and expectations and then meet or exceed them. And at the end of the day, we need to operate with a lens of optimism, but temper it with a lens of reality.

 

This blog first appeared on Harvard Business Review on 5/29/2014.

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