NEWSWIRE - January 31, 2000

Source: "Behind Coke’s Massive Cuts: An Impatient Board," by Betsy McKay and JoAnn S. Lublin, Wall Street Journal, Thursday, January 27, 2000, page B1.

Synopsis of Article: The article discusses the recent announcement by the Coca-Cola Company that it is laying off 20% of its workforce, or 6,000 employees. The layoffs were prompted by pressure from the board of directors, after disappointing earnings announcements over the past several quarters. There is also some hint of possible earnings manipulation. The article affords an opportunity to discuss corporate governance, agency costs, restructuring, and how a company may legally manipulate its earnings.

Questions:

1. What has Coke’s strategy been for maximizing shareholder value? What problems has it encountered over the past few years?
2. Why might Coke’s management have hesitated in laying off employees? Is it ethical for the board of directors to pressure management to lay off employees?
3. How did Coke influence its earnings for last year? How did this impact the stock price?