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Coca-Cola, Race, And The Future
In the widely reported settlement, Coca-Cola agreed to pay out a $192.5 million and revamp its human resources policies to settle a class action lawsuit alleging racial discrimination. Â The settlement included payment of $113 million to 2,000 African Americans who were part of the class-action lawsuit with an average payment of approximately $40,000. Â The original four plaintiffs will receive approximately $300,000 each, $43.5 million paid out over 10 years will be used to eliminate compensation disparities between African Americans and white employees, approximately $36 million will be used to establish diversity programs and separately, Coke plans to donate $50 million to its foundation to fund programs in minority communities. Â Not surprisingly, the settlement also included payment of $20.6 million to the team of the plaintiff´s attorneys (only in America). Â The settlement will go final if less than 200 employees object to its terms (as of March 19, 2001, only 23 declined the offer.)
What I´d like to do is to put this settlement in perspective. Â First of all, I heard through the insurance grapevine that approximately $75 million worth of the settlement was paid by three different insurance companies. Â Since I love Coca-Cola, and tend to invest in what I love, I just received their 2000 annual report. Â According to Chairman Douglas Daft, "...while we work to put behind us a difficult discrimination law suit, we resolve that we will strive to create the world´s most diverse workforce." Â The only other mention of the suit came in the financial section, which stated that, "In the fourth quarter of 2000, we recorded charges of approximately $188 million related to the settlement terms of, and direct costs related to, a class action discrimination lawsuit.....of the $188 million, $50 million was donated to the Coca-Cola foundation to continue its broad range of community support programs."
Simply by looking at the above numbers, we can see how Coca-Cola benefited from the contributions of the insurance companies towards this lawsuit. Â If you add the $75 million to the $188 million you end up with an impact of $263 million. Â Now lets put this in perspective. Â Last year Coke´s advertising expenses were $1.7 billion. Â The value of the land they own is $225 million. Â In 2000 the company recorded a non-recurring charge of approximately $306 million to reduce the carrying value of its investment in the Philippines. A $196 million charge was associated with vending operations in Japan. Â $216 million was paid out in severance arrangements for employees involuntarily separated during the corporate realignment and $353 million was paid out to employees voluntarily separated during the realignment.
If we were to take a look at Coca-Cola´s stock price last year, you would see that on November 1st, Coke was trading at $60 per share. Â Shortly after the announcement of the settlement it dropped to $55 per share but by December 1st it was trading once again at $62 per share.
So, the reality is, even though it garnered a great deal of negative publicity, the bottom-line impact on Coca-Cola was rather negligible when compared to its total operations. Â Questions I have that were not answered in the financial reports are as follows: Â What impact did the lawsuit have on the production of workers of all races? Â Just how is this "task force," which will be headed by Alexis Herman (former Labor Secretary to President Clinton), going to do to make it a more diverse workplace? Â How is it that Coca-Cola, which has always been viewed as a global operation, and is located in a city known for the Civil Rights movement, finds itself on the back-end of a discrimination lawsuit? Â What type of training and programs will be implemented that will have a substantial impact on race relations at Coca-Cola?