Coke CEO defends company amid controversy


The Atlanta Journal-Constitution
Published on: 04/16/08

WILMINGTON, Del. — Coca-Cola Co. reported Wednesday a double-digit increase in profits and revenue for the most recent quarter and told shareholders gathered for the annual meeting that it was building the company to be a good corporate citizen.

Executives said Coke is taking actions to make money and be a responsible part of the communities where it operates despite criticism by human rights and environmental activists.

Coke First-quarter Highlights:
• Net income rose 19 percent to $1.5 billion and revenue rose 21 percent to $7.4 billion. Sales volume was up 6 percent.
• North America case volume was even. Carbonated soft drinks were down 3 percent, but non-carbonated beverage case volume was up 10 percent, thanks to Glaceau, maker of Vitaminwater, Fuze juice drinks, Trademark Simply juices and Minute Maid enhanced juices.
• European Union case volume was up 3 percent, Latin America up 9 percent, Pacific up 10 percent and Eurasia, which includes India, Turkey and Russia, was up 13 percent.
• Favorable currency rates boosted operating profits by 11 percent.

Coke Annual Shareholders Meeting Highlights:
• Muhtar Kent, Coke's incoming CEO, was elected to the board of directors.
• A motion to give shareholders a non-binding vote on executive compensation was voted down 68 percent to 32 percent.
• Shareholders rejected a motion to require an independent chairman, someone who has not been a Coke executive. The vote was 72 percent against, 28 percent for.
• A motion to create a Coke committee on human rights was rejected: 96 percent of the votes against and 4 percent for.
• Speakers at the meeting raised concerns about Coke's policies on water usage and its sponsorship of the Beijing Olympics.

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In front of a packed ballroom at the Hotel DuPont, Coke Chairman and CEO Neville Isdell fielded almost two hours of questions about the company's intentions and integrity. Coke's water usage and sponsorship of the Beijing Olympics were the two major sore spots drawing fire from those who chose to speak up at the shareholders meeting.

Water usage was not a new issue for Coke. Some environmental groups say Coke is contributing to water shortages.

Isdell said Coke is not sapping communities of water and is taking steps to address concerns. Coke has set a goal to become water neutral and formed a partnership with the World Wildlife Fund to protect major watersheds around the world.

Coke's Olympic partnership, though, brought a new issue to its annual shareholders meeting. Several attendees raised questions about Coke's ties to the Beijing Summer Games and the torch run.

Coke is a global sponsor of the games and one of three sponsors of the torch run, which was greeted with protests in London, Paris and San Francisco. The protests stem primarily from China's recent crackdown in Tibet, an area of central Asia controlled by China.

Lhadon Tethong, executive director of New York-based Students for a Free Tibet, was one of several attendees to take the floor. Her group is not asking for Coke to condemn China for its occupation of Tibet, Tethong said.

It wants Coke to push Olympic officials to alter the torch route so it does not go through Tibet, on its way to Beijing.

If the torch goes through Tibet, it will cause more violence, she said.

"Coke will be underwriting bloodshed in Tibet," Tethong said. "This is not the time for the torch to go through Tibet."

While Coke has concern for the situation in Tibet, it does not control the torch route, Isdell said. Despite the protests, Coke believes the Olympics and torch run are a force for good and has no plans to drop its ties, he said.

"We still believe it is a torch which is a light of hope and we trust that is what it will be as it goes to every single place in the world," Isdell said.

Other critics

Meanwhile, Coke was pounded Wednesday by another human rights group, Dream for Darfur.

In a conference call with reporters, officials of the group blasted Coke and other Olympic sponsors for not speaking out or doing enough to stop abuses in Darfur. China is the top trading partner and a major weapons supplier to the government in Sudan, which experts say has fueled a conflict that has killed some 200,000 people in its Darfur region.

The group plans to issue a report card on Olympic corporate sponsors in the next two weeks. Companies that receive a "C" grade or lower will be greeted with demonstrations at their corporate headquarters, she said. They also will be targets of the group's "Turn if off" campaign, calling for Olympic television viewers to change the channel or turn off their TV sets when the sponsor's commercials air.

In an e-mail Coke dismissed Dream for Darfur's comments as "public posturing."

"For an organization that has not eased the suffering of a single individual on the ground in Darfur to criticize those who are helping thousands every day is more than ironic."

The company said it has also committed more than $5 million to programs to help Darfur's water issues as well as more than $7 million over the next three years toward humanitarian efforts in Sudan.

Back to business

Also at the shareholders meeting, Coke tallied results for several key issues. Muhtar Kent, Coke president and chief operating officer, was elected to the board of directors. Kent becomes CEO July 1, taking over for Isdell.

Coke shareholders voted down motions to form a new human rights committee, allow shareholders a non-binding vote on executive pay and require an independent board chair that has not been a Coke executive.

The lively shareholders meeting came on a day when Coke delivered positive financial news. Coca-Cola on Wednesday posted first-quarter earnings of $1.5 billion, up 19 percent from the same period a year ago.

The results, excluding one-time items such as restructuring charges and asset write-downs, translated into earnings per share of 67 cents. That beat analyst expectations of 63 cents a share, according to a survey of analysts by Thomson Financial. Including one-time items, Coke made 64 cents a share.

Coke's revenue rose 21 percent to $7.4 billion in the first quarter, and case volume was up 6 percent.

Acquisitions accounted for 2 percentage points of the growth. Coke bought last year Glaceau, maker of Vitaminwater, and Fuze, a juice drink company, as part of a strategy to diversify drink offerings.

In North America, sales volume was even for the first quarter. But Coke had strong sales overseas and benefited from a weak dollar, which boosts profits made abroad. Coke had double-digit increases in case volume in China, India, Brazil, Turkey, Russia, Eastern Europe and the Philippines. Coke is at the top of its game and in good hands as Kent takes over, said Isdell, who will remain as board chairman.

"We are by no means declaring victory," Isdell told shareholders. "But today I can say the future of the company is based on a very solid foundation."

In between the critics, a few shareholders did stand up to express their thanks to Isdell for the financial performance. Coke should not be in the business of policing the world, said Herbert Pincus, a longtime Coke shareholder and Coke wholesaler in Philadelphia.

Pincus, who controls about 10,000 shares of Coke stock, said the company's focus should be delivering returns to shareholders. If shareholders don't like the way Coke is doing business, he had a suggestion for them.

"Sell your shares and get out of the way," Pincus said as he closed his remarks from the ballroom floor.

Kristi E. Swartz contributed to this article.

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