Twenty years ago, Coca-Cola Co. KO -1.37% agreed to pay $192.5 million to settle a race-discrimination class-action lawsuit, one of the largest such settlements in U.S. history. Though the company didn’t admit the allegations had merit, Steve Bucherati, the soda giant’s first director of workplace fairness after the lawsuit, said the facts were irrefutable.

“Make no mistake about it,” the former human-resources executive said. “Coke was 100% discriminating against Black employees.”

In November 2000, Coke agreed to implement far-reaching changes to its hiring, promotion and compensation practices. It also vowed to become what it called the “gold standard” of fairness, with a workplace that offered opportunities for all.

One decade after the settlement, Coke’s effort looked like an unqualified success. By 2010, Black employees held 15% of executive roles in the U.S., up from 1.5% in 1998, shortly before the lawsuit was filed.

Two decades after the settlement, that progress has reversed. The share of Black executives is back down to 8%, according to company data. And the representation of Black employees among Coke’s U.S. salaried staff is now 15%, or 5 percentage points lower than where it stood in 2000.

“We didn’t keep our eye on the North Star,” said Valerie Love, who joined Coke last year to lead HR for North America.

In the wake of protests that swept across the country this year after George Floyd was killed in police custody, more companies, including Estée Lauder Cos. and Microsoft Corp., are launching efforts to diversify their workforces, with special emphasis on improving Black employment at their companies.

Coke’s diversity push started as an effort to address discrimination against Black employees and broadened over the years to encompass gender and other races and groups. It says it is again making a priority of addressing the inequities faced by African-Americans at the company. The 20-year effort offers lessons for businesses struggling today with many of the same challenges, including the difficulty of instituting long-lasting change.

At Coke, a sense of complacency set in, especially after the company shifted to focus on gender diversity. A change in the way the company reported its diversity numbers masked the backsliding on Black employees, and a 2017 restructuring contributed to a sharp drop in the pipeline of Black talent. Retention was also weak. The company’s two-decade effort was described by current and former executives and employees, as well as task force members, lawyers and others involved.

Coke is now planning to start new initiatives in January, aimed at improving its hiring and promotion of Black executives and employees.

Coke’s campus in Atlanta.

Photo: LYNSEY WEATHERSPOON for The Wall Street Journal

Despite the decline, Coke still outpaces most corporate peers. Among U.S. companies, Black employees in 2018 held 3.3% of executive and senior manager roles, according to data from the Equal Employment Opportunity Commission. In the food, beverage and tobacco manufacturing industries, that share was 4.9%.

At rival PepsiCo Inc., 6.3% of U.S. executives are Black, according to data the company disclosed in October. The company said in June that it aims to increase Black representation in managerial roles by 30% by 2025, including the addition of at least 100 Black executives.

Landmark Case

In 1998, Linda Ingram, an analyst at Coke’s Atlanta headquarters, contacted civil-rights lawyer Cyrus Mehri. She told him a supervisor had called her a racial slur in front of her colleagues, and, together, they discovered she was also paid less than her white peers. She helped Mr. Mehri connect with dozens of other Black employees at Coke who described similar problems.

In April 1999, Ms. Ingram and three other plaintiffs filed a lawsuit alleging that Coke had systematically discriminated against Black employees in salaries, performance evaluations, promotions and terminations. Coke disputed the allegations, but when a new chief executive, Douglas Daft, took over in early 2000, he committed to settling the suit.

Coke agreed to pay $192.5 million. Part of the money went to more than 2,000 current and former Black employees and into bonus, pay-equity and training funds. The company said it would make significant changes to its HR processes and submit to four years of oversight from an external committee of civil-rights experts.

Plaintiffs Linda Ingram, Kimberly Gray Orton, Elvenyia Barton-Gibson and George H. Edding at the news conference announcing the landmark race-discrimination settlement with Coke in November 2000.

Photo: STEVEN SCHAEFER/Agence France-Presse/Getty Images

Coke created the director of workplace fairness role and tapped Mr. Bucherati, a white executive who ran HR for the company’s global marketing operation.

“In the days after the lawsuit, white males were walking on eggshells,” he said. “The white guys would come in and talk to me and say, ‘This is about everyone but me.’ I said, ‘No, it’s not. We’re not here to invalidate you, your contribution or your opportunity to advance. We’re just here to validate everyone, and not everyone has been validated at work.’ ”

He emphasized to managers that the work around diversity should improve meritocracy at Coke, not dilute it. Mr. Bucherati, who became chief diversity officer in 2004 and held the role until 2015, said he told hiring managers: “The best person gets the job every time. Full stop.”

The company began applying data analysis to employment decisions, including compensation, performance reviews, promotions and layoffs. Statistical models raised red flags—for example, disparities in bonus or promotion recommendations. Mr. Bucherati said he and his team reviewed those recommendations, unit by unit, and questioned managers.

The task force’s work was set to end in 2005. By then, a new CEO, company veteran E. Neville Isdell, had come out of retirement to lead Coke. Born in Ireland and raised in Zambia, he had run for student government in the 1960s at the University of Capetown in South Africa on an antiapartheid platform.

A few months into his tenure as CEO, Mr. Isdell asked the court to extend the task force’s oversight by a year.

“We had complied but not committed,” Mr. Isdell said in an interview. He said he decided to request the extension after hearing employees talk with relief about being free of the task force. “When I asked some people, ‘Do you think we’ve changed?,’ you’d get a stony silence,” he said.

Some at the company viewed the task force as a burden, little more than a box-ticking exercise, he said. “To me, we had to put the company in a position where this would never happen to the Coca-Cola Company again,” he said.

A Coca-Cola delivery truck at a distribution warehouse in Jasper, Ind., in 2015.

Photo: Luke Sharrett/Bloomberg News

Under the task force, Coke began requiring that candidate slates for open jobs include at least one woman or minority. Executive pay was tied to increasing diversity among the salaried workforce. Coke stepped up external recruiting and started an executive mentoring program that emphasized retaining and promoting Black employees. Every promotion, pay increase and layoff was analyzed for fairness.

When Coke decided to lay off 1,000 salaried employees in a 2003 restructuring, an internal analysis showed that Black employees would be disproportionately affected. A closer look revealed bias creeping into the subjective part of the formula used to identify candidates for layoffs, Mr. Bucherati said. Coke improved the process, and executives agreed to fewer layoffs, preserving jobs for employees of all races, even though the change meant Coke missed some financial targets that year, he said.

In annual surveys, employees’ perceptions of fairness at Coke increased year by year. By 2007, Coke ranked No. 4 on the magazine Diversity Inc.’s list of top 50 companies for diversity.

The key to building support inside Coke was framing the diversity initiatives as a business imperative, said Don Knauss, who ran the North America business under Mr. Isdell and was one of the executives responsible for implementing the task force’s recommendations.

The company was engaged in a “battle royal,” he said, with PepsiCo and the company then called Cadbury Schweppes, and was losing market share to them in some categories. Mr. Knauss said he and others spread the message that having Coke’s leaders look like its consumers was “a necessary thing to do to win, and you all want to win, don’t you?”

Different Target

In 2007, Muhtar Kent, the company’s newly named president and heir apparent to Mr. Isdell, launched an initiative to accelerate the company’s global recruitment and advancement of women. It would eventually aim to increase the share of women in Coke’s leadership ranks, and all other levels of the company, to 50% by 2020.

Mr. Kent has said he created the program because he realized women made about 70% of the purchasing decisions for Coke’s products but in 2008 occupied just 23% of the company’s executive roles.

The focus of the company’s diversity work shifted immediately to gender, several former executives said. Managers prioritized women for hires and promotions.

Former CEO Muhtar Kent, shown in 2012, launched a program to recruit and promote women with a goal of reaching gender parity at Coke by 2020.

Photo: MANAN VATSYAYANA/AFP/GettyImages

Mr. Kent created a women’s leadership council that began developing a pipeline of women to rise through Coke’s ranks. It paired female executives with mentors, tracked women who were “ready now” for promotion and aggressively recruited senior-level women from outside the company. The women’s initiative would become one of the signature projects of Mr. Kent’s tenure as CEO and chairman. He served as chief executive from 2008 to 2017 and as chairman from 2009 to 2019.

After 2011, Coke disclosed detailed data on its gender-diversity progress but stopped disclosing diversity data by race. Instead, its annual reports provided a total percentage of “multicultural” employees, which it defined as anyone other than those who were white and non-Hispanic. Those numbers showed racial diversity at Coke improving.

Coke said it made the change because the gender data was global while the racial data was specific to the U.S. The company now believes that grouping multiple races and ethnicities into one cohort “was ineffective and inaccurate,” because it masked a backsliding in Black representation, according to Lori George Billingsley, Coke’s current chief diversity officer.

Jonathan Mildenhall, a Black marketing executive who worked at Coke from 2007 to 2014, said that when he arrived at the company, “every meeting felt like a global community.” He noticed around 2010 that the shift in focus to gender diversity, which he said was admirable, hurt the company’s progress on minorities. “I grew a little cynical of the company’s long-term commitment,” he said. “It should not be ‘either/or.’ It must be ‘and.’ ”

The company was unable to maintain both priorities at once, some former executives said. Its leadership either believed the racial diversity problem had been solved, or that it was a country-specific issue that was being addressed by the company’s U.S. leaders, they said.

Over time, Coke changed some of the policies that had been implemented by the task force, which ended in 2006. For example, the company stopped tying executive pay to increasing diversity in salaried jobs.

Mr. Kent said the company during his tenure was focused on building and retaining a diverse, global workforce. He noted several high-profile Black and Hispanic leaders he appointed, including Kathy Waller, who became the first African-American woman to serve as chief financial officer of a Fortune 100 company. She has since retired.

“Racial and gender diversity is critical to success in business,” Mr. Kent wrote in response to questions from The Wall Street Journal. “There is no doubt that I had more work to do; for example, in some cases our top diverse talent was ultimately recruited away, and of course some also retired. This is an ongoing journey for all.”

‘Leaky bucket’

Robert Long, a Coke veteran who in 2016 was the new head of global research and development, met a group of new hires that year at corporate headquarters. “Around the table there was not one Black face,” he recalled in an interview. “The leadership that were doing the hiring didn’t have the clear guidance to make that a priority.”

After he voiced his concerns, subsequent meetings with new hires were more racially diverse, he said. Mr. Long, now Coke’s chief innovation officer and one of two Black executives reporting directly to the CEO, plans to retire in February.

The company had meanwhile become “a leaky bucket” for Black talent, said Andrew Davis, a Black executive who became Coke’s chief diversity and inclusion officer in 2016. Some Black professionals left because they felt they weren’t advancing fast enough or that their influence was limited, former executives said.

A lot of the attrition was because of the company’s culture, Mr. Davis said. Coke had attracted a more diverse workforce but needed to focus more on building an open culture where people felt like they belonged at the company, he said.

Senior managers who arrived from outside didn’t always get coaching and support to learn Coke’s culture and develop internal networks, according to a person involved in the efforts.

“We were doing a good job bringing people in, but there wasn’t a sense of, ‘I can see myself here for the long haul,’ ” Mr. Davis said.

He left Coke in 2018 to become chief HR officer at home builder Lennar Corp.

In 2017, amid falling sales, Coke announced it would cut 1,200 corporate staff around the globe as part of an $800 million cost-cutting initiative.

Coke ran an adverse-impact analysis to make sure layoffs didn’t disproportionately affect any racial group without justification and determined the moves were fair, the company spokeswoman said. Coke also allowed layoffs to be appealed, she said.

Still, the layoffs, combined with voluntary departures as high-profile Black executives were hired away by other companies, contributed to a sharp decline in Black employment at Coke, the spokeswoman said. The share of Black executives fell by nearly half to 7% in 2017 from 13% in 2016.

The layoffs undid years of work building a pipeline of Black talent, said Carolyn Jackson, a former head of HR for Coke’s North America unit who retired in 2016.

The cover of the Atlanta Tribune, a magazine for Black business leaders, celebrated Coke in 2016 with a photo of 17 of the company’s Black women executives, and in early 2017 with a similar photo of its Black male executives. Less than half of those executives are still at the company.

A New Pledge

In recent years Coke has added training for company leaders on recognizing bias; a new HR position focusing on diversity in executive recruitment; and an effort to recruit talent not just for current job openings but for their future career paths at the company.

‘We have to keep our eye on this goal,’ said Ms. George Billingsley. Coke is launching a new 10-year recruiting program next month.

Photo: LYNSEY WEATHERSPOON for The Wall Street Journal

Next month, Coke is launching a 10-year internal and external talent-recruiting program for people of color with an emphasis on Black executives. It will begin a training and development program, also with an emphasis on Black executives, taking lessons from the success of its women’s leadership council. The company has also pledged to disclose data each year showing its record on paying employees fairly.

Coke plans to set goals for Black representation in executive roles based on the availability of candidates inside the company and the general labor pool, as well as on census data to mirror the markets where the company has large footprints, said Ms. George Billingsley, the diversity chief. Black people account for 51% of the total population in Atlanta, where Coke was founded 134 years ago and where about half of its 10,000 U.S. employees are based.

Meanwhile, Asian and Hispanic representation has continued to grow, with those groups making up 9% and 11% of executives, respectively, up from 5% and 6% in 2010. Coke has increased its representation of women to 35% in top paying jobs, though it hasn’t reached its 2020 goal of gender parity.

Ms. Jackson, the former HR executive, and other former executives said they worry that too few “champions” remain at the company—senior leaders such as Mr. Knauss; Sandy Douglas, a white executive who led the North America unit through most of Mr. Kent’s tenure and made racial diversity a top priority in hiring; and Ms. Waller, the former chief financial officer. They and other former senior executives lived through the lawsuit and were committed to helping fix the problem.

“It’s a historically stubborn issue,” said Bradley Gayton, a Black executive who joined Coke in September as general counsel. “What that’s going to require is that all of us put a shoulder to the wheel here.”

After Mr. Floyd was killed, Coke’s current CEO, James Quincey, who took the helm in 2017, held a video town hall with employees. He described the company’s current representation of African-American leaders as “poor.”

“America hasn’t made enough progress, corporate America hasn’t made enough progress and nor has the Coca-Cola Company,” he said.

Write to Jennifer Maloney at [email protected] and Lauren Weber at [email protected]

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This post first appeared on wsj.com

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