On the trail of corporate accountability — from the boardroom to the courtroom.
Coca-Cola may be the perfect consumer product. Ultra-cheap to make, the stuff is transformed — with the help of savvy marketing and zillions of advertising dollars — from mere carbonated sugar water into an object of desire. The company offers what former Coke CEO Don Keough called “a small moment of pleasure.”
And what sells better than pleasure? Coke’s ability to sell a few seconds of sensation has allowed it to capture markets from Tulsa to Timbuktu. Coca-Cola executives can fly to practically any capital on earth and be entertained by that country’s top leaders. When Coke execs went to a meeting in Romania a few years ago, they parked their Gulfstream jet inside the private hangar of the country’s infamous dictator, Nicolae Ceausescu. In The Real Thing: Truth and Power at the Coca-Cola Company (Random House, $25), Constance L. Hays writes that the strength of Coke’s brand means that its executives have “unusual access to world leaders, living in a kind of extra-government, the Republic of Coke.”
Although the mythical Republic of Coke hasn’t joined the United Nations just yet, activists fear that globalism will allow entities like it to dominate the world. The hot, ongoing globalization debate — which began in earnest with the riots in Seattle in December 1999, near the apogee of the Internet bubble — is occurring at the same time that shareholders are watching an unprecedented wave of corporate crime. Dozens of former corporate fat cats are now under indictment, on trial or already in jail. The unfathomable arrogance of these scalawags has spurred much-needed discussions about corporate responsibility and the role of corporations in society.
Hays’s book tells the 130-year history of Coca-Cola with flair and gusto. She explains how Coke used advertising to make itself into a chameleon, a product that “could embrace Santa Claus and Ramadan without missing a beat.” She profiles the company’s legendary leaders, including Robert Woodruff, Don Keough and Roberto Goizueta, and tells how each of them pushed the company to grow faster and become ever more global.
But The Real Thing is also a primer on the perils that come with decades of seemingly limitless growth. When that growth finally stalled in the late 1990s under Doug Ivester, the small-town Georgia boy who succeeded Goizueta as the company’s CEO, the Coca-Cola board — led by uber-investor Warren Buffett — quietly forced Ivester to quit. He took a $115 million payout with him. A few months later, more than 5,000 Coke employees were fired. None of them got Ivester-sized paychecks, of course. Coke also decided to write off $2 billion in losses. But the setbacks for Coke, Hays assures us, are only temporary. “The men of Coke would raise her up, bring back her lost prestige, restore the luster.”
Merge and Burn
A $2 billion loss seems pretty big until you consider that, in 2002, Time Warner wrote off $54 billion. Indeed, there’s a lot of luster that needs to be restored at the company known until recently as AOL Time Warner. In Fools Rush In: Steve Case, Jerry Levin, and the Unmaking of AOL Time Warner (HarperBusiness, $26.95), Nina Munk tracks the series of mergers that occurred between 1989 and 2000 combining four companies — America Online, Time Inc., Turner Broadcasting System and Warner Communications — into a media behemoth. Munk tells the story with dish and sparkle and does a great job of sketching the men who in early 2000 decided to merge America Online and Time Warner and thereby create the “first global media and communications company of the Internet century.”
In unflinching — and largely unflattering — detail, Munk introduces us to characters like the preternaturally calm lawyer Gerald Levin, who became the CEO of AOL Time Warner; to the hyperactive Mouth of the South, Ted Turner, the man who single-handedly made CNN into the first global TV station; to Steve Case, the whiz kid who made AOL into a global Internet company and engineered AOL’s purchase of Time Warner in 2000 for the staggering sum of $165 billion; and to Bob Pittman, the ruthless executive who, despite being fired by Levin at Time Warner in the mid-’90s, resurrected his career at AOL and, after the 2000 merger, became the co-chief operating officer of the new media giant.
By now, the story of the rise and fall of Time Warner has become all too familiar: The top execs got very, very rich. Steve Case alone sold $700 million worth of stock. Meanwhile, shareholders were left holding the bag. In early 2000, the combined market value of America Online and Time Warner was $250 billion. In late February of this year, Time Warner’s market capitalization was just $78.4 billion.
Another facet of the story is painfully familiar: Four dozen lawsuits have been filed against the company and its former executives. Federal investigators are now combing through the company’s records. A number of books have been written about the implosion of AOL Time Warner. Munk’s book deserves points for its breezy style and agile handling of the business issues.
Outward and Upward
The stories about Coke and Time Warner — both of whom are the giants of their respective industries — fit well within the thesis of Philippe Legrain’s Open World: The Truth About Globalization (Ivan R. Dee, $27.50). Legrain argues — successfully, for the most part — that Coke’s ability to ply the world’s consumers with soda pop is a darn good thing. Globalization, he says, “makes countries richer and individuals freer.”
Legrain gleefully attacks the critics of globalization, systematically debunking what he contends are their simplistic arguments against it. He deftly weaves in a brief history of globalization, a movement that began, in his view, when Columbus discovered the New World, and is now accelerating, in the wake of the crumbling of the Iron Curtain and the opening of China. With an economist’s passion for statistics and facts — “the cost of sea freight has fallen by two-thirds since 1920; that of air transport by five-sixths since 1930. . . . A three-minute telephone call between New York and London cost $245 in 1990 dollars in 1930” — Legrain, the chief economist of Britain, explains how ever-faster modes of transportation and communications have helped reduce the barriers once posed by national borders.
While Legrain’s book is well researched, parts of it are too glib. At one point he says that a corporation’s “social responsibility is to make profits, not to decide how, or how much, the environment should be protected.” It’s the job of government, he contends, to make the rules and enforce them. That’s certainly true. But Legrain glosses over the inherent inequality of the conflict. In military terms, it would be called “asymmetric warfare.”
In recent years, tribal leaders in Ecuador have sued Texaco over pollution allegedly caused by the oil company on their native lands. Other plaintiffs from Asia and Africa have filed claims in American courts against American companies, claiming that the companies violated their human rights. These tort claims are critically important. If globalization is to be the two-way street that Legrain believes it should be, then there must be a forum where landowners, workers and others can seek suitable legal remedies for their tort claims. By ignoring this legal issue, Legrain ignores what may be the most fundamental ongoing problem with globalization, and this oversight weakens what is otherwise an interesting and worthwhile book.
Torts and Reform
Reining in corporate misbehavior is the focus of Henry Scammell’s Giantkillers: The Team and the Law That Help Whistle-Blowers Recover America’s Stolen Billions. (Atlantic Monthly, $25). The right of an average citizen to sue an entity on behalf of the government extends all the way back to the 13th century. This right was codified in what are known as qui tam statutes, and such a law was passed by the first Congress of the United States. The statute was revised and strengthened during the Civil War, when the Union army was hampered by shoddy equipment sold to it by unscrupulous merchants. Scammell tells how the law — which was revised and strengthened by Congress in 1986 and is now known as the False Claims Act — has led to numerous successful lawsuits against corporations that were bilking the federal government.
Scammell’s account of the key lawsuits that have been filed under the False Claims Act hopscotches around the United States, showing how a California weapons maker was cheating the Pentagon, how a hospital chain was overcharging Medicare and how Wall Street firms were deliberately fixing prices on a bond offering. Scammell documents how ordinary citizens and savvy professionals alike have employed the law. A key figure in the latter group is plaintiffs attorney John Phillips, who played a central role in getting the law revised in 1986. Since then, Phillips has used it to sue lots of companies. And he has made lots of money. He’s also saved taxpayers billions of dollars.
Scammell’s book offers a compelling argument for the importance of tort claims in protecting consumers and the government. Right now, conservatives are eagerly pushing restrictions on the rights of plaintiffs to seek redress through the courts. But a quick look at recent headlines shows that ultimately the only way to assure that corporate bosses are both responsible and accountable is to acquaint some of them with the inside of a courtroom — and, in certain cases, a jail cell.
Robert Bryce’s second book, “Cronies: Oil, the Bushes and the Rise of Texas, America’s Superstate,” will be published in May.