Ethics and Compliance - PepsiCo Paper

Ethics and Compliance - PepsiCo Paper

Ethics and compliance play a vital role in a corporation’s financial environment. The ethical and compliance standards set forth by a corporation lay the foundation for how the corporation is going to do business with their external and internal customers. PepsiCo has an ethics program in place to ensure ethical behavior on its part. Pepsi Co also has a corporate compliance program to ensure that the organization also follows SEC regulations as well as other various rules and regulations set forth by other governing bodies. The strong ethics and compliance program of PepsiCo has helped to ensure that the organization has strong financial indicators. Some of these financial ratios are current, debt, return on equity, and days receivable. These strong financial ratios tell us that PepsiCo has a consistent and steady financial health .

To strengthen ethical standards in the corporate and business world, The Pepsi Company joined with 50 other companies to establish the Business Ethics Leadership Alliance (BELA ). This diverse group of businesses work to enhance the ethical values of corporate American that would not only be satisfactory with their employees, but with the public as well. BELA is a forum for global leaders to discuss, establish and promote best practices in corporate compliance and ethics and advance the cause of ethics and compliance to corporate executives, stakeholders and consumers (Ethisphere, 2011). The goals of BELA are: (1) to publicly affirm commitment to certain ethical principles and compliance practices; (2) to provide public resources for BELA members to uphold their commitment and other companies to follow our lead (Ethisphere, 2011). PepsiCo believes that these issues are key factors in corporate ethics and compliance. PepsiCo has also enacted work policies that are distributed to all their subsidiaries on work conduct, human rights in the workplace, and even HIV and AIDS awareness .

The Pepsi Company is strongly committed to delivering sustained growth through empowered people acting responsibly and building trust (PepsiCo Inc., 2010). PepsiCo seeks to be a socially and environmentally responsible company that advocates their obligation to the public by implementing six guiding principles: customers are to be taken care of; quality products over quantity; win with both inclusion and diversity; short and long-term goals should be equal; always speak the truth; and respect others to be a successful team .

The compliance committee is responsible for managing PepsiCo’s compliance program, using issue resolution strategies and making recommendations to support them. The company ensures compliance issues are understood and followed through by appointing W. Scott Nehs, Vice President of PepsiCo, as the Chief Compliance Officer and the Chairman of the compliance committee. As with most large corporations, PepsiCo has been faced with some unethical issues, mostly with foreign countries. From experiencing accusations of using water containing toxic pesticides, farmers claiming the manufacturing plants pollute the lands and take the groundwater necessary to grow crops, to health issues, misleading advertising, plastic bottle pollution, and as insensitive and offensive. PepsiCo has tried to correct the wrong as ethically as possible, however, toxic pesticides is an ongoing issue is India.

PepsiCo addressed the health issues by developing healthier baked snacks, and has redesigned the bottled water labels. They are recycling plastic used for bottled water and soda, and quickly pulled an iPhone app , considered offensive, for a new energy drink. PepsiCo was among the 17 companies in 2008 founding Business Ethics Leadership Alliance (BELA) to improve business ethics, publicly affirm commitment to certain ethical principles and compliance practices, and provide public resources for members to uphold their commitment and other companies to follow their lead (Ethisphere, 2011). BELA, at the present time, has more than 50 companies as members.

PepsiCo’s Code of Conduct includes: mission; respect for employees/diversity; customers, suppliers, and competitors; global relations; business gifts and payments; health and safety; environment; political and community activities and contributions; and conflicts of interest (Nooyi, PepsiCo, 2007). PepsiCo also has specific policies regarding key topics. The Code of Conduct and Values communicate and are reinforced through in-person training, town hall meetings, articles in daily in-house e-newsletters, information on their intranet, management presentations and awards for ethical behavior (Nooyi, PepsiCo, 2007).

A global organization, PepsiCo also has a telephone hotline, ‘Speak Up’, free to ensure employees open communication. Remaining anonymous, employees can report mistreatment, discrimination, sexual harassment, product tampering, substance abuse, falsifying company records, accounting irregularities, questionable business practices, fraud, theft, criminal conduct, impermissible gifts, and safety hazards (Nooyi, PepsiCo, 2007).
PepsiCo must comply with all SEC regulations. It is a publically traded company, and in addition to ethics compliance PepsiCo must also comply with SEC regulations. PepsiCo created a Discloser Committee Charter in order to accomplish this. The Discloser Committee Charter states the responsibilities of the committee and senior officers. Some of the responsibilities include assisting senior officers with supervision and accuracy and timeliness of SEC disclosures. Even though the senior officers are ultimately responsible to the SEC, the committee is a vital contributor. The committee can influence the compliance status of the company.

The Disclosure Committee Charter also includes the description of the controls and processes that PepsiCo has implemented to ensure compliance. The committee has the responsibility to record, process and summarize the disclosure information (PepsiCo, 2010). Any information that is acquired by the committee is available to all stakeholders. The stakeholders include managers, auditors and shareholders. Once the committee has accumulated the required information, the senior officers are required to review it and then approve it. Finally, after approval and in accordance with the regulations, the SEC receives the final data and then posts it online for public access.

In evaluating PepsiCo’s financial performance over the past two years of 2008 and 2009, we had to figure out the current ratios, debt ratios, return on investment, and days receivable for both years. In 2008 the current ratio was 1.23 to 1, whereas the 2009 current ratio was 1.44 to 1. The current assets in 2008 were 10,806 million with 8,787 million in current debts, while 2009 current assets were 12,571 million with 8,756 million in current debts (PepsiCo Annual Report, 2009/2010). This is very significant because it not only shows that PepsiCo has enough assets to pay for their current debts if the need occurred, but it shows how the current debt has decreased in a year, in comparison to 2008 as well as the significant increase in assets in 2009 while still reducing the current debts.

The debt ratio for 2008 is 18% using the total assets of 35,994 million and total debt of 6,599 million. The debt ratio for 2009 is 19% using the total assets of 39,848 million and the total debt of 7,400 million (PepsiCo Annual Report, 2009/2010). Although there was an increase in this ratio from 2008 to 2009, there is still solid proof that PepsiCo has managed their debts well in relation to their assets. Because the percentages are considerably low, this company is steady and consistent with maintaining enough assets to outweigh the debts a few times over.

Practicing ethics and compliance is essential for an organization to be successful. It promotes excellence in building and maintaining trust. Congress created the Securities Exchange Commission (SEC) in 1934 after the Securities Exchange Act was established. This Act gives the SEC broad authority, including the power to register, regulate and oversee many other firms and organizations (2010). One of the main goals of the SEC is to protect investors and to ensure that all markets are operating fairly and efficiently.

Through the year’s PepsiCo has had some ethics and compliance issues. However, in recent years PepsiCo has taken great strides to become more ethical and adhere to stronger compliance standards. PepsiCo has helped establish the Business Ethics Leadership Alliance with 50 other businesses. The organizations code of conduct helps ensure that the company is making decisions and staying within the organizations ethical boundaries. PepsiCo showed a strong financial portfolio in fiscal years 2008 and 2009. The financial information showed that PepsiCo had enough assets to pay for the organization’s debts and that the organization had a low debt ratio. PepsiCo now has a strong ethics and compliance program established which is going to help the company grow in years to come.

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