Every organisation operating either regionally or as a multinational has various structures that have been put in place to ensure smooth running of the business. However, running of all operations of a company is not always without hurdles. Sometimes companies face management risks some of which emanate from torts and contracts and the legal system in general that governs the operations of the company. This discussion looks at some of the risks that organizations face in terms of management, torts and contracts as well as the impact that the legal system has on an organisation while focusing on a real organisation. The company of choice in this case is the Coca Cola Company.
Background of the Company
Coca Cola Company is a multinational company that specialises in the manufacture and distribution of beverages in various parts of the globe. Having been started a couple of decades back in the year 1882, Coca Cola company today operates in more than 200 countries of the world while offering its clientele more than 500 in beverages all of which are non-alcoholic. The method of distribution used by Coca Cola is franchised and involve manufacturing of the syrup that makes the beverages which is then sold to various bottlers the world over. The headquarters of Coca Cola Company are in Atlanta, Georgia.
The main reason for choosing Coca Cola is due to the fact that it is a multinational company and thus gives a better picture of the kind of risks that organizations face both at the regional level and international level.
A tort is one of the most common risks that every organization faces. This is more common for multinational companies like Coca Cola that operates on an international front. Tort refers to an action done against the property or person of another person. This contravening act could be intentional or unintentional. One of the most common tort risks that Coca Cola Company faces is injury of workers. This is more often caused by unseen or unpredictable circumstances which result to a worker suffering detrimentally through an injury while in the course of duty. If an employee of the Coca Cola Company suffers injury or harm while in the course of duty, then the company will be liable and may be required to pay damages to such an employee depending on the circumstances of the case.
Types of Torts
Torts are classified into three categories. They include negligent torts, absolute and intentional. An intentional tort is an action that is carried out deliberately to cause harm to a person. Negligent tort on the other hand is an action where there is no motive to cause harm to the injured person but there is proof that some crucial measures were not put in place to avert the tort. Absolute tort is where no proof of defendant’s failure to take necessary measures to avert the risk is required. The defendant is therefore found guilty regardless of the evidence presented to the contrary.
When an organisation like Coca Cola is faced with tort risks, the consequences can be very dire. To begin with, depending on the nature of tort risk involved, the image of the company could be dented badly. Regaining lost glory especially for a multinational company like Coca Cola is one of the most difficult things to do. Once the image of the company has been tainted, what follows is that the demand of products of the company begins declining as many customers no longer want the products as they do not have any trust and confidence in the company any more. As a result, the company begins to close its operations in some of the badly affected regions and the ripple effects can threaten to cripple the operations of the entire multinational.
The first step that any company will take to minimise the risks that emanate from torts is to have a clear understanding of the business environment in that region (Gunz, 2011,p.350). Understanding the dos and don’ts will go a long way in offering protection to the corporation. It is also important for a company to be familiar with the beliefs and traditions of the people in a particular region. It is important to know if there are issued that are considered offensive or those that are seen to contravene the common belief of the society.
It can be a challenge for a company like Coca Cola to master all the beliefs and ways of life of people considering that they operate in 200 countries of the world. However, challenging as it may seem, it is only safest and surest way of keeping away from legal battles arising from torts.
Importance of Contracts in Organisations
A contract is a legal agreement which is binding to the parties. Contracts play an important role in all organizations by ensuring that rights and obligations of both the employer and the employee are respected. The employer is expected to carry out some obligations towards the employees. The employer also has rights which emanate from obligations of employees. Either of the party can seek redress if their rights have been violated by failure of the other party to carry out their obligations.
Coca Cola as a multinational has got thousands of employees drawn from various regions globally where Coca Cola has its presence. With contracts, Coca Cola has managed to avoid some of the legal problems that can emanate from failure to put such mechanisms in place. With contracts, Coca Cola has managed to have a happy workforce that is more productive since the contracts stipulate clearly on the rights that employees have as well as their rights. As a company, Coca Cola owes its employees some rights which are statutory in nature.
Other than having a productive workforce, having contracts ensure that in case a dispute arise between the employer and the employees, there is a well structured mechanism to handle the dispute. If there is no contract that has been put in place, resolution of disputes may pose a great a challenge especially to the employer.
Contracts also give a channel through which employees can vent out their grievances. If any company does not give a channel through which employees can make their complaints there will be severe repercussions such as a go slow, low production for lack of motivation and this in general will affect the products and services floated for customers in the market. Coca Cola has fully fledged mechanism that allows employees to speak out any complaints they may have regarding any of the issues within the company. By so doing, this has ensured that there is constant communication between the company and its employees and this has ensured that both parties to the contract are reading from the same script.
Types of Contracts In Organisations
There are different types of contracts that an organisation may have to enhance smooth operations of the organisation. Multinational corporations like Coca Cola often have a number of contracts due to their wide networks globally. One such type of contract is the international contract. Usually this kind of contract involves an agreement between the company and international experts in a given filed. Coca Cola has many of such contracts as its operations are global and therefore it has signed contracts with all countries where is operations are present.
Regional contracts are also common and it is meant to reinforce to the international contracts. (Emerson, 2009, p.217)The contract is thus between the organization and locals on how operations of the company in that particular region are to be run. Other types of contracts that a multinational like Coca Cola has include a lump some or fixed price contract which is an agreement between an organisation and its distributors to supply goods within a stipulated period of time. Coca cola has signed such contracts with all distributors the world over regarding the distribution of beverages manufactured by the company. This contract is very clear on what is expected of each party.
Contracts are very useful in organizations as they help to manage risks. In case a dispute arises or there is an alleged violation of rights or failure by a party to carry out their obligations, it is the provisions of the contract that help end the stalemate. Organisations operating without contracts face risk of being sued by their employees should a dispute arise.
Even with contracts in place, legal risks are bound to face organizations and especially multinationals that operate in different countries where laws and regulations of operations differ. There are different models that companies to protect themselves from legal risks that may arise. Each model is suited for a particular business environment. Some of the ways in which businesses protect themselves from legal risk include:
- Use of contracts is one way to minimize legal risks. Normally the provisions are written down for purposes of reference and they are written in a language that is understood by both parties (employer and employee). Some of the provisions contained in these contracts include warranties both implied and express, exclusion and limitation clauses.
- Security mechanisms are also used as a way of mitigating against legal risk arising in the course of business operation. These mechanisms include mortgages, charges, guarantees, caveats and indemnities.
- A company can also use procedures, manuals and policies to reduce legal risks. This is s[specifically meant to reduce the number of negligent claims made against the company.
- Formulation of code of conduct and professional ethics is yet another way of ensuring that a company is not at risk of finding itself on the wrong side of the law. These code of conduct and ethics stipulate what is considered acceptable in terms of behaviour within an organization. In case a problem if this nature arises, the management invokes the provisions of the code of ethics and conduct.
- Companies may also use specific procedures to address any legal issues that may arise. For instance, a company may consult the provisions of a particular act or any other laid down law to sort out a legal dispute rather than have the matter taken to court.
- Retaining of documents, use of insurance and management of projects are other ways or reducing legal risks by companies.
Legal Risks Faced by Coca Cola
Being a multinational, Coca Cola faces a fair share of legal risk merely by its nature. Since the company operates in different companies, should any of its contracts differ with the laws of any given country where Coca cola has its presence then a dispute will arise. This is made more complex due to political interference. The constant change in leaderships and governments leads to instability of laws and regulations governing the operations of a company and this bring about legal risks to multinationals like Coca Cola.
Another issue is the difference in the legal systems of different countries. The legal system of the United States of America is more transparent in comparison to other legal systems. The interpretation of laws when a dispute arises may therefore differ depending on the countries that are affected. This poses a legal challenge to Coca Cola as a company.
The other biggest legal problem that most multinationals gave to contend with is the inaccessibility of legal systems of most countries. It becomes very hard for some companies especially those that have their roots in foreign countries. This a legal risk that Coca Cola has faced in some of the countries where it has its presence and it has become quite an issue that has at some point posed a threat to the smooth operations in such regions.
Measures Used by Coca Cola to Reduce Legal Risks
Due to the many years that this company has been in operation, a lot of immense experience has been gained and now stringent measures have been put in place to ensure that the company is not at risk of facing legal battles with its employee or other stakeholders of the company.
To begin with, Coca Cola, has embraced the use of contracts of all its stakeholders be it employees, distributors and all other people who are involved in enhancing smooth running of its operations. By doing so, the company has managed to protect itself to a large extent from legal suits. The other mechanism that Coca Cola has employed is to establish their operating mechanisms within the laws of the region in which they are operating. Therefore, before setting base in any region, Coca Cola first examines all the laws that govern business operations in that region. This ensures that all operations are done within the parameters of the law.
Involvement of the local people who have a clear understanding of the local reality is yet another mechanism that has helped Coca Cola avert legal risks to a reasonable extent. This is because local people have a better understanding of what is required more than foreigners.
Coca Cola as multinational has managed to stand the test of time by overcoming all the challenges most of which are legal and political. It is therefore important for any multinational to have a solid legal ground to avoid brushing soldiers with the law in the wrong way.
Emerson R. W.(2009). Business Law. London: Baron Educational Publishers.
Gunz, D.P. (2011). Canadian Business and the Law. 4th Ed. Canada: Nelson Education.