A Spot of Legal Bother ©

 Some months ago, I wrote a piece about the legal minefield that many business people find themselves having to tip-toe through, here in the good ole USA. Three cases have come to prominence in recent weeks which involve some of the really big brand names in the industry, Coca Cola, McDonald’s and Yum Brands and none of them in a particularly good light.

The most intriguing case concerns the Coca Cola Corporation and some skullduggery which one of its executives got involved in to attain satisfactory market test results involving the Burger King chain of restaurants. Burger King is a relatively new client of Coca Cola, having only transferred their business from Pepsi in 1999.

The allegations were so serious that the Audit Committee of the Board of Directors of The Coca-Cola Company conducted an investigation using independent outside counsel. The Audit committee “confirmed that members of the Fountain Division’s account team for Burger King improperly influenced the test results of a promotion” involving Frozen Coke.

As a result of this finding, Steve Heyer, President and COO of Coke wrote to Burger King “Please accept my sincere apology….. These actions were wrong and inconsistent with the values of the Coca-Cola Company”.

Burger King said it was disappointed with Coke’s findings.

The action that led to all this hand-wringing occurred in Feb/March 2000 when a then Coke executive John  Fisher took what might be referred to as a rather aggressive approach to ensure a market test featuring Frozen Coke with Richmond, Virginia, Burger King franchisees would be positive. In a memo sent to Fisher by his senior manager, Fisher was reprimanded for the fact that “an outside consultant was retained and sent to Richmond to purchase up to an additional $10,000 of value meals”, thus giving Burger King the perception that the product was more popular than they might otherwise have thought.

Fisher was apparently  trying to influence the impact of a promotion which offered a free Frozen Coke with a Value Meal rather than influence Burger King’s decision to list the product. At the time he attempted to influence the results, over 75% of Burger King Franchisees had already agreed to take the product.

The stakes in this game are huge. Burger King has 8,000 restaurants in the US. The Frozen Coke dispenser costs by some estimates $6,000. Your bean counter will tell you that that amounts to $48 million, if all units were to list the product!

While these figures may be inflated, Lancer Corporation, a company that supplies coke affiliates with equipment did announce last year that it had received orders for at least $10 million worth of Frozen Coke dispensers to Burger King.

Coke provided the machines free of charge on the basis that syrup sales would justify the investment. To date the project has not been the success either party hoped it would be, with some Burger King franchisees now considering action against Coke.

Interestingly, despite the fact that Fisher’s activities “were inconsistent with the values” of Coke, he was not fired for this offence. He lost 50% of his bonus and all stock options related to 2001. He has since left the company.

In another high profile case a McDonald’s franchisee was awarded a $16.5million judgement against the Corporation. She claimed that McDonald’s coveted one of her sites and forced her into bankruptcy. This case is not nearly as clear cut as the Coke one with the burger giant admitting no wrong doing and many legal analysts suggesting McDonald’s will win on appeal.

While this may be a warning call for both franchisors and franchisees, it is interesting to note that as part of its efforts to improve its image and efficiency, McDonald’s closes 300-400 restaurants each year and that it removed sixty-eight operators completely from its system last year.

Yum Brands Inc., parent company of KFC, Pizza Hut and Taco Bell has also fallen foul of a legal judgment. Probably the most successful advertising campaign Taco Bell ran in recent years featured a Chihuahua dog with attitude. The dog effectively became the Taco Bell icon. Two executives claimed that the idea featuring the Chihuahua was theirs. They never got paid for the concept which instead was credited to the Chiat Day advertising agency. The courts agreed with the plaintiffs and awarded them $30 million dollars. Guess what – Taco Bell is appealing the judgment although interestingly it has said that if the appeal is unsuccessful it will seek reimbursement from its insurance carrier and the Chiat Day agency which in a decision totally unrelated to the legal action no longer works for Taco Bell.

The moral of all of this I suppose is that no matter how good and ethical a company you do work for, things can go wrong, sometimes deliberately, sometimes through genuine misunderstanding, but when it does go wrong, you gotta sell a lot of coke and burgers to pay for the expense incurred!

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Conor Cunneen is President GROW Foodservice Profit. He is an acclaimed and award winning motivation speaker, strategy speaker, leadership speaker and marketing speaker. He is the 2003 Chicago Toastmasters Humorous Speaker of the Year.

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