By Dalia Al-Othman | Harvard Law School | April 16th, 2001
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The Guatemala Crisis
Coca-Cola has often hidden behind its franchise system, claiming that the parent Company cannot monitor what its franchisees do on a daily basis around the globe. Yet as one author pointed out: "Their detachment from a bottler's activities, even if laws or human rights have been violated, is conspicuously inconsistent with the company's obsession with overseeing local production and promotion." In other words, Coca-Cola picks and chooses when to get involved and when not to get involved. The crisis in Guatemala that began in 1975 serves as an example of Coca-Cola's unwillingness to intervene to curb illegal and unethical franchise activity.
In 1986, Guatemala returned to a civilian-led government after more than thirty years of virtual military rule, resulting in a "grudging new respect for certain human rights." Coca-Cola had been bottled in Guatemala since 1939, and the Coca-Cola workers began the first successful attempt to organize a union in 1975. They wanted better working conditions, an end to twelve-hour shifts, and an increase of the $2.08 to $2.50 base pay per day. Although they observed all the legalities, they were immediately thwarted by John Trotter, an attorney from Houston and the Coca-Cola franchise's right-wing, anti-communist president, who used his connections with the Guatemalan military to intimidate members of the union's leadership. Trotter's association with Coca-Cola had begun in 1957, when he assumed control of the Guatemala City franchise. Three years earlier, a military coup had resulted in the replacement of President Jacobo Arbenz Guzman with the first of a series of military-oriented, ultraconservative regimes. The ensuing leaderships sought to repress unionism or any organizing of workers, and the confrontations rendered Coca-Cola the national symbol of the country's labor movement and the symbol of death for many associated with the cause.
The brutalities committed against the union, Trotter's connection to these acts, and the Coca-Cola parent Company's awareness of Trotter's connections, lead one to question why the Coca-Cola parent Company did not intervene earlier than it did. First it is important to note and understand the facts. Trotter had never signed a union contract in his life, and was not about to start — in fact, he believed that unions were a symptom of Communism that should be crushed at all costs. Thus, instead of succumbing to the union's demands, Trotter hired new workers at $3.00 per day if they agreed not to join the union. He then sliced the company into thirteen legally separate paper corporations to neutralize collective bargaining. The company then petitioned the court to rescind the union request because it claimed to have reached an agreement with the workers; to verify this claim, the company provided the court with a document signed by all the workers who had recently been hired at $3.00 per day. The court accepted the evidence and aborted the union, despite the obvious fraud inherent in the charade. Trotter apparently had close political connections that could influence court decisions such as this one. The workers, in protest, staged a sit-in protest on the Coca-Cola plant's property, but Trotter called in the anti-riot military police, which beat the workers, rendering several unconscious. The following day, Trotter fired 150 of the workers, but had to reinstate them because firing them constituted a violation of even Guatemala's minimal labor laws. The local media covered the struggle. At this point, Coca-Cola was well on its way to becoming a symbol of political oppression and violence.
Events at the Coca-Cola plant in Guatemala had for some time been under scrutiny by a group of Coke shareholders in the U.S. There were several churches and religious orders that happened to own shares in the Company and belonged to an organization called the Interfaith Center for Corporate Responsibility (ICCR). ICCR believes in using shareholders' rights to put pressure on large corporations by raising issues in public and submitting resolutions to corporate annual meetings. The ICCR approached the headquarters of Coca-Cola in Atlanta towards the end of 1976, and filed a stockholders' resolution calling for the Company to investigate its Guatemala franchise. The Company agreed to investigate if the group agreed to withdraw its resolution. The investigation was a whitewash, and the shareholders were not convinced. The seven-page report accepted at face value Trotter's denials that he underpaid, intimidated, and abused his workers, concluding that the situation did not justify the termination of the bottler's agreement. In 1977 the ICCR filed another resolution calling for Coca-Cola to establish minimum labor standards for its bottlers worldwide. This time, Coca-Cola managers in the U.S. arranged a meeting between Trotter and the ICCR in Guatemala, at which point a pact was finally signed in the presence of ICCR representatives between Trotter and his workers, 94% of whom were union members. This first settlement obviously demonstrates that Coca-Cola did have the power to intervene, yet it took an attack on its image through pressure from the church to spur the Company into action.
The brutalities did not cease, however. In 1978, Israel Marquez, the secretary of STEGAC (as the trade union at the Coca-Cola plant was called) was attacked by machine guns as he drove home. Later that month, Trotter apparently met with the Guatemalan national police chief and was assured that the union would be destroyed within six months. According to Marquez, Trotter threatened to kill Pedro Quevedo, another union official, and his name was placed on a hit list of the Secret Anti-Communist Army, "one of the most feared right-wing death squads." Eight days after the threat, Quevedo was murdered while making deliveries in his Coca-Cola truck. That day, just before the shooting, Trotter ordered his security force to the plant, further indicating to the workers that Trotter had foreknowledge of the assassination.
A third stockholders' resolution was filed in 1979 and survived until the company's annual meeting in May 1979. Usually a tranquil affair to assess the year's success, the dramatic point of this meeting was an address given by Israel Marquez recounting the beatings, bribes, threats, murders, and shady police and military officials in and about Trotter's franchise. Marquez concluded by stating that in Guatemala, Coca-Cola had become a name for murder, and he urged passage of the resolution, which again called for minimum labor standards. Company management urged defeat of the resolution, arguing that it had no right to interfere in labor disputes between independent parties and asserting that such an intrusion would be improper. Coca-Cola managers stated they could do nothing unless there were given "concrete proof" of Trotter's wrongdoing. Company managers did not discuss the fact that sales had plummeted in Guatemala, giving Pepsi a sizeable lead, or that Coca-Cola's image had been badly maligned.
The Coca-Cola Company stated that it could not legally break its contract with Trotter, yet this probably merely served as an excuse; Trotter's contract, far from being open-ended as the Company had led the ICCR to believe, was up in 1981. Furthermore, in light of the bloodshed in Guatemala, it would have been perfectly appropriate for the parent Company to intervene and break Trotter's contract earlier. The Company already dictated bottlers' production, selling, distribution, and promotional procedures down to the last detail; intervening in light of allegations of intimidation and murder by one of its bottlers would seem to be even more important. Furthermore, several of Coke's franchises had contracts that permitted the parent Company to withdraw a license if there was "a violation of ethical and business norms." Yet the Company's investigations in Guatemala were undertaken more to appease its religious shareholders than to uncover any wrongdoing by Trotter, as is evidenced by the fact that those who could testify to Trotter's role in the bloodshed were not interviewed by Coke's investigators. It seems as though Coca-Cola managers wished to have their cake and eat it too: be able to control all marketing and production activities of the overseas bottlers, and at the same time not be held responsible when bottlers independently used tactics that degraded human rights and basic minimum labor standards. Considering the Company's focus on its clean and wholesome image, it is surprising that the Company did not get rid of Trotter sooner, if not in the name of human dignity then at least in the name of its image and decreased profits. It has been suggested that the Company believed that acting hastily would "open a Pandora's box," and establish a precedent that would require the Company to intervene anywhere in the world "whenever employees had a grievance with their local bottler." This seems like a logical explanation, but it is strange that the Company chose to ignore that murder, bribes, and torture did not constitute one's average "grievances." There should be some corporate responsibility to intervene when people are dying; hiding behind the franchise system surely cannot be the right solution. One author suggests that mismanagement characteristic of any Western bureaucracy, a misunderstanding of trade unions, and the lack of an accountability system on human rights no doubt contributed to Coca-Cola's bad choices.
Although the managers of Coca-Cola did not break Trotter's contract, they did decide not to renew it in 1981. Coca-Cola was ultimately forced to do at least this much, since they were facing international pressure from the International Union of Food and Allied Workers (IUF), Amnesty International, and even the U.S. State Department, not to mention consumer boycotts around the world. Coca-Cola found a new owner, and following repair work and construction on the plant, work resumed at the Guatemala bottling plant on March 1, 1985. Although the crimes perpetrated in Guatemala were not directly attributable to Trotter or Coca-Cola (after all, the Guatemalan military government was intent on destroying unions and suspected communists as part of their own agenda) there is no question that Trotter used the political regime to his advantage. Coca-Cola, as the parent Company, should not have tolerated Trotter's behavior, and should have pulled out of Guatemala to avoid association with such tactics even if doing so would have hampered future production in Guatemala. The issue of corporate social and ethical responsibility was addressed at the Company's annual meeting in 1985. Church shareholders and IUF representatives put forth a measure that would require all subsidiaries and future franchises of Coca-Cola to observe the basic human rights of their employees. Coca-Cola's managers, however, called the proposal "unworkable," stating that it would encourage parties to look to the parent Company instead of solving problems at the local level. Nonetheless, shareholders cast 6,385,818 votes (6.4 percent) in favor of the proposal, double the usual percentage received for social responsibility initiatives. The Guatemala crisis had obviously brought such issues to the forefront of people's minds, even if the proposal did not ultimately receive enough votes.
 J.C. Louis & Harvey Z. Yazijian, The Cola Wars 13 (Everest House 1980), supra note 5, at 152.
 Id. at 185.
 Henry J. Frundt, Refreshing Pauses: Coca-Cola and Human Rights in Guatemala ix (Praeger Publishers 1987).
 Id. at x.
 See, e.g., Louis &Yazijian, supra note 5, at 185.
 See id. at 189; see also Frundt, supra note 147, at 4.
 Id. at 54.
 Louis & Yazijian, supra note 5, at 86.
 See generally Soft Drink, Hard Labor: Guatemalan Workers Take on Coca-Cola (Latin American Bureau Limited 1987) (describing the ICCR in further detail).
 E.g.,Louis & Yazijian, supra note 5, at 187.
 Id. (also noting that Trotter would not sign until the word "union" had been removed from the contract).
 Id. See also Frundt, supra note 147, at 61-71 (for further documentation of Trotter's involvement in the murder and intimidation of union officials, and evidence of his collaboration with the police and the government to accomplish his anti-unionist goals).
 Soft Drink, Hard Labor: Guatemalan Workers take on Coca-Cola, supra note 153, at 14.
 See, e.g. ,Louis & Yazijian, supra note 5, at 189.
 Frundt, supra note 147, at 88.
 Id at 89.
 Id. at 153.
 Id. at 86-90.
 Id. at 230-231.
 Id. at 99.
 Id. at 221.
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