A Prescription for Business/Government Relations

MR. MACNAUGHTON:

Ladies and gentlemen of The Empire Club of Canada: Our guest of honour today is Ian R. Wilson, Vice-Chairman of the Coca-Cola Company, the well known and well regarded multinational enterprise, headquartered in Atlanta, Georgia, which is the city where it was founded over ninety years ago.

In the Atlanta of the 1880s, then a bustling community of 21,000 people, a determined pharmacist by the name of John S. Pemberton was working to make his fortune by developing patent medicines. The output of his pharmacy included items with such auspicious sounding names as Pemberton's Extract of Styllinger and Pemberton's Globe Flower Cough Syrup. Neither of those products succeeded, but Dr. Pemberton persevered.

His next offering to the infirm of Atlanta was Pemberton's French Wine of Coca, a product that he promoted as the ideal nerve tonic. It didn't succeed in winning wide consumer support either, but it only just missed and out of the French Wine of Coca evolved another new product, named by Dr. Pemberton's bookkeeper as Coca-Cola Syrup and Elixir, which was soon abbreviated to simply Coca-Cola.

An early poster for the new remedy read as follows: "Coca-Cola for headache. Relieves mental and physical exhaustion." Dr. Pemberton was correct in believing that he was on to something special with Coca-Cola, but he was wrong in his belief that it would cure headaches. Today we know that he need not have been disappointed because what his potion would relieve was even more pervasive than the common headache: what Coca-Cola relieved was the common thirst.

The soft drink, Coca-Cola, was born in 1886 and from that year demand for it has grown steadily until it is now sold in 135 countries around the world. From sales of fifty gallons of syrup which generated profits of fifty dollars in its first year Coca-Cola has become the mainstay of an enterprise that in fiscal 1978 had sales of $4.3 billion and net profits of $372 million.

The success of the product and the company to which it gave birth unfortunately did not enrich its creator and founder. Dr. Pemberton died in 1891 and all of the stock in the company was accumulated by an Atlanta family for a total investment of $2,300. Today the market value of the common shares held by the company's 67,000 shareholders is approximately $4.3 billion. The repeatedly excellent operating performance of the Coca-Cola Company and the historical market performance of its shares on the New York stock exchange year after year has proven unquestionably that, as an investment, Coca-Cola is the real thing.

Ian Wilson's career with Coca-Cola has been as steadily upward and impressive as that of his company. He joined the Coca-Cola Export Corporation in the South Africa regional office in 1956. Later he became assistant regional manager of the Southern Africa Region, becoming vice-president and regional manager in 1972. He was named area manager of the Southern Africa Area in 1973. In 1974 Mr. Wilson came to Toronto where he was elected president and chief executive officer of Coca-Cola Ltd. He next moved to Atlanta when he was named operating manager for the Far East and the Pacific in September 1976; he was elected executive vice-president of the Coca-Cola Company in November of that year and just yesterday he was elected Vice-Chairman of the Coca-Cola Company. In addition to his head office responsibilities he continues to serve as Chairman of the Board of the Canadian company.

The performance of Mr. Wilson's geographic area of responsibility during 1978, his second full year of authority, is impressive. In a year when the company's sales increased twenty per cent, those of Ian Wilson's division grew by thirty per cent. When the company's profits rose by fourteen per cent, his grew by thirty-three per cent. As a finale to fiscal 1978 Mr. Wilson successfully negotiated the exclusive right for his company to sell Coca-Cola in the People's Republic of China, a nation of 950,000,000 thirsty people. It is clear that as a performance-minded executive Ian Wilson adds life to Coke.

In the short time Mr. Wilson lived in Canada he became a Canadian citizen, so it is my pleasure not only to welcome him to our podium, but also to say "Welcome home."

Ladies and gentlemen, Mr. Ian R. Wilson will address us now on the topic "Mutual Benefit, Respect and Trust--A Prescription for Business/Government Relations."

MR. WILSON:

Ladies and gentlemen: About twenty-five years ago James A. Farley, a former Chairman (of the Board) of the Coca-Cola Export Corporation, ad dressed the Empire Club. I'm pleased and honoured to follow Mr. Farley as the second representative from Coca-Cola to occupy this distinguished platform.

You may be aware that as one of his many activities James Farley served as financial adviser to the Vatican in the late fifties. When he went to visit the Pope, Mr. Farley made the headlines in the Italian communist newspapers. They said he offered His Holiness a million dollars to change the liturgy so that instead of saying "Amen," Catholics everywhere would conclude their prayers with the slogan "Drink Coca-Cola."

An amusing story--but the fact is that large, worldwide companies and their products have always been prime targets for criticism. In recent years, as these companies have expanded, they have assumed a leading role in the industrialization of the entire globe. Because of this, their behaviour has been subject to even more intense scrutiny by many different groups in virtually all countries. Increasingly, governments are granting or withholding or modifying the right to do business on the basis of social contributions that a company can make. Therefore it is prudent ... but more important it is morally imperative that companies like mine constantly prove their corporate good citizenship.

Today I would like to discuss corporate citizenship and talk about the experiences of the Coca-Cola Company around the world.

The Coca-Cola Company does business in 135 different countries. These countries vary drastically, from countries just beginning to emerge and develop like South Korea and Thailand to fully mature industrialized countries like Japan, Australia and Canada. Despite the many differences among these nations, we have found a basic philosophy fundamental to our dealings with all of them. This is perhaps best summed up in just a few words taken from our official agreement recently signed with China: "Mutual benefit ... respect ... and trust."

The agreement with China was several years in the making, covered many issues, and was warded with meticulous care. Yet, central to the spirit of the whole negotiation was that single phrase: "mutual benefit . . . respect ... and trust." It's an exact translation of the language inserted by the Chinese, and those three points describe very succinctly our idea of corporate citizenship. The first two words of the key phrase are "mutual benefit," and they pinpoint the real substance of any social contract, particularly one between a business and a nation.

The great builder of the Coca-Cola Company, Robert Woodruff, noted that everyone who comes in contact with the product should profit--in some way. By "everyone" he meant not just the consumer or the retailer or the bottler or the company. He meant that society as a whole should profit by our presence.

Currently in our international dealings, the Coca-Cola Company strives to meet this objective by providing three types of mutual benefits: first, cultural, educational and sporting programs; second, packages of technology and business that will help a host nation to meet some national goal, such as increasing food production, alleviating malnutrition, or accelerating industrial development; and third, the benefit derived directly and indirectly through the manufacture and sale of our products themselves.

Let me discuss each of these benefits in a bit more detail. Since there has been so much interest in our recent agreement with China, I'm going to use it as my main example.

In terms of sponsorship programs, wherever the Coca-Cola Company does business we make a point of associating ourselves with the social, cultural and sporting aspirations of the host country. Besides generating goodwill, we believe such programs improve mutual understanding.

To give you an idea of the kinds of programs I am talking about, let me just tick off some of our activities with the People's Republic of China. We participated in a tour of representatives of the China Council, participated in sponsorship of the tour of the Chinese soccer team, sponsored a Japanese tour by PRC soccer coaches, and helped underwrite the successful China tour of the Boston Symphony Orchestra, sponsored the recent return of the U.S. ping pong team to China, provided major funding for the public broadcasting special featuring the Performing Arts Company of China. We are assisting with a multi-volume history of Chinese civilization being written at Cambridge, and just recently China accepted our offer of five Harvard M.B.A. scholarships.

What about our activities in other countries?

In Egypt, our company is sponsoring archaeological expeditions under the auspices of the Brooklyn Museum to uncover some of the yet unexplored tombs in the Valley of the Kings. There is an immediate need for these excavations since the completion of the Aswan Dam has affected the condition of this area.

On behalf of the Soviet Union, we are sponsoring a public broadcasting show on Lexo, the Russian pianist who won the Van Cliburn medal. We have also hosted Russian dance companies and orchestras in the United States. We sponsored the U.S. exhibition of the Tokuguawa collection for Japan, the first exhibition outside Japan of these priceless masks and robes from the No theatre. In addition, we sponsored the World Youth Cup soccer championship in Japan.

We have participated in these same types of activities with nations all over the world. We believe such activities strengthen the bonds between nations, and contribute to the quality of life.

As to technology and business expertise, the Coca-Cola Company, through our various divisions, has a whole spectrum of technical and management abilities. We are the world's largest citrus growers and citrus processors. We know nutrition, wine-making, water treatment, and sanitation. We know a good bit about trademark law and food law, and we understand packaging. Through our many locally-owned, independent franchise bottlers, we have what is probably the largest distribution network on earth, so we have some knowledge of how to distribute both products and information. And on top of it all, I think we can also say that we know how to make soft drinks!

We have found that virtually all of these skills can be exported. They have application, in some way or another, in many different nations where they can be used to help solve problems or further national goals. Let me give you some examples.

Japan had a surplus of mandarin oranges. They came to us for advice. We applied our citrus technology and used the surplus crop to can and market Hi-C fruit drink. This was an economic help to farmers and the government in a time of surplus. It created a totally new product in Japan, so successful that Hi-C is now the leading juice drink in the Japanese market--so successful in fact that we've run out of mandarin oranges, and are now importing juice.

The Egyptian government invited us back into that country to not only market our products again, but to help rejuvenate their citrus industry. Egypt has thousands of acres of and land where they have been unable to establish citrus groves. Our technology enabled us in a joint venture with the Egyptian government to reclaim fifteen thousand acres. The product from the groves will be used both in Egypt and as an export product to generate foreign exchange.

In Mexico we received a direct request from President Portillio to provide a nutritional beverage to supplement the diets of people in some parts of the country. He knew we had the expertise to help address the problem of malnutrition. We marketed a product called Sanson, which is a high protein drink extracted from the whey left over from cheese-making. To our Mexican bottlers it's an affordable product and has the potential of making a contribution to their business as well as providing a real benefit to the community. Coca-Cola is also involved in a joint venture at Puerto Penasco with the University of Arizona and the University of Sonora to increase the production of shrimp. The shrimp industry is inconsistent, and we have found that by growing shrimp in a controlled environment on land we can obtain a ninety per cent survival rate. This project will provide an economic benefit for the area and for Mexico and also will stimulate exports.

At the request of the Philippine government, we are involved in another program to combat malnutrition. The project is called Nutri-Pak, and we distribute food in packaged form to parents of malnourished children, combining this with a program to educate parents and youngsters on how to use Nutri-Pak specifically and to prevent malnutrition in general.

In China, we were able to demonstrate to the Chinese government that our company had a great deal of expertise that they consider important to their industrial development goals. Their needs cut across all our technologies, and we are currently conducting seminars for the Chinese in everything from water treatment to glass-making. We are also helping them on food law and labelling, and as they go into more exporting our company will provide advice on trademark law.

The third way that a country can profit by our presence is through the manufacture and sale of our products themselves. At the most obvious, primary level, this creates jobs and pays taxes. And because the vast majority of Coca-Cola bottling plants throughout the world are locally owned, most of the profits earned remain in the host country, thereby contributing to local capital accumulation.

But beyond this, there is a secondary level of benefits. China again provides a good example. In one way, China's economy is already among the top ranks. At an estimated $407 billion for 1978, the GNP ranks sixth in the world. But, while it has exploded an atom bomb and built high-powered computers, China is a long way from being a modern consumer society. It has sixty-five times more bicycles than cars, and the average Chinese must work six months to pay for a bicycle. It has some highways, but fifteen to twenty miles outside many Chinese cities the main roads turn to gravel. It has only about four million telephones. There are only two hundred telex machines in the whole of China - probably fewer than in the average block in downtown Toronto. Most Chinese still need to boil their drinking water.

In other words, the basic infrastructure required to support consumer products like Coca-Cola on any large scale is just not in place, and up to now the few consumer goods that are coming into China are being imported for consumption by foreigners in limited areas. For example, distribution of Coca-Cola is limited at present to tourist outlets in nine cities.

But this is not unusual. We have gone into many countries where there was much less to work with. We have had to help develop entire industries from scratch in order to provide the support that a bottling plant requires. We have assisted countries to get going in glass manufacturing, sugar production, water purification, and so on.

The company gives advice to get these industries started. We train the necessary people, and then we turn the entire operation over to local ownership. We don't own them, and as a matter of principle and policy we don't want to. But we need these ancillary industries in order to function. This is a prime example of "mutually beneficial" activities because the host country also needs such industries in order to grow and create a more stable and prosperous environment for its citizens.

In the last few minutes I have tried to give you a broad view of our concept of corporate good citizenship. We have found that as we become an active, integral part of many different kinds of societies, our day-today business operations are inseparable from our role as corporate citizen. We recognize that in spite of our common humanity, different histories have created differences among nations that simply cannot be overlooked. There are differences in religion, differences in culture, differences in attitudes, differences in national priorities and goals. All of these differences must be respected by companies doing business with these nations.

The Chinese, for instance, after thirty years of political and economic isolation are looking, cautiously, once again toward the West to see what we can offer. But the old scars will not heal easily. Old experiences will not be forgotten quickly. While there is new freedom and economic acceleration, China will not be transformed overnight. Business must move slowly and with great deliberation.

Our largest and most stable market in the Pacific, Japan, was developed gradually, carefully, over a period of twenty-two years. And through all the years we have always been respectful of the differences that exist and acutely sensitive to differences that may be developing.

We all seem to be especially aware of this need as nations are developing. But I hasten to add that it is also true of the already developed countries. No society, no government can be taken for granted, ever!

For example, here in Canada our business and consumer choice is influenced by both federal and provincial government legislation. The Canadian ban on saccharin is a good example. You may recall the massive doses of saccharin, the equivalent of eight hundred bottles of Tab a day, fed to those rats in Ottawa which resulted in the ban of the sweetener in this country.

Canada, like most countries, has a population which is extremely health-conscious and there are 700,000 diabetics living here. Yet at this time, this is the only country that does not have a sugar-free soft drink with an acceptable taste. While the fact that the Canadian government will probably approve aspartame as an alternative sweetener is good news, we only hope that the cost of this ingredient will not be so high as to preclude its use in diet soft drinks.

Another problem area is packaging, where provincial governments chose to ignore consumer demand and set artificial restrictions. We have experienced a proliferation of packaging restrictions ranging from an outright ban on non-refillable containers in Saskatchewan, to deposit systems elsewhere, to a limit in the percentage that non-refillable packages may represent in total volume. Here in Ontario, that's twenty-five per cent.

However, my major concern is the ban last August of 1.5-litre soft drink bottles on the grounds that they are unsafe for public use. By every test our company has ever conducted our bottles should not have been banned. The thing that really upset us was that in the middle of the testing, after we had spent thousands of dollars in an attempt to find a solution, the testing criteria were removed without any being given to replace them. And to the present time we still do not have any standard for these bottles.

We are now looking at local technology as well as a Japanese plastic coating system to get these bottles back on the shelf. Even in Japan, where plastic-coated returnable bottles are sold right now, manufacturers have a choice to go with plastic-coated glass or thicker naked glass bottles similar to our banned containers. The United States produces uncoated two-litre glass bottles and all other countries use either one-litre or 1.5-litre glass bottles without coatings. Worldwide, there have been no other bans. The plastic-coated bottle seems to be a luxury which consumers elsewhere apparently do not want or cannot afford.

The recourse is difficult. Commissions of enquiry usually do little to engender a good business climate. As far as I am concerned, dialogue is far better than confrontation. In any event, the free-market system and the long-term consumer interest of any responsible company is the best system of checks and balances ever devised.

In a recent speech, Prime Minister Clark accused businessmen in Canada of sitting back and not taking risks. On the contrary, I believe business here is prepared to expend risk capital provided there is a reasonable expectation of achieving adequate return on investment. From the time I have spent in Canada, I believe Canadian management is professional and aggressive, but we must have the support of both the federal and provincial governments.

The myth that big business needs to be controlled because we act irresponsibly is simply not true. Naturally, a public sector is needed that is strong and decisive in policy matters, but they should also be non-interfering in the day-today operation of business.

Coca-Cola Ltd. of Canada competes with other divisions of the Coca-Cola Company for investment capital. In the light of our recent experience Canadian management must really sell hard to convince the parent company to continue an aggressive investment posture. When Neville Kirchmann, President of Coca-Cola Ltd., approaches corporate office with programs, he is asking for investment in a country with enormous potential. However, he competes with nations around the world where sales and return on investment are truly excellent while here in Canada, because of packaging restrictions and bottle bans, we are anticipating a very nominal growth for 1980 and possibly beyond.

You may be thinking that all businessmen feel that their industries have the biggest problems in terms of government intervention. But no one can reasonably disagree that the Canadian soft drink industry has really suffered in that regard. We have been hard hit in a number of areas but particularly by the conflict between provincial environment and federal product safety considerations.

Lest anyone gets the wrong idea, let me make it very clear that we are not indifferent to potential packaging hazards or callous about the environment.

Here in Canada, as elsewhere in the world, the management and employees of our company live in the communities where our products are bought and consumed and we appreciate safe products and an uncluttered environment as much as anyone.

For years now, elected officials of all the major parties, both provincial and federal, have spoken of the principles of deregulation, disentanglement and elimination of overlapping jurisdictions. Perhaps now that the federal government is of the same political persuasion as the majority of its provincial counterparts, it might be timely to begin rationalizing some of the conflicting demands made upon industry.

You will recall that one of the important words in our Chinese agreement was "trust." It is an essential component of any viable business and government relationship. Yet despite all of the advances that have been made in the study of human interaction, we are still not fully clear how trust develops in some instances and not in others. We do know, at least in our experiences with various countries, that it is helpful for a company to have consistent principles by which it lives and conducts business and on which a host country can count. And, as we become an active, integral part of many different kinds of societies, we find that our day-today business operations are inseparable from our role as corporate citizen. We also have found that it behoves us to build solid relationships with nations not on the basis of ideology, but on the basis of those words "mutual benefit . . . respect ... and trust."

Thank you, ladies and gentlemen.

The thanks of the club were expressed to Mr. Wilson by Charles C. Hoffman, First Vice-President of The Empire Club of Canada.