Coke to cough up $192.5 million in racial bias suit

Coke Chairperson Douglas Daft told employees in a memo that settling the lawsuit closes “a painful chapter in our company’s history.”

The cost to Coke includes $113 million in cash, $43.5 million to adjust salaries of African-American employees during the next 10 years and $36 million to implement various diversity initiatives and oversight of the company’s employment practices. The beverage concern also said it will donate $50 million to its Coca-Cola Foundation for community programs.

Coke said it will record a $188 million charge during the current quarter to cover the cash portion of the settlement, the donation, and expenses related to the suit.

The Coke settlement is based largely on, but goes beyond, a settlement that resolved a race-bias suit four years ago at Texaco Inc. The lead counsel for the plaintiffs in the Coke case had helped craft the Texaco settlement.

“When we started, our goal was to change the Coca-Cola Company,” said Cyrus Mehri, lead counsel for the plaintiffs, who was also a lawyer for plaintiffs in the Texaco case. “The changes in the company are going to occur from top to bottom.”

The settlement follows five months of hashing over terms. Approximately 2,000 current and former Coke employees qualify for the settlement and will receive an average of $40,000 each, Mehri said, although criteria such as length of service will be taken into account.

The four plaintiffs who filed the lawsuit, which alleged wide disparities in pay, promotions, and performance evaluations, will each receive an award of $300,000 each, Mehri said.

Like Texaco, Coke will now have its employment policies and practices, from promotions to performance evaluations, overseen by a seven-member task force. The group, set to serve for four years and to comprise experts in civil rights, diversity issues, labour employment, and business, will oversee a review of the company’s human resource practices and will prepare annual reports on Coke’s compliance with the settlement. It will also oversee some of the funds awarded under the settlement.

Coke must implement the task force’s recommendations, unless it can win judicial relief on grounds that such recommendations are unsound for business reasons. Three members of the panel are to be designated by Coke and three by the plaintiffs in the suit. A seventh, who will serve as chairperson, will be selected jointly.

In addition, Coke’s board will form a committee on public issues and diversity to review Coke’s equal-employment-opportunity performance. The settlement also calls for diversity in board selection. Coke’s 12-member board has one African-American and two women.

In an interview, Daft said settling the lawsuit was a top priority in his first year on the job. “What we’re trying to achieve as a company is to have the best possible people being developed in the best possible way,” he said. “Settling this suit allows us to move forward.”

The settlement is “very significant and creative,” said Barry Goldstein, a partner with Saperstein, Goldstein, Demchak & Baller of Oakland, California. “It provides some opportunities and choices for class members that I haven’t seen in other decrees.”

The settlement still has to be formally approved by the court. Class members will have the choice to accept, opt out to pursue their own claim or a third option: accepting compensatory damages but opting out of the pay-adjustment offer to pursue their own legal claim for a promotion.

Some class members said they would weigh the options carefully. Larry Jones, a former human-resources manager who heads the Committee for Corporate Justice — a body composed mainly of former Coke employees — has in recent months encouraged class members to consider opting out. He said he and others would speak with their lawyers before deciding. “The settlement in our estimation is small,” he said.

Coke still faces a second race-bias suit. High-profile lawyers Willie Gary and Johnnie Cochran are seeking $1.5 billion on behalf of four former African-American employees. Four plaintiffs from the original lawsuit also defected to Gary’s team and may file yet another suit.

Carrick Mollenkamp contributed to this article

Courtesy The Wall Street Journal

Race matters at Coca-Cola
April 1999:Four current and former Coke employees file lawsuit alleging racial discrimination

December: Coke CEO Douglas Ivester resigns. Douglas Daft steps in

January 2000: Daft promotes Carl Ware, company’s highest-ranking African-American executive, to head of global public affairs and administration

January: Federal judge in Atlanta orders Coke and plaintiffs to mediate out-of-court settlement

April: Settlement talks begin

May: Plaintiffs and 100 current and former employees launch formal boycott of Coke products

June: Coke and plaintiffs reach tentatve settlement. Lawyer Willie Gary and Johnnie Cochran file separate suit on behalf of four Coke employees

July: Federal court blocks Gary and Cochran from soliciting new clients from among Coke employees

Nov 16: Coke agrees to spend $192.5 million to settle suit