Rigging a Promotion Costs Coca-Cola Big Bucks and Triggers Grand-Jury Investigation

From the Career-Limiting Moves Department: Coke agrees to pay up to $21MM to Burger King for rigging results of market testing of Frozen Coke at BK restaurants. Wouldn’t you hate to be in the shoes of the marketing managers who did that . . . .

In 2000, Coca-Cola and Burger King ran a promotional campaign to test the appeal of Frozen Coke, a slushy drink, at Burger King restaurants in Virginia. (Burger King is a huge customer for Coke fountain drinks.) If the test was successful, then Burger King would make Frozen Coke a regular offering.

Apparently the initial results of the campaign weren’t pleasing to some people at Coke. They took steps to increase the Frozen Coke traffic at the test restaurants. Supposedly, this included paying a man — without Burger King’s knowledge — to get hundreds of kids to go to Burger King restaurants and ask for the Frozen Coke meal deal. That made sales look pretty good. Burger King started to ramp up its Frozen Coke program.

Then, however, a finance executive in Coke’s fountain-drink division was let go. He filed a lawsuit, claiming that he had been fired for whistleblowing. In his lawsuit, he accused Coke of rigging the Frozen Coke promotional campaign.

His accusations touched off investigations by the SEC and by the Justice Department. Coke was subpoenaed by a federal grand jury. Coke’s corporate headquarters admitted that some of their employees had rigged the promotional campaign and said that it was cooperating with the investigations.

Needless to say, Coke’s customer Burger King was not thrilled. Earlier this week, Coke announced that it had reached a settlement with BK. According to the New York Times, Coke agreed to pay up to $21 million to Burger King and its franchisees. Of course, Coke still has the SEC and the federal grand jury to worry about.

It’s not clear what happened to the individual Coke employees who supposedly rigged the promotional campaign. Coke reportedly said it had “disciplined” them. It’s safe to say they probably don’t have stellar careers at Coke ahead of them. And who knows what punishment the federal prosecutors will demand.

Some possible lessons for corporate managers:

1) Remember the old saying that you shouldn’t do anything you wouldn’t want to see published on the front page of the New York Times.

2) Your corporate sins can come back to haunt you years later, especially if one of your colleagues leaves the company under less-than-happy circumstances.

3) What you think of as a simple error in business judgment, the Justice Department — those friendly folks who can send you to federal prison — might regard as criminal behavior. (And let’s not forget the SEC and the private shareholder plaintiffs’ bar. )

4) Angering one of your company’s biggest customers is seldom a career-enhancing move.

5) Coke’s marketing budget for Frozen Coke probably didn’t include a $21 million payment to settle the dispute with Burger King. Busting that budget was unlikely to have been a career-enhancing move either.

Sources: New York Times story (free subscription required) and National Post (Canada) story (with more details on the former executive’s accusations about the rigged promotional campaign); Google News search.