NOT FOR SALEThe Coca-Cola Company Struggles with Eth.docx

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The Coca-Cola
Company Struggles
with Ethical Crises
Coca-Cola has the most valuable brand name in the world and,
as one of themost visible companies worldwide, has a
tremendous opportunity to excel inall dimensions of business
performance. However, over the last ten years, the
firm has struggled to reach its financial objectives and has been
associated with a num-
ber of ethical crises. Warren Buffet served as a member of the
board of directors and
was a strong supporter and investor in Coca-Cola but resigned
from the board in
2006 after several years of frustration with Coca-Cola’s failure
to overcome many
challenges.
Many issues were facing Doug Ivester when he took over the
reins at Coca-
Cola in 1997. Ivester was heralded for his ability to handle the
financial flows and
details of the soft-drink giant. Former-CEO Roberto Goizueta
had carefully
groomed Ivester for the top position that he assumed in October
1997 after
Goizueta’s untimely death. However, Ivester seemed to lack
leadership in handling
a series of ethical crises, causing some to doubt “Big Red’s”

reputation and its
prospects for the future. For a company with a rich history of
marketing prowess
and financial performance, Ivester’s departure in 1999
represented a high-profile
glitch on a relatively clean record in one hundred years of
business. In 2000 Doug
Daft, the company’s former president and chief operating
officer, replaced Ivester
as the new CEO. Daft’s tenure was rocky, and the company
continued to have a se-
ries of negative events in the early 2000s. For example, the
company was allegedly
involved in racial discrimination, misrepresenting market tests,
manipulating earn-
ings, and disrupting long-term contractual arrangements with
distributors. By 2004
Daft was out and Neville Isdell had become president and
worked to improve Coca-
Cola’s reputation.
C
A
S
E
2
We appreciate the work of Kevin Sample, who helped draft the
previous edition of this case and Melanie
Drever, who assisted in this edition. This case was prepared for
classroom discussion rather than to
illustrate either effective or ineffective handling of an
administrative, ethical, or legal decision by
management. All sources used for this case were obtained

through publicly available material and the
Coca-Cola website.
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HISTORY OF THE COCA-COLA COMPANY
The Coca-Cola Company is the world’s largest beverage
company, and markets four of
the world’s top five leading soft drinks: Coke, Diet Coke, Fanta,
and Sprite. It also sells
other brands including Powerade, Minute Maid, and Dansani
bottled water. The com-
pany operates the largest distribution system in the world,
which enables it to serve cus-
tomers and businesses in more than two hundred countries.
Coca-Cola estimates that
more than 1 billion servings of its products are consumed every
day. For much of its
early history, Coca-Cola focused on cultivating markets within
the United States.
Coca-Cola and its archrival, PepsiCo, have long fought the
“cola wars” in the
United States, but Coca-Cola, recognizing additional market
potential, pursued in-
ternational opportunities in an effort to dominate the global
soft-drink industry. By
1993 Coca-Cola controlled 45 percent of the global soft-drink
market, while PepsiCo
received just 15 percent of its profits from international sales.

By the late 1990s, Coca-
Cola had gained more than 50 percent of the global market in
the soft-drink indus-
try. Pepsi continued to target select international markets to
gain a greater foothold in
international markets. Since 1996 Coca-Cola has focused on
traditional soft drinks, and
PepsiCo has gained a strong foothold on new-age drinks, has
signed a partnership
with Starbucks, and has expanded rapidly into the snack-food
business. PepsiCo’s
Frito-Lay division has 60 percent of the U.S. snack-food
market. Coca-Cola, on the
other hand, does much of its business outside of the United
States, and 85 percent of
its sales now come from outside the United States. As the late
Roberto Goizueta once
said, “Coca-Cola used to be an American company with a large
international business.
Now we are a large international company with a sizable
American business.”
Coca-Cola has been a successful company since its inception in
the late 1800s. PepsiCo,
although founded about the same time as Coca-Cola, did not
become a strong competi-
tor until after World War II when it began to gain market share.
The rivalry intensified in
the mid-1960s, and the “cola wars” began in earnest. Today, the
duopoly wages war pri-
marily on several international fronts. The companies are
engaged in an extremely com-
petitive—and sometimes personal—rivalry, with occasional
accusations of false market-share
reports, anticompetitive behavior, and other questionable
business conduct, but without

this fierce competition, neither would be as good a company as
it is today.
By January 2006, PepsiCo had a market value greater than
Coca-Cola for the first
time ever. Its strategy of focusing on snack foods and
innovative strategies in the non-
cola beverage market helped the company gain market share and
surpass Coca-Cola in
overall performance.
COCA-COLA’S REPUTATION
Coca-Cola is the most-recognized trademark and brand name in
the world today with
a trademark value estimated to be about $25 billion. The
company has always demon-
strated a strong market orientation, making strategic decisions
and taking actions to
attract, satisfy, and retain customers. During World War II, for
example, company pres-
ident Robert Woodruff committed to selling Coke to members
of the armed services
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for just a nickel a bottle. As one analyst said later, “Customer
loyalty never came

cheaper.” This philosophy helped make Coke a truly global
brand, with its trademark
brands and colors recognizable on cans, bottles, and
advertisements around the world.
The advance of Coca-Cola products into almost every country in
the world demon-
strated the company’s international market orientation and
improved its ability to gain
brand recognition. These efforts contributed to the company’s
strong reputation.
However, in 2000 Coca-Cola failed to make the top ten of
Fortune’s annual
“America’s Most Admired Companies” list for the first time in a
decade. Problems at
the company were leadership issues, poor economic
performance, and other upheavals.
The company also dropped out of the top one hundred in
Business Ethics’ annual list
of “100 Best Corporate Citizens” in 2001. For a company that
spent years on both lists,
this was disappointing, but perhaps not unexpected, given
several ethical crises.
Coca-Cola’s promise is that the company exists “to benefit and
refresh everyone
who is touched by our business.” It has successfully done this
by continually increas-
ing market share and profits with Coca-Cola being the most-
recognized brand in the
world. Because the company is so well known, the industry so
pervasive, and a strong
history of market orientation, the company has developed a
number of social respon-
sibility initiatives to enhance its trademarks. These initiatives
are guided by the com-

pany’s core beliefs in the marketplace, workplace, community,
and environment. For
example, Coke wants to inspire moments of optimism through
their brands and their
actions, as well as creating value and making a difference
everywhere they do business.
Their vision for sustainable growth is fostered by being a great
place to work where peo-
ple are inspired to be the best they can be, by bringing the
world a portfolio of bev-
erage brands that anticipate and satisfy peoples’ desires and
needs, by being a
responsible global citizen that makes a difference, and by
maximizing return to share-
owners while being mindful of their overall responsibilities.
SOCIAL RESPONSIBILITY FOCUS
Coca-Cola has made local education and community
improvement programs a top
priority for its philanthropic initiatives. Coca-Cola foundations
“support the promise
of a better life for people and their communities.” For example,
Coca-Cola is involved
in a program called “Education on Wheels” in Singapore where
history is brought to
life in an interactive discovery adventure for children. In an
interactive classroom bus,
children are engaged in a three-hour drama specially written for
the program. It chal-
lenges creativity and initiatives while enhancing communication
skills as children dis-
cover new insights into life in the city.
Coca-Cola also offers grants to various colleges and universities
in more than half

of the United States, as well as numerous international grants.
In addition to grants,
Coca-Cola provides scholarships to more than 170 colleges, and
this number is ex-
pected to grow to 287 over the next four years. It includes 30
tribal colleges belong-
ing to the American Indian College Fund. Coca-Cola is also
involved with the Hispanic
Scholarship Fund. Such initiatives help enhance the Coca-Cola
name and trademark
and thus ultimately benefit shareholders. Each year 250 new
Coca-Cola Scholars are
designated and invited to Atlanta for personal interviews. Fifty
students are then
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ETHICAL CRISES 311
designated as National Scholars and receive awards of $20,000
for college; the re-
maining 200 are designated as Regional Scholars and receive
$4,000 awards. Since
the program’s inception in 1986, a total of over twenty-five
hundred Coca-Cola schol-
ars have benefited from nearly $22 million for education. The
program is open to all
high school seniors in the United States.

The company recognizes its responsibilities on a global scale
and continues to take
action to uphold this responsibility, such as taking steps not to
harm the environment
while acquiring goods and setting up facilities. The company is
proactive on local is-
sues, such as HIV/AIDS in Africa, and has partnered with
UNAIDS and other non-
government organizations to put into place important initiatives
and programs to help
combat the threat of the HIV/AIDS epidemic.
Because consumers trust its products, and develop strong
attachments through
brand recognition and product loyalty, Coca-Cola’s actions also
foster relationship
marketing. For these reasons, problems at a firm like Coca-Cola
can stir the emotions
of many stakeholders.
CRISIS SITUATIONS
The following documents a series of alleged misconduct and
questionable behavior
affecting Coca-Cola stakeholders. These ethical and legal
problems appear to have had
an impact on Coca-Cola’s financial performance, with its stock
trading today at the
same price it did ten years ago. The various ethical crises have
been associated with
turnover in top management, departure of key investors, and the
loss of reputation.
There seems to be no end to these events as major crises
continue to develop. It is im-
portant to try to understand why Coca-Cola has not been able to

eliminate these events
that have been so destructive to the company.
Contamination Scare
Perhaps the most damaging of Coca-Cola’s crises—and the
situation that every com-
pany dreads—began in June 1999, when about thirty Belgian
children became ill af-
ter consuming Coca-Cola products. Although the company
recalled the product, the
problem soon escalated. The Belgian government eventually
ordered the recall of all
Coca-Cola products, leading officials in Luxembourg and the
Netherlands to recall all
Coca-Cola products as well. The company eventually
determined that the illnesses
were the result of a poorly processed batch of carbon dioxide.
Coca-Cola took several
days to comment formally on the problem, which the media
quickly labeled a slow re-
sponse. Coca-Cola initially judged the situation to be minor and
not a health hazard,
but by that time a public relations nightmare had begun. France
soon reported more
than one hundred people sick and banned all Coca-Cola
products until the problem
was resolved. Soon after, a shipment of Bonaqua, a new Coca-
Cola water product, ar-
rived in Poland, contaminated with mold. In each instance, the
company’s slow re-
sponse and failure to acknowledge the severity of the situation
harmed its reputation.
The contamination crisis was exacerbated in December 1999
when Belgium
ordered Coca-Cola to halt its “Restore” marketing campaign in

order to regain
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consumer trust and sales in Belgium. A rival firm claimed that
the campaign strategy
that included free cases of the product, discounts to wholesalers
and retailers, and ex-
tra promotion personnel was intended to illegally strengthen
Coca-Cola’s market share.
Under Belgium’s strict antitrust laws, the claim was upheld, and
Coca-Cola abandoned
the campaign. This decision, along with the others, reduced
Coca-Cola’s market stand-
ing in Europe.
Competitive Issues
Questions about Coca-Cola’s market dominance started
government inquiries into its
marketing tactics. Because most European countries have very
strict antitrust laws, all
firms must pay close attention to market share and position
when considering joint ven-
tures, mergers, and acquisitions. During the summer of 1999,
Coca-Cola became very
aggressive in the French market. As a result, the French
government responded by re-
fusing to approve Coca-Cola’s bid to purchase Orangina, a
French beverage company.
French authorities also forced Coca-Cola to scale back its
acquisition of Cadbury

Schweppes, another beverage maker. Moreover, Italy
successfully won a court case
against Coca-Cola over anticompetitive prices in 1999,
prompting the European Com-
mission to launch a full-scale probe of the company’s
competitive practices. PepsiCo
and Virgin accused Coca-Cola of using rebates and discounts to
crowd their products
off shelves, thereby gaining greater market share. Coca-Cola’s
strong-arm tactics proved
to be in violation of European laws and once again
demonstrated the company’s lack
of awareness of European culture and laws.
Despite these legal tangles, Coca-Cola products, along with
many other U.S. prod-
ucts, dominate foreign markets throughout the world. According
to some European
officials, the pain that U.S. automakers felt in the 1970s
because of Japanese imports
is the same pain that U.S. firms are meting out in Europe. The
growing omnipresence
of U.S. products, especially in highly competitive markets, is
why corporate
reputation—both perceived and actual—is so important to
relationships with business
partners, government officials, and other stakeholders.
Racial Discrimination Allegations
In the spring of 1999, initially fifteen hundred African
American employees sued
Coca-Cola for racial discrimination but eventually grew to
include two thousand
current and former employees. Coca-Cola was accused of
discriminating against
them in pay, promotions, and performance evaluations.

Plaintiffs charged that the
company grouped African American workers at the bottom of
the pay scale, where
they typically earned $26,000 a year less than Caucasian
employees in comparable
jobs. The suit also alleged that top management had known of
the discrimination
since 1995 but had done nothing. Although in 1992 Coca-Cola
had pledged to
spend $1 billion on goods and services from minority vendors,
it did not seem to ap-
ply to their workers.
Although Coca-Cola strongly denied the allegations, the lawsuit
evoked strong
reactions. To reduce collateral damage, Coca-Cola created a
diversity council and paid
$193 million to settle the racial discrimination lawsuit.
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Problems with the Burger King Market Test
In 2002 Coca-Cola ran into more troubles when Matthew
Whitley, a mid-level Coca-
Cola executive, filed a whistle-blowing suit, alleging retaliation
for revealing fraud in
a market study performed on behalf of Burger King. To increase
sales, Coca-Cola sug-
gested that Burger King invest in and promote frozen Coke as a

child’s snack. The fast-
food chain arranged to test market the product for three weeks
in Richmond, Virginia,
and evaluate the results before agreeing to roll out the new
product nationally. The test
market involved customers receiving a coupon for a free frozen
Coke when they pur-
chased a Value Meal (sandwich, fries, and drink). Burger King
executives wanted to be
cautious about the new product because of the enormous
investment that each restau-
rant would require to distribute and promote the product.
Restaurants would need to
purchase equipment to make the frozen drink, buy extra syrup,
and spend a percent-
age of their advertising funds to promote the new product.
When results of the test marketing began coming in to Coca-
Cola, sales of frozen
Coke were grim. Coca-Cola countered the bad statistics by
giving at least one individual
$10,000 to take hundreds of children to Burger King to purchase
Value Meals in-
cluding the frozen Coke. Coca-Cola’s action netted seven
hundred additional Value
Meals out of nearly one hundred thousand sold during the entire
promotion. But
when the U.S. attorney general for the North District of Georgia
discovered and in-
vestigated the fraud, the company had to pay $21 million to
Burger King, $540,000
to the whistle-blower, and a $9 million pretax write-off had to
be taken. Although
Coca-Cola disputes the allegations, the cost of manipulating the
frozen Coke research
cost the company considerably in negative publicity, criminal

investigations, a soured
relationship with a major customer, and a loss of stakeholder
trust.
Inflated Earnings Related to Channel Stuffing
Another problem that Coca-Cola faced during this period was
accusations of channel
stuffing. Channel stuffing is the practice of shipping extra
inventory to wholesalers
and retailers at an excessive rate, typically before the end of a
quarter. Essentially, a
company counts the shipments as sales although the products
often remain in ware-
houses or are later returned to the manufacturer. Channel
stuffing tends to create the
appearance of strong demand (or conceals declining demand)
for a product, which
may result in inflated financial statement earnings thus
misleading investors.
Coke was accused of sending extra concentrate to Japanese
bottlers from 1997
through 1999 in an effort to inflate profits. In 2004 Coca-Cola
reported finding state-
ments of inflated earnings due to the company’s shipping extra
concentrate to Japan.
Although the company settled the allegations, the Securities and
Exchange Commis-
sion (SEC) did find that channel stuffing had occurred. Coca-
Cola had pressured bot-
tlers into buying additional concentrate in exchange for
extended credit, which is
technically considered legitimate.
To settle with the SEC, Coca-Cola agreed to avoid engaging in
channel stuffing

in the future. The company also created an ethics and
compliance office and is re-
quired to verify each financial quarter that it has not altered the
terms of payment or
extended special credit. The company further agreed to work on
reducing the amount
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of concentrate held by international bottlers. Although it settled
with the SEC and
the Justice Department, it still faces a shareholder lawsuit
regarding channel stuffing
in Japan, North America, Europe, and South Africa.
Trouble with Distributors
In early 2006, Coca-Cola faced problems with its bottlers, after
fifty-four of them filed
lawsuits seeking to block Coca-Cola from expanding delivery of
Powerade sports drinks
directly to Wal-Mart warehouses beyond the limited Texas test
area. Bottlers alleged
that the Powerade bottler contract did not permit warehouse
delivery except for com-
missaries and that Coca-Cola had materially breached the
agreement by committing
to provide warehouse delivery of Powerade to Wal-Mart and by
proposing to use a sub-

sidiary, CCE, as its agent for warehouse delivery.
The problem was that Coca-Cola was trying to step away from
the century-old tra-
dition of direct-store delivery, known as DSD, wherein bottlers
drop off product at in-
dividual stores, stock shelves, and build merchandising
displays. Coca-Cola and CCE
assert they were simply trying to accommodate a request from
Wal-Mart for ware-
house delivery, which is how PepsiCo distributes its Gatorade
brand. CCE had also pro-
posed making payments to some other bottlers in return for
taking over Powerade
distribution in their exclusive territories. But the bottlers had
concerns that such an
arrangement would violate antitrust laws and claimed that if
Coca-Cola and CCE went
forward with their warehouse delivery, it would greatly
diminish the value of the bot-
tlers’ businesses.
The problems faced by Coca-Cola were reported negatively by
the media and had
a negative effect on Coca-Cola’s reputation. When the
reputation of one company
within a channel structure suffers, all firms within the supply
chain suffer in some way
or another. This was especially true because Coca-Cola adopted
an enterprise resource
system that linked Coca-Cola’s once almost classified
information to a host of partners.
Thus, the company’s less-than-stellar handling of the ethical
crises has introduced a lack
of integrity in its partnerships. Although some of the crises had
nothing to do with the

information shared across the new system, the partners still
assume greater risk be-
cause of their relationships with Coca-Cola. The
interdependence between Coca-Cola
and its partners requires a diplomatic and considerate view of
the business and its ef-
fects on various stakeholders. Thus, these crises harmed Coco-
Cola’s partner compa-
nies, their stakeholders, and eventually, their bottom lines.
International Problems Related to Unions
Around the same time, Coca-Cola also faced intense criticism in
Colombia where
unions were making progress inside Coke’s plants.
Coincidently, at the same time,
eight Coca-Cola workers died, forty-eight went into hiding, and
sixty-five received
death threats. The union alleges that Coca-Cola and its local
bottler were complicit in
these cases and is seeking reparations to the families of the
slain and displaced work-
ers. Coca-Cola denies the allegations, noting that only one of
the eight workers was
killed on the premises of the bottling plant. Also, the other
deaths, all occurred off
premises and could have been the result of Colombia’s four-
decade-long civil war.
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Coke Employees Offer to Sell Trade Secrets
A Coca-Cola administrative secretary and two accomplices were
arrested in 2006 and
charged in a criminal complaint with wire fraud and unlawfully
stealing and selling
trade secrets from the Coca-Cola Company. The accused
contacted PepsiCo executives
and indicated that an individual identifying himself as “Dirk,”
who claimed to be em-
ployed at a high level with Coca-Cola, offered “very detailed
and confidential infor-
mation.” When Coca-Cola received the letter from PepsiCo
about the offer, the FBI
was contacted, and an undercover FBI investigation began. The
FBI determined that
“Dirk” was Ibrahim Dimson of Bronx, New York. Dirk provided
an FBI undercover
agent with fourteen pages of Coca-Cola logo-marked
“Classified—Confidential” and
“CLASSIFIED—Highly Restricted.” In addition, Dirk also
provided samples of Coca-
Cola top-secret products. The source of the information was
Joya Williams, an exec-
utive administrative assistant for Coca-Cola’s global brand
director in Atlanta, who
had access to some information and materials described by
“Dirk.” Employees should
be held responsible for protecting intellectual property, and this
breach of confidence
by a Coca-Cola employee was a serious ethical issue.
ETHICAL RECOVERY?
Despite Coca-Cola’s problems, consumers surveyed after the
European contamina-

tion indicated they felt that Coca-Cola would still behave
correctly during times of
crises. The company also ranked third globally in a
PricewaterhouseCoopers survey of
most-respected companies. Coca-Cola managed to retain its
strong ranking while other
companies facing setbacks, including Colgate-Palmolive and
Procter & Gamble, were
dropped or fell substantially in the rankings.
Coca-Cola has taken the initiative to counter diversity protests.
The racial dis-
crimination lawsuit, along with the threat of a boycott by the
NAACP, led to Daft’s
plan to counter racial discrimination. The plan was designed to
help Coca-Cola improve
employment of minorities.
When Coca-Cola settled the racial discrimination lawsuit, the
agreement stipu-
lated that the company (1) donate $50 million to a foundation to
support programs
in minority communities, (2) hire an ombudsman who would
report directly to CEO
Daft, (3) investigate complaints of discrimination and
harassment, and (4) set aside
$36 million for a seven-person task force and authorize it to
oversee the company’s em-
ployment practices. The task force includes business and civil
rights experts and is to
have unprecedented power to dictate company policy with
regard to hiring, compen-
sating, and promoting women and minorities. Despite the
unusual provision to grant
such power to an outside panel, Daft said, “We need to have
outside people helping

us. We would be foolish to cut ourselves off from the outside
world.”
Belgian officials closed their investigation of the health scare
involving Coca-Cola
and announced that no charges would be filed against the
company. A Belgian health
report indicated that no toxic contamination had been found in
Coke bottles, even
though the bottles were found to have contained tiny traces of
carbonyl sulfide, which
produces a rotten-egg smell; the amount of carbonyl sulfide
would have to have been
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a thousand times higher to be toxic. Officials also reported that
they found no struc-
tural problems with Coca-Cola’s production plant and that the
company had cooper-
ated fully throughout the investigation.
CURRENT SITUATION AT COCA-COLA
While Coca-Cola’s financial performance continues to lag, one
issue that may have
great impact on the success of the company is its relationship
with distributors. Law-

suits that distributors have launched against Coca-Cola for its
attempt to bypass them
with Powerade have the potential of destroying trust and
cooperation in the future.
Other issues related to channel stuffing and falsifying market
tests to customers indi-
cate a willingness by management to bend the rules to increase
the bottom line.
Although Coca-Cola seems to be trying to establish its
reputation based on qual-
ity products and socially responsible activities, it has failed to
manage ethical decision
making in dealing with various stakeholders. An important
question to consider is
whether Coca-Cola’s strong emphasis on social responsibility,
especially philanthropic
and environmental concerns, can help the company maintain its
reputation in the face
of highly public ethical conflict and crises.
CEO Isdell developed a two-year turnaround plan focused on
new products, and
the company created one thousand new products, including
coffee-flavored Coca-Cola
Blak to be marketed as an energy beverage and soft drink. The
company is also adopt-
ing new-age drinks such as lower-calorie Powerade sports drink
and flavored Dasani
water. These moves are an attempt to catch up with PepsiCo
who has become the
noncarbonated-beverage leader. Coca-Cola continues
developing products such as bot-
tled coffee called Far Coast and black and green tea drinks
called Gold Peak. Although
PepsiCo has outexecuted Coca-Cola since 1996, Coca-Cola still

has a 50 percent mar-
ket share, but PepsiCo has become the larger company in 2006
and Coca-Cola’s long-
term earnings and sales have been lowered. If so many ethical
issues had not distracted
Coca-Cola, would its financial performance have been much
better?
QUEST IONS
1. Why do you think Coca-Cola has had one ethical issue to
resolve after another over
the last decade or so?
2. A news analyst said that Coca-Cola could become the next
Enron. Do you think
this is possible and defend your answer?
3. What should Coca-Cola do to restore its reputation and
eliminate future ethical
dilemmas with stakeholders?
SOURCES: Elise Ackerman, “It’s the Real Thing: A Crisis at
Coca-Cola,” U.S. News & World Report,
October 4, 1999, 40–41; Ronald Alsop, “Corporate Reputations
Are Earned with Trust, Reliability,
Study Shows,” Wall Street Journal online, September 23, 1999,
http://interactive.wsj.com; “America’s
Most Admired Companies,” Fortune, February 8, 2000, via
www.pathfinder.com/fortune; “America’s
Most Admired Companies,” Fortune online,
www.fortune.com/fortune/mostadmired/(accessed
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December 17, 2002); Paul Ames, “Case Closed on Coke Health
Scare,” Associated Press, April 22,
2000; Dan Beucke, “Coke Promises a Probe in Colombia,”
BusinessWeek, February 6, 2006, 11; James
Bone, “Three Charged with Stealing Coca-Cola Trade Secrets,”
Times Online, July 6, 2006,
http://www.timesonline.co.uk/printfriendly/0,,1-3-2259092-
3,00.html (accessed July 7, 2006);
Katrina Brooker, “The Pepsi Machine,” Fortune, February 6,
2006, 68–72; Mary Jane Credeur, “Coke
Poured Out 1000 New Products in 2005, Two-Year Turnaround
Plan on Track, CEO Says,” USA Today,
December 8, 2005, B5; Coca-Cola Company, www2.coca-
cola.com (accessed August 21, 2003); “Coca-
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.com/showArticle.jhtml;jsessionid=PCVHTC511CHQ0QSNDBC
SKHSCJUMEKJVN?article
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ETHICAL CRISES 317
42810_02_cs02_p308-317.qxd 3/6/09 12:57 PM Page 317
1
C H A P T E R
1
AVON PRODUCTS, INC.
MARC EFFRON
A leadership development and talent turnaround system
designed for executives
that leverage 360 - degree feedback, a leadership
skill/competency model, and indi-
vidual development planning.
Introduction
A Success - Driven Challenge

The Turnaround
The Talent Challenge
Execute on the “ What, ” Differentiate with “ How ”
From Opaque to Transparent
The Avon 360
Broad - Based Transparency
From Complex to Simple
Performance Management
Engagement Survey
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Copyright © 2009 John Wiley & Sons
2 Best Practices in Talent Management
From Egalitarian to Differentiated
Communication to Leadership Teams
A Few Big Bets
Tools and Processes
From Episodic to Disciplined
From Emotional to Factual
From Meaningless to Consequential
The Results of a Talent Turnaround
Measuring the Talent Turnaround ’ s Success
INTRODUCTION
In early 2006, Avon Products, Inc., a global consumer products
company focused on

the economic empowerment of women around the world, began
the most radical
restructuring process in its 120 - year history. Driving this
effort was the belief that
Avon could sustain its historically strong fi nancial performance
while building the
foundation for a larger, more globally integrated organization.
The proposed changes
would affect every aspect of the organization and would demand
an approach to fi nd-
ing, building, and engaging talent that differed from anything
tried before.
A SUCCESS - DRIVEN CHALLENGE
Avon Products is a 122 - year-old company originally founded
by David H. McConnell —
a door - to - door book seller who distributed free samples of
perfume as an incentive to
his customers. He soon discovered that customers were more
interested in samples
of his rose oil perfumes than in his books and so, in 1886, he
founded the California
Perfume Company. Renamed Avon Products in 1939, the
organization steadily grew
to become a leader in the direct selling of cosmetics, fragrances,

and skin care
products.
By 2005, Avon was an $8 billion company that had achieved a
10 percent cumula-
tive annual growth rate (CAGR) in revenue and a 25 percent
CAGR in operating profi t
from 2000 through 2004. A global company, Avon operated in
more than forty coun-
tries and received more than 70 percent of its earnings from
outside the United States.
By all typical fi nancial metrics, Avon was a very successful
company.
However, as the company entered 2006 it found itself
challenged by fl attening
revenues and declining operating profi ts. While the situation
had many contributing
causes, one underlying issue was that Avon had grown faster
than portions of its infra-
structure and talent could support. As with many growing
organizations, the struc-
tures, people, and processes that were right for a $5 billion
company weren ’ t necessarily
a good fi t for a $10 billion company.

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Avon Products, Inc. 3
THE TURNAROUND
Faced with these challenges, CEO Andrea Jung and her
executive team launched a
fundamental restructuring of the organization in January 2006.
Some of the larger
changes announced included:

Moving from a Regional to a Matrix Structure: Geographic
regions that had
operated with signifi cant latitude were now matrixed with
global business func-
tions, including Marketing and Supply Chain.
Delayering : A systematic, six - month process was started to
take the organization
from fi fteen layers of management to eight, including a
compensation and benefi t
reduction of up to 25 percent.
Signifi cant Investment in Executive Talent: Of the CEO ’ s
fourteen direct
reports, six key roles were replaced externally from 2004 to
2006, including the
CFO, head of North America, head of Latin America, and the
leaders of Human
Resources, Marketing, and Strategy. Five of her other direct
reports were in new
roles.
New Capabilities Were Created: A major effort to source
Brand Management,
Marketing Analytics, and Supply Chain capabilities was
launched, which brought
hundreds of new leaders into Avon.
THE TALENT CHALLENGE

As the turnaround was launched, numerous gaps existed in
Avon ’ s existing talent and
in its ability to identify and produce talent. While some of those
gaps were due to
missing or poorly functioning talent processes, an underlying
weakness seemed to lie
in the overall approach to managing talent and talent practices.
After reviewing Avon ’ s existing talent practices, the talent
management group
(TM) identifi ed six overriding weaknesses that hurt their
effectiveness. They found
that existing talent practices were
Opaque: Neither managers nor Associates knew how existing
talent practices
(that is, performance management, succession planning) worked
or what they
were intended to do. To the average employee, these processes
were a black box.
Egalitarian: While the Avon culture reinforced treating every
Associate well, this
behavior had morphed into treating every Associate in the same
way. High
performers weren ’ t enjoying a fundamentally different work
experience and

low performers weren ’ t being managed effectively.
Complex: The performance management form was ten pages
long, and the suc-
cession planning process required a full - time employee just to
manage the data
and assemble thick black binders of information for twice -
yearly reviews.
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Complexity existed without commensurate value, and the
effectiveness rate of the

talent practices was low.
Episodic: Employee surveys, talent reviews, development
planning, and succes-
sion planning, when done at all, were done at a frequency
determined by individ-
ual managers around the world.
Emotional: Decisions on talent movement, promotions, and
other key talent
activities were often infl uenced as much by individual
knowledge and emotion as
by objective facts.
Meaningless: No talent practice had “ teeth. ” HR couldn ’ t
answer the most basic
question a manager might ask about talent practices — “ What
will happen to me if
I don ’ t do this? ”
EXECUTE ON THE “ WHAT, ” DIFFERENTIATE WITH “
HOW ”
Our TM group found ourselves in a diffi cult situation.
Fundamental changes were
needed in every talent practice, and the practices had to be
changed and implemented
in time to support the turnaround. This meant that the practices
had to be quick to
build, easy to use, and, most of all, effective.

Taking our guidance from the Top Companies for Leaders
study (Effron,
Greenslade, & Salob, 2005) and the philosophies of executive
coach Marshall Gold-
smith (2006), we decided to build our talent practices with two
key guiding
principles.
1. Execute on the “ what. ” The Top Companies for
Leaders study found that sim-
ple, well - executed talent practices dominated at companies
that consistently pro-
duced great earnings and great leaders. We similarly believed
that fundamental
talent practices (that is, performance management or succession
planning) would
deliver the expected results if they were consistently and fl
awlessly executed.
We decided to build talent practices that were easy to
implement and a talent
management structure that would ensure they were consistently
and fl awlessly
implemented. More importantly, we decided to . . .
2. Differentiate on “ how. ” While disciplined execution
could create a strong foun-
dation for success, the six adjectives that described Avon ’ s

current processes
were largely responsible for their failure. We drew inspiration
from Marshall
Goldsmith ’ s revolutionary recreation of the executive
coaching process. He had
taken a staid, academic/therapy model for improving leaders
and turned it into
a simple but powerful process that was proven effective in
changing leaders ’
behaviors.
With those two guiding principles in place, we began a 180 -
degree transformation
of Avon ’ s talent practices.
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FROM OPAQUE TO TRANSPARENT
One of the most simple and powerful changes was to bring as
much transparency as
possible to every talent practice. TM designed new practices
and redesigned existing
ones using total transparency as the starting point. Transparency
was only removed
when confi dentiality concerns outweighed the benefi ts of
sharing information. The
change in Avon ’ s 360 assessment process was a telling
example.
The Avon 360
Avon ’ s 360 - degree assessment process was hardly a model
of transparency when the
turnaround began. When the new TM leader arrived at Avon, he
asked for copies of
each VP ’ s 360 - degree assessment, with the goal of better
understanding any common
behavioral strengths and weaknesses. He was told by the 360
administrator in his
group that he was not allowed to see them. The TM leader
explained that his intent
wasn ’ t to take any action on an individual VP, simply to learn
more about his clients.

He was again told “ no ” — that confi dentiality prevented
their disclosure.
While the administrator was correct in withholding the
information (the partici-
pants had been promised 100 percent confi dentiality), the fact
that the most critical
behavioral information about top leaders was not visible to the
TM leader (or anyone
else) had to change. A new, much simpler 360 was designed and
implemented that
explicitly stated that proper managerial and leadership
behaviors were critical for a
leader ’ s success at Avon. Citing that level of importance, the
disclosure to all partici-
pants and respondents stated that the 360 information could be
shown to the partici-
pant ’ s manager, HR leader, regional talent leader, and anyone
else the Avon ’ s HR team
decided was critical to the participant ’ s development. It also
stated that the behavioral
information could be considered when making decisions about
talent moves, includ-
ing promotions or project assignments.
Helping to make this transition to transparency easier, the new

360 assessment
and report differed from typical tools that rate the participant on
profi ciency in various
areas. The Avon 360 borrowed heavily from the “ feed -
forward ” principles of Marshall
Goldsmith 1 and showed the participant which behaviors
participants wanted to see
more of, or less of, going forward. Without the potential stigma
of having others seeing
you rated as a “ bad ” manager, openly sharing 360 fi ndings
quickly evaporated as an
issue.
Broad - Based Transparency
Transparency was woven into every talent process or program
in a variety of ways.
Examples would include:
Career Development Plans: To provide Associates with more
transparency about
how to succeed at Avon, the HR team developed “ The Deal. ”
The Deal was a sim-
ple description of what was required to have a successful career
at Avon, and what
parts the Associate and Avon needed to play (see Figure 1.1 ).
The Deal made clear

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FIGURE 1.1. Talent Investment Matrix
P
e
rf
o
rm
a
n
ce
O
ve
r
T
im
e
H
ig

h
2
0
%
M
id
6
0
%
Lo
w
2
0
%
Potential
24+ months
50%
1 level in 2 years
30%
2 levels in 6 years
20%
Compensation targets:
• Base 50th, Bonus 40th
Development investment:
• Average

Hi Po Program: No
Global Move: No
Special Projects: Consider
• Average
Hi Po Program: No
Global Move: No
Special Projects: No
• Base 50th, Bonus -- NONE
• None without TM approval
Hi Po Program: No
Global Move: No
• 2x average
Hi Po Program: Consider
Global Move: Yes
Special Projects: Yes
• Average
Hi Po Program: No

Global Move: Consider
• .75x average
Hi Po Program: No
Global Move: No
• 5x average
Hi Po Program: Yes
Global Move: Yes
• 2x average
Hi Po Program: Consider
Global Move: Yes
• 1.5x average
Hi Po Program: No

Global Move: No
that every Associate had to deliver results, display proper
leadership behaviors,
know our unique business, and take advantage of development
experiences if they
hoped to move forward in the organization.
Development Courses: Avon acknowledged the unspoken but
obvious fact about
participating in leadership or functional training courses — of
course you ’ re being
observed! We believed it was important for participants to
understand that we
were investing in their future and that monitoring that
investment was critical. The
larger investment that we made, the more explicitly we made
the disclosure. For
our Accelerated Development Process (a two - year high -
potential development
process offered to the top 10 percent of VPs), we let them know
that they were
now “ on Broadway. ” The lights would be hotter and the
critics would be less for-
giving. They knew that we would help each of them to be a
great actor, but that

their successes and failures would be more public and have
greater
consequences.
Performance Reviews: Switching from a 3 - point scale to a 5
- point scale pro-
vided additional clarity to participants about their actual
progress, as did clarify-
ing the scale defi nitions. Associates were informed about what
performance
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conversations their managers should be having with them and
when. The recom-
mended distribution of ratings across the scale was widely
communicated.
FROM COMPLEX TO SIMPLE
One of the most important changes made in Avon ’ s talent

practices was the radical sim-
plifi cation of every process. We believed that traditional talent
processes would work
(that is, grow better talent, faster) if they were effectively
executed. However, we under-
stood from our experience and a plethora of research (Hunter,
Schmidt, & Judiesch,
1990) that most talent practices were very complex without that
complexity adding any
signifi cant value. This level of complexity caused managers to
avoid using those tools,
and so talent wasn ’ t grown at the pace or quality that
companies required.
We committed ourselves to radically simplifying every talent
process and ensur-
ing that any complexity in those processes was balanced by an
equal amount of value
(as perceived by managers). Making this work was easier than
we had anticipated. As
the TM team designed each process, we would start literally
with a blank sheet of
paper and an open mind. We would set aside our hard - earned
knowledge about the
“ right ” way to design these processes and instead ask

ourselves these questions:
1. What is the fundamental business benefi t that this talent
process is trying to
achieve?
2. What is the simplest possible way to achieve that benefi
t?
3. Can we add value to the process that would make it easier
for managers to make
smarter people decisions?
Using just those three questions, it was amazing how many
steps and “ bells and
whistles ” fell away from the existing processes. The two
examples below provide
helpful illustration.
Performance Management
Aligning Associates with the turnaround goals of the business
and ensuring they were
fairly evaluated was at the foundation of the business
turnaround. As we entered the
turnaround, the company had a complex ten - page performance
management form with
understandably low participation rates. Many Associates had not
had a performance

review in three, four, or even fi ve years. It would have been
impossible to align Asso-
ciates with the vital few turnaround goals using that tool and
process.
The business benefi t: We stated that the fundamental benefi
t of performance
goals and reviews is that they aligned Associates with business
goals and caused
Associates to work toward those goals with the expectation of
fair rewards.
The simplest path: It seemed obvious that the simplest way of
achieving the busi-
ness goal was simply to have managers tell their Associates
what their goals were.
It was simple and the value to managers outweighed any
complexity. After taking
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that very small step forward, we literally advanced at the same

pace, taking incre-
mentally small steps forward in the design process. At each
step, we would ask
ourselves, does this step add more value to managers than it
does complexity? As
long as it did, we added the additional design element. When
that complexity/value
curve started to level (see Figure 1.2 ), we very carefully
weighed adding any addi-
tional elements. And, when we couldn ’ t justify that adding
another unit of com-
plexity would add another unit of value, we stopped.
What went away as the design process progressed? Just a few
examples
would include:
Goal labels (highly valued, star performer, etc.), which added
no value (in fact
blurred transparency!) but did add complexity.
Individual rating of goals, which implied a false precision in
the benefi t of each
goal and encouraged Associates to game the system.
Behavioral ratings, which were replaced with a focus on
behaviors that would

help achieve the current goals.
The output was a one - page form with spaces for listing the
goal, the metric,
and the outcome. A maximum of four goals was allowed. Two
behaviors that
supported achievement of the current goal could be listed but
were not for-
mally rated. As a result, participation reached nearly 100
percent, and
line managers actually thanked the talent team for creating a
simple perform-
ance management process!
Adding Additional Value: In this process, we didn ’ t fi nd
opportunities to add
more value than was achieved through simplifi cation alone.
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FIGURE 1.2. The Avon Deal (Example)
Grow
Avon

Achieve
Results for Our
Representatives
Provide Clear
Performance
Expectations; Let
You Know Where
You Stand
Develop
Through
Experiences
Take on
Critical Career
Experiences
Provide the Right
Assignments and
Experiences
Know
Avon
Understand
Direct Selling
Provide Training
and Exposure

Lead
Avon
Lead Our
Associates
Provide
Feedback
on Your
Leadership Skills
Your
Role
Avon’s
Role
Working Together to Help You Create
a Great Career at Avon
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Engagement Survey
When the turnaround began, no global process for
understanding or acting on Associ-
ate engagement issues existed. Select regions or departments
made efforts of varying

effectiveness, but there was no integrated focus on consistent
measurement and
improvement of engagement. In designing the engagement
survey process, we applied
the same three questions:
The business benefi t: We accepted the substantial research
that showed a corre-
lation (and some that showed causation) between increasing
engagement and
increasing various business metrics. In addition, we felt that the
ability to measure
managers ’ effectiveness through engagement levels and
changes would provide an
opportunity for driving accountability around this issue. As with
performance
management, we knew that managers would use this tool if we
could make it sim-
ple and, ideally, if we could show that it would allow them to
more effectively
manage their teams.
The simple path: There were two goals established around
simplicity. One goal
was to understand as much of what drove engagement as
possible, while asking

the least number of questions. The second goal was to write the
questions as sim-
ply as possible, so that if managers needed to improve the score
on a question,
their options for action would be relatively obvious. The fi nal
version of the sur-
vey had forty - fi ve questions, which explained 68 percent of
the variance in
engagement. The questions were quite simple, which had some
value in itself, but
their true value was multiplied tenfold by the actions described
below.
Adding additional value: We were confi dent that, if
managers took the “ right ”
actions to improve their engagement results, not only would the
next year ’ s scores
increase, but the business would benefi t from the incremental
improvement. The
challenge was to determine and simply communicate to the
manager what
the “ right ” actions were. Working with our external survey
provider, we devel-
oped a statistical equation model (SEM) that became the “
engine ” to produce
those answers. The SEM allowed us to understand the power of

each engagement
dimension (for example, Immediate Manager, Empowerment,
Senior Manage-
ment) to increase engagement, and to express that power in an
easy-to-understand
statement.
For example, we could determine that the relationship between
the Immediate
Manager dimension and overall engagement was 2:1. This meant
that for every two
percentage points a manager could increase his or her
Immediate Manager dimension
score, the overall engagement result would increase by one
percentage point. Even
better, this model allowed us to tell every manager receiving a
report the specifi c three
or four questions that were the key drivers of engagement for
his or her group .
No longer would managers mistakenly look at the top - ten or
bottom - ten questions to
guess at which issues needed attention. We could tell them
exactly where to focus their
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efforts. The list of these questions on page fi ve of the survey
report essentially reduced a
manager ’ s effort to understand his or her survey results to just
reading one page.
FROM EGALITARIAN TO DIFFERENTIATED
A critical step in supporting Avon ’ s turnaround was
determining the quality of talent
we had across the business — an outcome made much easier
with transparent processes
and conversations. Once we understood our talent inventory, we
made a broad and
explicit shift to differentiate our investment in talent. While we
would still invest in
the development of every Associate, we would more effectively
match the level of that
investment with the expected return. We also differentiated

leaders ’ experiences to
ensure that our highest potential leaders were very engaged,
very challenged, and very
tied to our company.
We made the shift to differentiation in a number of ways,
including:
Communication to Leadership Teams
At the start of the turnaround process, presentations were made
to each of the
regional leadership teams to explain the shift in talent
philosophy. The chart below
(see Figure 1.3 ) helped to emphasize that we were serious
about differentiation, could
be relatively specifi c about what it meant and how we planned
to apply it. Showing the
differentiation on our new Performance and Potential matrix
also let leaders know that
accurately assessing talent on this tool was critical to our
making the right talent
investments.
FIGURE 1.3. The Value/Complexity Curve
Continue
Caution

Stop
Effort /Complexity
Added
V
al
u
e
A
d
d
ed
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A Few Big Bets
A key plank in our philosophy was that we believed in placing
a “ few big bets ” on a
small number of leaders. This approach was informed by the
research showing the
vastly superior performance of the top 5 to 10 percent of a
specifi c population and by

the belief that fl awless execution of well - known high -
potential development tactics
would rapidly accelerate development. 2 With limited funds to
spend, we needed to
make a decision about what talent bets would truly pay off.
Our monetary investment in our highest - potential leaders was
fi ve to ten times
what we would invest in an average performer. This investment
would include train-
ing, coaching, and incentive compensation, but we also invested
the highly valuable
time of our CEO, executive team, and board members. Our
highest - potential leaders
would often have an audience with these executives on a regular
basis.
Tools and Processes
Our new talent review process and performance review process
also emphasized our
differentiation philosophy. Our new 5 - point performance scale
came with a recom-
mended distribution that assumed 15 percent of our leaders
would fail to meet some of
their goals during the year. We believed that if goals were set at
an appropriately chal-

lenging level, this was a very reasonable expectation. As a
consequence, we saw mar-
ginal performers, who typically could have limped along for
years with an average
rating, receive the appropriate attention to either improve their
performance or move
out of the business.
Our performance and potential grid (3 by 3) also had
recommended distributions,
but we found over time that the grid defi nitions actually better
served our differentia-
tion goals. After initially rating leaders as having higher
potential (the ability to move
a certain number of levels over a certain period of time), over
time, managers saw that
the movement they predicted didn ’ t occur and those with more
potential to move
became a smaller, more differentiated group. We also asked
managers to “ stack rank ”
Box 6, which contained average performers who were not likely
to move a level in the
next twenty - four months. This process helped to differentiate
“ solid average ” perform-
ers from those who were probably below average and possibly

blocking others ’ career
movement.
FROM EPISODIC TO DISCIPLINED
As with many companies, Avon had plenty of well intentioned
but very busy managers.
Processes like talent reviews, which were administratively
complex and diffi cult to
understand, were not going to inspire the typical manager to
reorder her priority list. By
greatly simplifying these processes, we had removed one barrier
to effectiveness, but we
hadn ’ t actually moved the process forward. We still needed to
build organizational
c01.indd 11c01.indd 11 10/30/09 7:18:51 PM10/30/09
7:18:51 PM
discipline around the execution of these simple new processes.
We did that in a number
of ways:
Consistent global tools and processes: Many parts of the

organization had cre-
ated their own tools for activities like performance management
or individual
development. The corporate talent management function was not
empowered to
push for global consistency, and consequently there was not a
common approach
to build Avon talent. This changed with a shift to global
consistency that was
championed by the SVP HR. While all talent practices would
now be designed by
the corporate TM group, each still had to be vetted with the HR
leaders of each
geographic region and functional discipline. As a fi nal part of
the design process,
adjustments were made to tools and processes to ensure they
met needs around the
world.
Adding talent management structure globally: We created the
role of “ regional
talent management leader, ” a manager - or director - level
role responsible for the
local implementation of the global processes. Five of these
positions were cre-
ated — one in each key geographic region — and the improved

process discipline
can be credited to them and their HR leaders. Regular meetings
and calls between
regional leaders and the corporate TM group helped ensure
great dialogue and
consistent improvements in the processes.
A committed CEO: Our CEO, Andrea Jung, showed herself to
be a tremendous
supporter of effective talent processes. Both through her role
modeling (conduct-
ing performance reviews and setting clear goals for her team)
and instilling
process discipline (she held formal talent review meetings with
each direct report
and an executive committee talent calibration meeting twice
each year), she signaled
that these processes had value.
This new level of discipline was an incredibly strong lever in
our ability to assess
and develop our talent. By holding talent processes every six
months, we were able to
drive transparency around talent issues on a regular basis and
instill accountability
to take action on issues before the next cycle.

FROM EMOTIONAL TO FACTUAL
Avon was a company with genuine, heart - felt concern for its
Associates and an organi-
zation in which strong relationships were built over a lifetime
of employment. As the
organization grew, a leader ’ s personal knowledge of other
Associates ’ performance or
development needs often served as a key factor in determining
talent movement. While
in many cases a leader ’ s individual knowledge was relatively
accurate, it ’ s likely that
a more calibrated point of view or additional quantitative facts
may have allowed a
richer discussion or more confi dence in decision making.
■
■
■
c01.indd 12c01.indd 12 10/30/09 7:18:51 PM10/30/09
7:18:51 PM

The TM team worked to inject more fact - based decision
making into talent dis-
cussions. Some of those facts were qualitative and others
quantitative, but as a whole,
they allowed a more complete discussion of an individual ’ s
performance and
potential.
Qualitative facts added: Additional qualitative facts were
found everywhere
from talent reviews to leadership and functional courses. In
talent reviews, cali-
bration discussions were added at each level so that individual
managers could
justify individual potential ratings to their peers. Those ratings
might also be
reviewed an additional time at the next level. Regional talent
management leaders
would facilitate many of those meetings to help leaders have
complete and honest
discussions, helping to ensure that the qualitative data was
accurate. Additional
qualitative data was also added from a leader ’ s participation in
leadership or func-

tional development programs. Senior line managers would
sponsor those pro-
grams, frequently attending the entire one - , two - , or three -
week process. Those
managers would then bring rich observations to the talent
discussions about an
individual ’ s performance in those classes.
Quantitative facts added: Two of the new tools discussed
above, the 360 and the
engagement survey, provided quantitative facts that helped
Avon assess talent.
Progress against engagement goals or individual behavior
improvement (or lack
of it) was often a key indicator of readiness for additional
development.
FROM MEANINGLESS TO CONSEQUENTIAL
Injecting managerial accountability for talent practices was a
key factor in their effec-
tiveness. Prior to the turnaround, accountability for those
practices did not exist, with
some managers taking personal responsibility to implement
them and others doing
very little. In creating the new talent practices, we tried to
inject accountability into

each one, answering that critical question, “ Why should I do
this ” ?
Monetary accountability: Varying a leader ’ s pay for
successfully or unsuccess-
fully managing talent is a dream of many HR and compensation
leaders. We chose
to use that lever in a very targeted way when we applied it to
engagement survey
improvement. The executive team believed that the survey
provided a strong
enough measure of a manager ’ s focus on people issues that
they could be held
accountable for its improvement. The executive committee
established year - over -
year improvement in engagement scores as a goal in every VP ’
s performance plan.
Associate - led accountability: To encourage the timely
completion of the perfor-
mance management process steps, we empowered Associates to
hold their manag-
ers accountable. A memo was sent to every Associate at the
beginning of each
■
■
■

■
c01.indd 13c01.indd 13 10/30/09 7:18:52 PM10/30/09
7:18:52 PM
year informing them of the specifi c action steps and
corresponding dates their
managers should be taking to set goals. A similar note was sent
for mid - year and
end - of - year reviews. The notes asked the Associates to let
their local HR leaders
know if those steps weren ’ t occurring.
CEO - led accountability: Every six months each executive
team member would
meet to present his or her talent review to the CEO. Actions
promised at the last
meeting were reviewed and progress noted. Leaders knew that
promises were
being tracked and reviewed, and that progress would need to be
shown at the next
meeting.

While accountability was applied in many different ways, the
common outcome
was that leaders understood that focusing on talent during the
turnaround (and after)
mattered, and that they were responsible for getting it done.
The progress made on talent issues was helped by the various
factors discussed
above, from a committed CEO and SVP HR to the urgency of a
turnaround to the dra-
matic change in talent practices. But it would not have been
possible without the desire
of every manager at Avon to do the right thing. We started with
a culture that valued
every Associate, and we channeled that positive spirit using
sound processes and
unfl inching discipline. We didn ’ t delude ourselves into
thinking that those talent
changes would have been possible without the Avon culture.
THE RESULTS OF A TALENT TURNAROUND
We described the six weaknesses in Avon ’ s talent practices at
the beginning of this
chapter. Over the initial turnaround period (twelve to eighteen
months), we moved

those talent processes:
From opaque to transparent: Leaders now know what ’ s
required to be success-
ful, how we ’ ll measure that, how we ’ ll help them, and the
consequences of higher
and lower performance. They know their performance ratings,
their potential rat-
ings, and how they can change each of those.
From egalitarian to differentiated: We actively differentiated
levels of Avon tal-
ent and provided each level with the appropriate experience.
Our highest - potential
leaders understand how we feel about them, and they see a
commensurate invest-
ment. Our lower - performing leaders get the attention they
need.
From complex to simple: Managers now do the right thing for
their Associates
both because we ’ ve lowered the barriers we previously built
and because we ’ ve
helped them with value - added tools and information.
From episodic to disciplined: Processes now happen on
schedule and consis-
tently around the world.
■

■
■
■
■
c01.indd 14c01.indd 14 10/30/09 7:18:52 PM10/30/09
7:18:52 PM
From emotional to factual: Talent decisions are made with an
additional layer of
qualitative and quantitative information drawn from across
many different leader
experiences.
From meaningless to consequential: Leaders know that they
must build talent
the Avon way for both their short - and long - term success.
MEASURING THE TALENT TURNAROUND ’ S SUCCESS
The specifi c talent practices we targeted have seen signifi cant
improvements in effec-
tiveness. Ratings of Immediate Manager (including items such
as clear goal setting,

frequent feedback, and development planning) have increased
up to 17 percent, with
directors and vice presidents giving their immediate managers
nearly a 90 percent
approval rating. The ratings of “ people effectiveness ” (which
captures many HR and
talent practices) increased up to 16 percent, including strong
gains on questions related
to dealing appropriately with low performers and holding
leaders accountable for their
results.
More transparency has allowed faster movement of talent into
key markets. Sim-
pler processes have allowed us to accelerate the development of
leaders. Holding lead-
ers accountable for their behaviors has improved the work
experience for Associates
around the world.
While these changes were hard - fought and we believe created
much more effec-
tive processes, a more important set of metrics exists. Avon has
achieved all of its
expense savings goals since the start of the turnaround and has
recently reinforced

its commitments to even greater expense reductions. Even with
this lower cost base
and 10 percent fewer Associates, Avon has grown from
revenues of $ 8B in 2005 to
nearly $ 11B in projected 2009 revenues while delivering
strong single - digit earnings
growth.
We can ’ t say with certainty that our new talent practices
contributed to either
those cost savings or our revenue increases. We are confi dent,
however, that the talent
practices now in place will deliver better leaders, faster, to help
Avon meet its business
goals.
REFERENCES
Effron, M., Greenslade, S., & Salob, M. (2005, September).
Growing great leaders: Does it really matter? Human
Resource Planning Journal, 28(3), 18 – 23.
Goldsmith, M. (2006). Try feed forward instead of feedback.
In M. Goldsmith & L. Lyons, Coaching for Leader-
ship (pp. 45 – 49). San Francisco: Pfeiffer.
Hunter, J.E., Schmidt, F.L., & Judiesch, M.K. (1990).
Individual differences in output variability as a function of

job complexity. Journal of Applied Psychology, 75 (1), 28 –
42.
Jones, C. (1986). Programming productivity . New York:
McGraw - Hill.
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7:18:52 PM
Marc Effron helps companies build better talent, faster. As a
talent management
leader, Effron has worked for, and consulted to, some of the
world’s largest and most
successful companies, including Bank of America, Citigroup,
Philips Electronics,
Reliance Industries (India), and Alcoa. He applies a simplicity-
based approach to
building leaders, which emphasizes transparency and
managerial accountability.
Effron’s recent experience includes serving as vice president,
Global Talent Manage-

ment, for Avon Products and as the global practice leader for
Leadership Consulting at
Hewitt Associates. At Hewitt, Effron created the Top
Companies for Leaders study,
which is now an annual cover story in Fortune magazine. He
was also senior vice pres-
ident, leadership development, at Bank of America and held
other corporate and con-
sulting positions. Effron’s latest book is One Page Talent
Management: How to Build
Better Leaders, Faster (Harvard Business Press, 2010) with co-
author Miriam Ort. He
has co-authored two books on leadership, written chapters in
eight edited books, and
is a frequent speaker at industry events. He is the founder of the
New Talent Manage-
ment Network, the world’s largest organization for talent
management professionals.
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· Due Week 4 and worth 150 points
From the Goldsmith & Carter textbook, select either the Avon
Products (Chapter 1) or GE Money Americas (Chapter 6) case
study for this assignment.
Write a five to seven (5-7) page paper in which you:
1. Provide a brief description of the status of the company that
led to its determination that a change was necessary.
2. Identify the model for change theory typified in the case
study of your choice. Discuss what led you to identify the
model that you did.
3. Illustrate the types of evaluation information that were
collected and how they are used to benefit the company.
4. Speculate about success of the changes within the next five

(5) years and how adjustments could be made if the results
become less than ideal.
5. Use at least five (5) quality academic resources in this
assignment. Note: Wikipedia and other Websites do not quality
as academic resources.
Your assignment must follow these formatting requirements:
. Be typed, double spaced, using Times New Roman font (size
12), with one-inch margins on all sides; references must follow
APA or school-specific format. Check with your professor for
any additional instructions.
. Include a cover page containing the title of the assignment, the
student’s name, the professor’s name, the course title, and the
date.
. The cover page and the reference page are not included in the
required page length.
The specific course learning outcomes associated with this
assignment are:
. Explore how to identify and develop high-potential talent.
. Analyze behavior change theories and their impact on talent
management processes.
. Determine the effects of leadership in the management of
talent pools and the talent review process.
. Use technology and information resources to research issues in
talent management.
. Write clearly and concisely about talent management using
proper writing mechanics.
· Assignment 2: “The Coca-Cola Company Struggles with
Ethical Crises”
Read “The Coca-Cola Company Struggles with Ethical Crises”
case. Write a four to six (4-6) page paper in which you:
1. Delineate the ethical issues and dilemmas (as found in
Chapter 3) the company faced.
2. Determine which of the issues/dilemmas you identified was
the most significant. Explain your reasoning.

3. Determine what steps Coca-Cola should have taken to prevent
the issues you identified from arising in the first place.
4. Analyze how Coca-Cola responded to the crisis and
determine if this was the best possible response or not.
5. Include at least three (3) references, no more than three (3)
years old, from material outside the course.
The format of the paper is to be as follows:
. Typed, double-spaced, Times New Roman font (size 12), one-
inch margins on all sides (APA format).
. Type the question followed by your answer to the question.
. In addition to the four to six (4-6) pages required, a title page
and a reference page is to be included. The title page is to
contain the title of the assignment, your name, the instructor’s
name, the course title, and the date. The reference page is to be
APA format.
Note: You will be graded on the quality of your answers, the
logic/organization of the report, your language skills, and your
writing skills.

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