Coke Adds Fraud: Exposing the Beverage Giant's Shady Research Practices
The University of Colorado School of Medicine recently announced it was returning a $1 million gift from Coca-Cola after it was revealed that the money was used to fund the Global Energy Balance Network, an industry pressure group that has worked to play down the link between sugary drinks and obesity. Marion Nestle, a professor of nutrition, food studies and public health at New York University and the author of Soda Politics, called the network a "front group" for Coca-Cola and said she was pleased that the money was returned.
The world's largest beverage company has been criticized for pushing a misleading message to the public, blaming the obesity crisis on Americans' lack of exercise and denying that sugary beverages are a main cause of the problem. The company said the returned money would be donated to the Boys & Girls Clubs of America.
Dana Radcliffe, a professor of business ethics at Cornell University, recently wrote a Huffington Post blog post questioning whether Coke's actions were consistent with its publicly espoused values, including honesty and respect for all its stakeholders.
I had a chance to ask Prof. Radcliffe his thoughts about the recent announcement by the University of Colorado, what it means for Coca-Cola and the ethics behind selling sugar.
Reynard Loki: What is the impact on Coca-Cola of the University of Colorado's decision to return its gift? Is this just a bump in a rocky road, or does this development carry some significance?
Dana Radcliffe: Prior to this decision by the University of Colorado, two high-profile health organizations — the American Academy of Pediatrics and the Academy of Nutrition and Dietetics — which had together received $4.7 million from Coke, severed their relationships with the company. In light of the fact that, since 2010, Coca-Cola has distributed $120 million to various groups involved in health research and other efforts to combat the obesity epidemic, I would not be surprised to see more recipients declining further support from Coke. If a number of those organizations do follow suit, I think Coca-Cola will be forced to rethink its positions on the causes of the crisis and on what its role should be in trying to end it.
More specifically, Coke will come under increasing pressure to abandon its initiatives propagating "energy balance" — which imputes weight-related health problems primarily to insufficient exercise — a hypothesis dismissed as "scientific nonsense" by 37 scientists and public health experts in a letter to the New York Times. If it does let go of that nostrum, and if it is truly concerned about helping address the epidemic, it will make protecting consumers' health a part of its business strategy, for example by increasing its investment in producing and marketing beverages other than sugary drinks.
RL: Does the decision impact only Coke or are there repercussions for its competitors and the food industry in general?
DR: If the scenario I just described unfolds for Coke, then that will strengthen the hand of health and nutrition advocates in pressing food and beverage companies to acknowledge their contributions to the problem and to become part of the solution. To make significant headway in ending the obesity epidemic, we need the food and beverage industry to accept the responsibility that goes with its power to influence consumers' eating and drinking habits.
Certainly, it is a highly competitive industry, and to survive companies have to sell products customers want to buy. Currently, makers of food and drinks treat "healthy choice" as a niche: one product category among many. I can't help but think it would benefit both the industry and consumers if it used its considerable consumer-research and marketing skills to increase market demand for healthier products. Indeed, with the country beset by weight-based illnesses, I believe food and beverage companies that focus on exploiting our cravings for sugar, salt and fat — using science to find ways to intensify those cravings — are morally irresponsible. I'm hopeful that as younger and more health-conscious executives assume leadership roles in the industry, it will become a leader in helping solve an urgent societal problem it has helped create.
RL: Major cities have been trying to curb consumption of sugary drinks. Coca-Cola's sales are slipping. Michele Simon, a public health lawyer, said we are witnessing a "huge political and public backlash against soda." Do you agree?
DR: I don't know that I would describe public concerns about the health impacts of soda as a "backlash" yet. That may be coming. I think, gradually, through the efforts of public health advocates like Ms. Simon and Marion Nestle, consumer preferences are changing. It's a struggle, though, because our cravings for sweets and salty snacks are often hard to resist, a fact of which the food industry has long taken advantage. Frankly, we consumers are going to have to shoulder most of the responsibility for controlling our cravings and acquiring healthier eating and drinking habits. This does not absolve the food and beverage industry of any responsibility for consumers' health. But ultimately, we choose what we eat and drink, and there are resources we can utilize to help us make healthier dietary choices. What I fault the industry for are their intentional efforts to make it harder for consumers to make those choices.
RL: In your Huffington Post piece, you wrote, that “many would argue that the company's managers have a fiduciary duty to the company's investors to maximize shareholder value, requiring them to do whatever they can, within the law, to increase profits.” This evidently conflicts with what Coca-Cola chairman and CEO Muhtar Kent lauded as the company's "rich culture of integrity and ethical conduct." [Coca-Cola has a Code of Business Conduct that requires "honesty and integrity in all matters.”]
This internal tension isn't just an issue for Coke. How do publicly owned companies deal with this collision of principles?
DR: In fact, many legal scholars (such as Lynn Stout of Cornell, in her book The Shareholder Value Myth) argue convincingly that directors and executives do not have a legal duty to maximize shareholder value — or even to try to do so. Some scholars maintain that corporate leaders are obliged to try to maximize long-term shareholder value, but of course, that "requirement" is no real constraint, since for almost any policy they adopt the leaders can claim they are aiming to maximize long-term shareholder value.
Furthermore, in shareholder lawsuits, courts follow the "business judgment rule," which essentially allows boards of directors to decide what is in the long-term interest of the company — as long as the directors aren't engaged in self-dealing. In addition, when it is said that a company's managers must "maximize shareholder value," what is usually meant is that shareholders interests should always come first, ahead of the interests of other stakeholders. But this view — "shareholder primacy" — is morally incoherent, implying that corporate managers cannot act on obligations to employees or customers if that conflicts with the interests of shareholders.
Even Milton Friedman, in his famous 1970 New York Times article, "The Social Responsibility of Business Is to Increase Its Profits," commonly regarded as a main source of the maximize-shareholder-value doctrine, held that managers should pursue profits for investors "while conforming to the basic rules of society, both those embedded in law and those embedded in ethical custom."
Clearly, Friedman did not believe that shareholders' interests always trump those of employees, customers, suppliers, communities and other stakeholders. In fact, Muhtar Kent is on solid ground — legally and morally — in acknowledging that Coke's quest for profits should be constrained by its moral responsibilities to its stakeholders. So, in accepting a responsibility to lessen the health risks associated with Coke's products, Kent and his company would certainly not be violating a duty to shareholders.
RL: In your article, you also noted that the biases that create conflicts of interest are "generally unconscious and thus can affect even distinguished scientists who are unaware of their bias." You point out that there have been numerous studies that show that "the source of funding influences the outcome of the research, even if the researchers are convinced of their impartiality."
If that is the case, is there anything that can be done to prevent these conflicts from happening? Should funding be "anonymized" through a third party? Perhaps, just as academic papers are peer-reviewed, there could be some kind of peer review with regard to funding?
DR: Actually, I don't believe anything is simply a philanthropic gift, with no strings attached. Coca-Cola could make such gifts, but such giving is better done through a truly independent non-profit foundation set up by the company purely for charitable purposes. Also, if Coke wanted to support genuinely unbiased research on obesity, it would have to ensure that the recipient organization didn't know Coke was the source of the funding, and given legal disclosure requirements, I don't see how that would work.
RL: Since Coke is a purveyor of sugar, which is linked to obesity, the company's messaging to the public, whether through advertising, marketing or biased scientific research, is ultimately a matter of public health. Do we need tougher legislation that prevents companies from essentially lying to the public about their products?
DR: I don't favor such legislation, and in any case, it would be hard to prove that companies that sell products containing ingredients (like sugar and salt) that are unhealthy in large amounts are deceiving the public. Consumers have ample access to information about such health risks. The exception to this point is when companies try to confuse the science by supporting and publicizing biased research. I consider that a form of deception. But I would not favor deterring such research by regulation. Exposure and public criticism (with the help of social media), as has happened with Coke's ill-advised creation of the Global Energy Balance Network, can be effective and don't ignite political disputes about "government overreach."
RL: Forbes Magazine's 2015 Most Valuable Brands ranks Coca-Cola fourth, after Apple, Microsoft and Google. Ranked five to 10 are IBM, McDonald's, Samsung, Toyota, GE and Facebook. Of the top 10, only Coca-Cola and McDonald's are food companies and thus play a more critical role in the arena of public health than the other companies on the list. Because of their risk exposure to public health — in particular the obesity crisis — should they be held to a different, or perhaps higher, standard in terms of business ethics? Put another way, does the kind of product you're selling impact your ethical responsibility in selling that product?
DR: Regardless of what the law mandates, I would argue that — as a matter of ordinary moral decency — if a company makes a product that poses serious risks to public health or safety, it has an obligation to take reasonable measures to mitigate that risk. What is problematic about food and drinks is that the risks they expose us to are long-term and often due to excess consumption of the products. While we can develop powerful cravings for snack foods and sugary drinks, they are not addictive in the way tobacco products are.
So, yes, makers of products that are deleterious to our health bear a greater moral burden, in my opinion, than other manufacturers. But the special moral challenge faced by food and beverage makers is, until they can create healthy snacks and sodas, how to drive sales without encouraging excess consumption by particular consumers. Meeting that challenge will take imaginative — and conscientious — leadership.
RL: If Coca-Cola invited you to devise a plan to get through the current storm of criticism, what would you tell them to do? Can Coke take this negative press and turn it into an opportunity for positive growth?
DR: First, as I mentioned earlier, Coke should stop pushing "energy balance." Its support for that discredited idea makes the company look dishonest. Second, except as a completely philanthropic endeavor, Coke should not seek to fund research on weight-related health problems. As a funding source, it cannot avoid creating conflicts of interest for the researchers, even if they are reputable scientists trying diligently to be objective. Third, I don't think it should try to turn its negative press in this situation into an opportunity. Any such effort is likely to backfire. Rather, it should quietly ramp up efforts to diversify away from sugary drinks and work on making its current brands healthier.
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