The Real Thing


1 September 2006 E Neville Isdell


CSR is not a fad, not a marketing gimmick and emphatically not a waste of resources. As E Neville Isdell, CEO of Coca-Cola, told the Committee for Economic Development at the 2006 Corporate Citizenship Award, it's a tangible source of value.


On 8 May 2006, Coca-Cola celebrated Founders Day – a day that marks the sale of the very first glass of Coca-Cola, costing one nickel, at Jacob's Pharmacy in downtown Atlanta in 1886.

As well as the famous Coca-Cola 'secret formula', the story of The Coca-Cola Company these last 12 decades has included its fair share of not-so-secret secret formulas: leadership – including such legendary names as Woodruff, Goizueta and Keough – marketing and distribution, among others.

But the most unheralded secret ingredient in the Coca-Cola story is corporate citizenship. The term wouldn't be invented for another century or so, but corporate citizenship has been an essential part of the way our company has operated since the very beginning.

ACTING LOCAL

The Coca-Cola Company operates in more than 200 countries around the world. While it's fair to say that we are a truly global company, we've learned that there is no such thing as a global consumer – all consumers are local. That means you have to win their trust at the local level by focusing on local needs and demands, and by acting as an integral part of the communities in which you operate.

Local defines our approach to corporate citizenship, too. Earlier this year, I was in Nairobi for business meetings with our East African bottlers. While there, we visited Kibera, a 600ac ditch that is home to around one million people – sub-Sarahan Africa's largest slum. We went to open what the Kenyans called an 'ablutions block' – a concrete and cinder block building with six toilets, four showers and a handful of sinks.

I'm proud that Coca-Cola managed and paid for the construction of the Kibera ablutions block. I'm proud that in the last 12 months we've partnered with anti-poverty organisation CARE to bring wells and water storage facilities to 45 schools in Nyaza province in western Kenya and that we made the single largest corporate donation to date for famine relief in northern Kenya.

PROFITS: A MEANS TO AN END

Milton Friedman once wrote, "There is one and only one social responsibility of business – to use its resources and engage in activities to increase its profits." I agree, obviously, that businesses must grow profits, and if The Coca-Cola Company did nothing else but provide thousands of little stores in Kibera with the opportunity to sell our beverages, we would still have created enormous economic and social value.

"There is no such thing as the global consumer – in truth, all consumers are local."

Nevertheless – and with all due respect to the formidable Dr Friedman – I do not believe that this is our only responsibility. Profits are essential – but they are not sufficient on their own. Citizenship is required too; not just for the welfare of communities, but for the sustainable growth of companies as well.

I realise that in every business audience there are purists who, if they don't doubt the social utility of community citizenship initiatives, are at least a little sceptical about how exactly they create value for business. I think there are at least three ways.

The first is by simply improving the economic and business climate in the communities where we operate. In China, for example – where among other educational initiatives we've helped build 56 schools and more than 100 libraries through a partnership with the China Youth Development Foundation called Project Hope – we believe a better-educated Chinese citizen will be a higher-earning, higher-spending consumer.

In Africa, where the Coca-Cola system provides antiretroviral drugs to employees and family members, we believe that a healthier, more secure worker will be both a better consumer and a more productive employee.

CREATING VALUE

It's true, of course, that considered against the global backdrop of human misery, these initiatives are incremental, even microscopic. And I know that purists of another breed object to any association between good citizenship and profit. However, I think they would do well to keep in mind David Packard's observation that, "Profit is not the proper end and aim of management; it is what makes the proper ends and aims possible".

"Citizenship ought to be one of the leading imperatives for corporations in the global economy."

The second significant way corporate citizenship creates value for shareholders of The Coca-Cola Company is through attraction and retention of customers and employees. Yes, there is an obvious PR angle here. In China, for example, we think Project Hope graduates and their families will be more inclined to drink our beverages than the competition's.

But there's an employer-of-choice effect as well. In part because of our citizenship initiatives, jobs in the Coca-Cola system in Vietnam and Africa are among the most highly sought after. This allows us to select the best employees in the local labour market.

The third, and most important, way in which corporate citizenship creates value for our shareholders is by building and maintaining trust. I mentioned that The Coca-Cola Company is fundamentally in the relationship business. Trust, of course, is at the heart of every relationship.

Consumers trust us to deliver refreshment every time they enjoy one of our beverages. Shareowners trust that we will provide transparency in our accounting and excellence in our financial results.

RESTORING TRUST

In the relationship business, trust is just about the most important thing you can have. It literally has economic value: on many business balance sheets, trust is often capitalised and recorded explicitly as 'goodwill'. I'm convinced that our corporate citizenship initiatives have a lot to do with the creation and maintenance of this most essential business asset.

The last few years have been enormously counterproductive to the cause of capitalism and the good that it – and only it – can do. What I mean, of course, is the crisis of trust: the deception and self-dealing that launched a thousand lawsuits, that inspired sweeping new federal law, and that is still resulting in prison sentences.

"Profits are essential – but they are not sufficient on their own. Citizenship is required too."

It doesn't matter that what went on during the Enron era had nothing to do with The Coca-Cola Company or the way we do business. The simple fact is that commerce cannot work without trust – and its demise has seriously damaged the prospects and opportunities of everyone in the global economy.

Business faces some enormous challenges in the years ahead – Russia, China, re-launching world trade talks, managing the energy crunch, and so on. But restoring trust may very well be the biggest problem in the global economy.

I believe there are few more effective ways to restore trust in the long run than sustained corporate citizenship. For this reason alone, citizenship ought to be one of the leading imperatives for corporations in the global economy.