In the largest racial discrimination settlement in U.S. history, Coca-Cola Co. agreed Thursday to pay $192.5 million to settle allegations that it routinely discriminated against black employees in pay, promotions and performance evaluations.
The soft drink giant will pay an average of $40,000 to some 2,200 current and former black employees who sued in federal court last year. Coke executives also agreed to a major concession: an outside watchdog group with enforcement powers will review and monitor the firm's employment practices. The seven-member task force, to be named later, will also ensure that its recommendations are carried out during the four-year life of the agreement.
Plaintiffs' attorneys called the deal "historic."
"This settlement sets a new standard for corporate diversity," said Cyrus Mehri, the lead lawyer for the workers. "In short, the 'World of Coke' will be going through a 'World of Change.' "
The settlement was modeled after a 1996 agreement involving Texaco Inc., which paid $176 million--previously the largest discrimination award--to end a similar suit by its black employees.
Coke Chairman Douglas Daft called the deal "meaningful, constructive and equitable to all parties."
"It comes from the belief that we need to lead, not just comply, on such issues," he said in a conference call with reporters. "It will be a process that continues forever."
The class-action suit had embarrassed senior Coke executives, worsened employee morale and created a public relations nightmare for the Atlanta-based company.
Black workers contended that they were paid less and had fewer opportunities to advance than white employees. Few of the company's black managers, according to the suit, reached the highest salary levels. They were mainly relegated to low-profile divisions such as human resources and corporate affairs, which lack the power and advancement potential of white-dominated divisions such as global marketing or finance.
Internal memos released from the case suggested that some executives who attempted to improve diversity were frustrated by senior management, including former Chairman M. Douglas Ivester, who retired earlier this year.
In a July 1998 memo, Ingrid Saunders-Jones, vice president of corporate affairs, complained to Ivester about being ignored by her peers.
"As you noted, we are at the opposite ends of the spectrum, your problem being that of finding yourself 'too visible' . . . and my problem most often that of being too invisible." Those "invisible moments are driven by chauvinism and power . . . sometimes by pure and absolute disrespect . . . and sometimes as a result of lack of consciousness."
A memo by another senior black executive warned that "a number of highly educated and trained African Americans . . . have received unfavorable treatment, thus creating the impression that [Coke] is a high-risk environment for high potential and aggressive African Americans."
The suit received significant media attention last April when a caravan of current and former Coca-Cola employees, in a "Ride for Corporate Justice," drove from Atlanta to Washington before camping out at Coke's shareholders meeting in Wilmington, Del.
Coke has consistently denied any racial bias, but on Thursday Daft said the settlement will help the company build a more talented work force by bringing "total transparency" to how employees are hired, paid, promoted and evaluated.
"Sometimes things happen in an unintentional fashion. And I've made it very clear . . . that can't happen anymore," he said.
Both sides acknowledged that the monetary settlement is significant but emphasized that the seven-member watchdog group, charged with making sure Coke is fair in pay, promotions and performance evaluations, is the centerpiece of the settlement.
Three members of the panel will be appointed by the plaintiffs' lawyers, three by Coke and a chairman jointly selected by both sides.
The task force will recommend changes and ensure they are carried out. Coke retains the option of challenging changes it feels are not financially or technically feasible. The company will also operate a toll-free hotline to receive employee complaints 24 hours a day.
The settlement amount includes $113 million in cash. An additional $43.5 million will be spent over the next 10 years on "pay equity adjustments," and $36 million more on programs designed to ensure that Coke treats black workers fairly.
Mehri and his colleagues, who also represented Texaco workers in their discrimination suit, will receive about $20.6 million from the cash portion of the settlement.
The settlement covers salaried black employees who worked for Coke's U.S. operations between April 22, 1995, and June 14, 2000. Workers will receive cash payouts depending on their ranks and years of service.
"I thank Coca-Cola for having the courage to talk to us and not be ashamed to say there is a problem and they're willing to fix it," said Linda Ingram, a plaintiff who lives in Marietta, Ga., a suburb of Atlanta.
The agreement still requires the approval of U.S. District Judge Richard W. Story, who is expected to sign it.
Employment law experts said Coke made the best choice by settling and trying to copy practices Texaco instituted after it settled its lawsuit.
Thomas S. Williamson Jr., a Washington attorney who chairs the seven-member watchdog group at Texaco, said the oil company's overall record of hiring and promoting minorities has improved significantly.
"In the aftermath of the Texaco settlement, one might surmise there might be a similar result at Coke," said Robert Millman, a partner with Littler Mendelson in San Francisco, the nation's largest employment law firm representing management.
Coca Cola shares closed Thursday at $61.94, up 44 cents on the New York Stock Exchange.
Scott Wilkins, a beverage analyst with Banc of America Securities, said investors were pleased that the settlement's cost "came in within the expected range."
"This represents a lot of money, but the fact is the market had already formed this into the stock price months ago," Wilkins said. "And unless we had seen an outlandish figure today, we weren't going to be surprised."
Wilkins and other analysts credit Daft, who assumed control of the company in December, with ensuring a swift settlement of the suit.
Daft has been working vigorously to right a company that suffered a series of high-profile embarrassments last year.
Coke suffered substantial losses as Asian economies fell into financial turmoil, saw its stock price plummet, endured a costly product recall in Europe in June 1999 and began laying off 5,200 workers in January as part of a massive reorganization.
Coke also faces a separate suit filed by four plaintiffs who split from the original group, and plaintiffs can "opt out" of the settlement and pursue their own claims independently.
Times wire services were used in compiling this report.