A New Approach to Managing a ‘Classic’ Reputation

coca cola sweetener challenge

A new Coca-Cola-sponsored contest seems to publicly acknowledge its reputational risk, but at a minimal cost that could manage or even reduce it.

In early August, the beverage giant announced its Sweetener Challenge, seeking non-employees (preferably scientists or agriculture or nutrition professionals) who can bring the company a “natural, safe, reduced, low- or no-calorie compound that generates the taste sensation of sugar when used in beverages and foods.” The winner will be announced in Fall 2018 and will receive $1 million.

Taxes on soda, the decline of its consumption, and mounting data that sours on sugar has unquestionably affected the bottom line for the company and put pressure on the broader beverage industry. By initiating the contest, Coke seems willing to try a fresh approach to manage or favorably alter its reputation as a brand founded on sugary cola, while simultaneously attracting and retaining consumers and generating sales. That seems far less risky than not trying new techniques.

“[Reputation risk] is created when expectations are poorly managed and exceed capabilities, or when a company simply fails to execute,” wrote Nir Kossovsky in the 2014 Risk Management article “How To Manage Reputation Risk.” “Managing expectations is all about governance, operations and risk management—the blocking and tackling of running a business. Clearly, there can be perverse brilliance in a business strategy of setting expectations very low.”

Last year, Coca Cola suffered a net revenue decline from $11.5 to $9.7 billion, making the $1 million prize a cost-efficient gamble that, as Kossovsky suggested, can “conceptualize an ideal state and implement a roadmap to reduce reputation risk.”

Other companies have turned to their audiences for new ideas to increase awareness and improve their reputations. Folgers was jonesing for a new jingle this year and paid a songwriting duo $25,000 for a flavorful new take on “the best part of waking up.”

Even the commercial aviation industry sought out-of-this-world innovations from average stargazers. When the X Prize Foundation wanted to inspire the private sector to pursue commercial space flight, it did so with a $10 million prize. The pursuit of the Ansari X Prize generated $100 million in new technologies and was ultimately won by the Tier One project’s ShapeShipOne, which was financed by Microsoft co-founder Paul Allen.

According to Kossovsky, “reputational events are tried in the court of public opinion,” and Coke’s will both there and in stores. The company’s new sugar substitute will be announced in October 2018 and will eventually make its way into supermarkets. With just a few sips, consumers can ultimately decide if the company’s investment and reputation risk management technique was a sweet move.

Coca-Cola Hit with a $21 Million Distracted Driving Judgment

Last week, a jury in Corpus Christi, Texas awarded $21 million in damages to a woman who was struck by a Coca-Cola driver who had been talking on her cell phone at the time of the accident. The plaintiff’s attorneys were able to successfully argue that Coca-Cola’s cell phone policy for its drivers was “vague and ambiguous.” They also suggested that Coca-Cola was aware of the dangers but “withheld this information from its employee driver,” which led directly to the circumstances that caused the accident.

“From the time I took the Coca Cola driver’s testimony and obtained the company’s inadequate cell phone driving policy, I knew we had a corporate giant with a huge safety problem on our hands,” said Thomas J. Henry, one of the plaintiff’s attorneys.

Coca-Cola disagreed with the verdict and, in a statement, expressed its plans to appeal:

“This case was tried because the parties could not come to an agreement on damages. We have accepted responsibility for the accident. We understand that this verdict is a response to a plea from plaintiff’s counsel to the jury to ban all cell phone use while driving.

“Coca-Cola Refreshments’ cell phone policy, which requires the use of a hands-free device when operating a motor vehicle, is completely consistent with, and in fact, exceeds the requirements of Texas law. Coca-Cola Refreshments values the well-being of all citizens in the communities in which we operate. There is no discernible connection between the damages awarded in this case and the injuries sustained by the plaintiff. Although we respect the verdict of the jury, we plan to appeal.”

Nevertheless, the case does emphasize the need for all companies to have a clear cell phone use policy for their drivers. In a recent blog post, Matt Howard, CEO of ZoomSafer, a mobile phone safety software provider, outlined three important lessons the case can teach fleet managers. First, when accidents happen, plaintiffs will sue (and obviously judgments could get costly). In addition, policies cannot exist only on paper and they must be enforced. Hoffman concludes:

This case emphasizes just how serious the risk is – and that all employers can be vicariously implicated if they fail to manage and monitor how employees are using mobile devices while driving. Employers who want to minimize liability as much as possible must institute risk management programs to actively or passively enforce cell phone use policies.

The risks of distracted driving have been well documented and with more and more states enacting some sort of ban on cell phone use while driving, either for talking, texting or both, cell phone policies are quickly becoming a necessity. And as this case shows, it’s not just about legal compliance or driver safety–it can also have a substantial financial impact on your company.

Coca-Cola Jumps on the Captive Bandwagon

One of the world’s largest beverage companies has successfully embraced the somewhat modern practice of funding employee benefits through captive utilization.

Coca-Cola recently began reinsuring some of its international pension liabilities through its Dublin-based captive, Coca-Cola Reinsurance Services Ltd. The captive reinsures about $400 million in annuities written by insurers for benefits provided to enrollees in three Coca-Cola pension plans in the United Kingdom and Ireland.

After years of operating their own captive, Coca-Cola Reinsurance Services Ltd., to fund a portion of their employee benefits, the beverage giant will now cover international benefit liabilities through a captive.

Coca-Cola had been handling “quite significant” property/casualty risks in its captives for “quite some time,” said Stacy Apter, senior global benefits consultant with Coca-Cola and a panelist at the conference. “Why would we not be taking advantage of the same efficiencies on the employee benefits side when they are more predictable risks?”

Apter stated that medical coverage, as an example, is similar to a cash flow operation, in that it is not difficult to predict yearly costs. It seems that employee benefit captives would be a good move most sizable companies, though only a handful have fully embraced it.

A few online resources for learning more about the world of employee benefit captives:

  • Captive.com — “Using Captives for Employee Benefits” covers why employers are using their captive for employee benefits, who has done it so far, how existing transactions have been structured and the primary issues that employers need to evaluate.
  • TowersPerrin.com — “Employee Benefits: Captive Manager’s Key Roles” explores the importance of having the right external partners when choosing a captive and how to ensure appropriate coordination among the internal and external parties involved.
  • Aon.com — “Employee Benefit Captives: Their Role in Managing Enterprise Risk” is a concise reference that can serve as a reference for further examination of the business issues involved in the placement of employee benefits risks in captive insurers.