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BUSINESS ETHICS

Issues, Interest, Information and Institutions

in Business Ethics
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The Issue and Stakeholders

The Coca-Cola Company is a beverage retailer, manufacturer and marketer of non-alcoholic
beverage concentrates and syrups. Coca-Cola's operations in India have come under intense
scrutiny as many communities are experiencing severe water shortages as well as
contaminated groundwater and soil that some assert are a result of Coca-Cola's bottling
operations. 

Hindustan Coca-Cola Beverages Pvt. Ltd in India owns 23 bottling plants, and it has 22
franchises. From all these plants groundwater depletion and pollution of the groundwater
have been reported over the years. One of the most popularly debated issues in recent part
have been the agitation by the local people against the Coca Cola Company at Plachimada in
the Palakkad district in Kerala. The company fully owns the biggest bottling unit in the
country with an estimated capacity to extract 1.5 million litres of water a day there.

It portrays Poor people, mostly adivasis, struggling against a huge global corporation that
has its all-pervading influence on every political, legal, scientific and bureaucratic institution
in the country with the might of its global stature and money power. The Plachimada plant
of the Coca-Cola was commissioned in the year 2000 in 13.6 hectares of land. The plant
even received 15% cash back of its initial investment from the public exchequer through the
State Government of Kerala for what then it took as the rural development initiative.

Plachimada is a semi-arid region set between two large reservoirs and ten meters south of
an irrigation canal. The location was rich with groundwater, which is estimated as 66.7
million cubic meters a year by CWRDM. Coca-Cola recognizing the unexploited potential of
the groundwater commissioned its plant so it could exploit the groundwater accumulated
for millions of years and replenished regularly by reservoirs and canals. Since its
commissioning, it was drawing about 15 lakh litres of water every day both from and
outside its building, unregulated. Despite its rich aquifers, within two years of its
commissioning, the water table had gone down in the area surrounding the Plachimada
plant from 45 meters to 150 meters below the ground level.

As a result, hundreds of wells dried up in the area and requiring people to walk kilometres
away for potable drinking water. Farmers had to give up agriculture and entered one or
another alternative labour to earn their livelihood. Moreover, the water available in scarce
quantity in the locality became stinking, hard, thick, coloured and sticky. When the water
was used for drinking, many were affected by diarrhoea, dizziness. While it was used for
body wash, people started experiencing skin rashes, burning sensation on their skin, hair
loss. Hair turned sticky if they had a head wash with the water. When rice is boiled in the
water, it turned hard instead of cooked. Besides, the company as a measure to bring the
agitating people in its support distributed the factory waste sludge saying that it was a
fertilizer.

Meanwhile, the Grama Panchayat of Perumatty, on 7th April 2003, decided not to renew
the license issued to the company on the ground that it overexploited the groundwater.
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However, justifying its water right the company filed an objection petition before the High
Court of Kerala on 22nd April 2003. Notwithstanding, it has also tried other means to block
the Panchayat from acting against its exclusive right over water through all measures. For
instance, probably influenced by the company, the secretary of the LSGD arbitrarily
overruled the decision of the Panchayat. Further, on 13th October, the LSGD secretary
ignoring the autonomy of the Panchayat passed an order in support of the companysaying
the Panchayat had not conducted any scientific inquiry before it revoked the company’s
license. The Government of Kerala employed all its resources to rescue the company.
Reports were manufactured to justify the company. For instance, the 2003 reports of Kerala
Groundwater Board (KGWD) and Central Groundwater Board (CGWB) inferred the quality of
groundwater in Plachimada does not require immediate governmental intervention, even
contradicting their own data.

The report quoted Prof. John Henry’ warn of ‘‘devastating consequences for those living
near areas where this waste has been dumped and for the thousands who depend on crops
produced in these paddy fields''. About a week later, on 5th August 2003, Centre for
Science and Environment (CSE) declared that it had found residues of pesticides in 12
brands of soft drinks made by Coca-Cola and Pepsi-Cola. The CSE report confirmed that
Coca-Cola had residues of pesticides like Lindane, DDT, Chlorpyrifos and Malathion about 35
times more than the international standards prescribed by the EU. While the reports and
counter reports were unleashed for and against the ethics of over-exploitation of
groundwater the debate caught international attention.

The court directed the Coca-Cola to stop over-exploiting the groundwater of the Panchayat
and asked it to find alternative water sources for its high production needs. The court had
held that "groundwater was a public property held in trust by a government" and that it had
no right to allow a private party to over-exploit the resources to the detriment of the
people. It said the company could be permitted to draw groundwater like any other
landowner, but what was objectionable was its right “to claim a huge share of it.”

Unconvinced by the court’s direction the cola company heightened its magnitude of the
fight for its water right using all the resources under its command. It appealed to the high
court against the ruling of the single bench and argued that water depletion is not because
of its extraction but because of scanty rain in the region. The company had gone for series
of legal battles with the Panchayat to grab the right over the groundwater aquifers. It
further suggested, in conformity with the Coca-Cola, the scanty rain the region received was
responsible for the draught. Furthermore, the report recommended the court to allow
daily extraction of five lakh litres of water from the wells owned by the company.

The court also objected to the Panchayat interference with the legal persons water rights as
“The Panchayat has no ownership about such private water sources, in effect, denying the
proprietary rights of the occupier.” Further, the court ordered that the Panchayat should
use the responsibility vested with it by the decentralisation act to “ensure the freedom of
functioning” of the company. However, the court insisted the company should have the
necessary licenses under the Factories Act and the clearance from the State Pollution
Control Board before it starts its operation.
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The report was claimed to be unfair, biased and based on manipulated data. For instance,
the interim report of the expert committee presented to the High Court reported the
company was over extracting water beyond the capacity of the underground aquifers and
its final report contradicted its own interim findings. The final report stated there is no such
over-exploitation and blamed the drought on the scanty rainfall. While the interim report
pointed out the over-exploitation of water was responsible for the water scarcity and
groundwater pollution, the final report remained silent about the facts of pollution and its
consequences.

However, the company could not restart as the license issued by the State Pollution Control
Board expired when it won its case. The company applied for renewal of license from PCB in
the year 2005 which refused to grant the license.

Interestingly KPCB directed the company to close based on 2003 CPCB report while its own
report in the same year had earlier given clean chit to the company on the cadmium issue.
On 19th August 2005, dissatisfied with the responses from Coca-Cola, KPCB asked the
company to close down its plant at Plachimada immediately as it had failed to meet
pollution norms. The battle still goes on as the Panchayat on 14th September 2005,
unconvinced by the High Court order filed a Special Leave Petition (SLP) seeking to stay this
order of the High Court. However, on 4th January, 2006 complying with the High Court’s
order, the Panchayat issued a fresh license to the company for three months and laid 13
conditions on the license. The first of the condition was that the company shall not use
groundwater from Perumatty Panchayat for industrial purposes, or for producing soft
drinks, aerated carbonate beverages or fruit juice.

Role of Information
The company survives by selling images of itself and that of its consumers. Managing its
reputation is directly related to its sales and profit. It manages its image by various means:
setting up water recharge shafts in project area and elsewhere, securing awards, funding
Non-Governmental Organizations (NGO) and even by supplying water and managing
awards. Ironically, it received awards for most controversial of its projects.

Almost every year the company receives “Golden Peacock” awards ironically, for “Corporate
Social Responsibility” and “environment management” while the company is guilty on both
the accounts. The award is given by a NGO, the World Environment Foundation (WEF)
whose only sponsor according to the WEF website is Coca-Cola.

Recently, the company claimed that it would achieve Zero Water Balance, meaning, it would
extract only so much water it contributes to the water table. It is yet to be seen whether this
is a ‘strategic’ statement to claim right over 15 times more water than it currently
consumes.

Institutional Frameworks
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All industrial undertakings must be required to make an assessment of their projected water
demand and obtain the clearance from central or state ground water authority as the case
may be with provisions for heavy penalties in case of violation. These agencies, in turn, must
consult local panchayats or municipalities that would be affected by withdrawal of ground
water by the concerned industrial units. If they are already working in such areas then they
should be asked to shift to areas which are considered safe with respect to availability of
ground water.

As a result, the Central Ground Water Authority essentially becomes the Central Ground
Water Board and the State Ground Water Authorities become the State Ground Water
Departments or Directorates as the case may be. Similarly, at the district level, it is
essentially the ground water departments.

Regulating ground water management through demand driven measures is a very difficult
task in a country like India where focus so far has always been on the supply side measures.
It is entirely a new approach which can succeed only if the administrative hierarchy at all
levels especially local levels, panchayati raj institutions and the farmers in particular are
convinced about its need and are aware of the modalities of the same. Massive awareness
programme is, therefore, required for the successful implementation of the new regulation.
The inadequacies of the prevailing legal and institutional framework in regulating ground
water have been acknowledged recently by the government agencies also. The Mid-Term
Appraisal (MTA) of the Tenth Five Year Plan carried out by the Planning Commission had
expressed concern about this aspect and had suggested setting up an Expert Group to
review issues related to ground water management and ownership.

Conclusion
The issue has brought into light is the continuing battle of water justice. Whether the cola
company has the disproportionate right over the shared underground aquifer, vis-à-vis the
local people is the question. The company says it has. The locals say it does not. The court
initially said it does not. However, the court later ruled, like any other natural persons, legal
persons too have uninterruptible water rights. The research institutions run by the state,
manufactured their findings matching with the interests of the political coalitions they
served.

The Coca Cola Company claims to strongly abide by their Code of Business Conduct. A
massive movement has emerged across India to hold the Coca-Cola company accountable
for its actions. The state of Kerala imposed a ban of colas from the state only to be quashed
by Coca Cola; the matter is pending in the Supreme Court. However, the case is still very
much alive, as the activists and independent research institutions are relentless in their
battle with the giant company.
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References
www.wikipedia.org

http://www.thecoca-colacompany.com/citizenship/governance_ethics.html

http://cgwb.gov.in/INCGW/Kamta%20Prasad%20report.pdf

http://www.indiatogether.org/2010/apr/env-plachmada.htm

http://www.indiaresource.org/documents/PlachimadaReportWaterPollution.pdf

Business Ethics: Should it remain an oxymoron? By P Madhu in MES Journal of Technology and
Management, June 2010 Volume 1(1)