Coke Fizzles After CEO Shake-Up

By Brian Graney (TMF Panic)
December 6, 1999

World carbonated beverages leader Coca-Cola <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: KO)") else Response.Write("(NYSE: KO)") end if %> made today a memorable day for its shareholders by announcing that Chairman and CEO Douglas Ivester will take early retirement and end his leadership of the company in April 2000. Douglas Daft, currently a Senior Vice President and President of Coke's Middle and Far East Group, has been elevated to the President and COO positions and is expected to be elected to the Chairman and CEO posts after Ivester steps down next year. Investors showed their surprise at the news by pushing Coke's shares down 7% today.

The loss of Ivester keeps the issue of Coke's current management in the forefront of many investors' minds. This is a new concern for long-term shareholders to contend with, considering Coca-Cola has historically changed its top brass so infrequently. Ivester's tenure has been remarkably short, consisting of a mere 25 months before today's announcement.

Those months have been fraught with problem's for the Atlanta-based giant. Case volumes have fallen due to the economic slowdown in many parts of the world. The company's planned acquisition of France's Orangina fell apart. Coke has also had to contend with a widely publicized beverage contamination incident in Belgium and France earlier this year and a racial discrimination suit brought against it by employees. To understate, times have been tough.

While the knee-jerk reaction may be to blame Ivester for Coke's problems and its share price underperformance in relation to the S&P 500 during his time at the top, the reaction of Coke's board of directors to the news suggested that thinking is misguided. The board "reluctantly accepted" Ivester's resignation, according to board member James Williams, after Ivester had given the matter "extensive reflection and thought."

Ivester's entrance onto the scene after the death of Goizueta in October 1997 was seamless as he had been groomed for the role by Goizueta himself for many years. His quick exit raises questions not only about the proper role that well-established management succession plans should play in the life of any company, but it also leaves Coke investors facing a strange and unfamiliar leadership unknown.

Unfortunately for investors, only time will tell how well Daft will do as Ivester's successor. With a market capitalization of $158 billion and some of the best business economics around, Coke is larger than any one person. The incoming boss certainly seems capable and knows his way around the company, having served in various positions with the firm for 20 years. Moreover, Daft's experience in the important Middle and Far Eastern markets may prove a boon for the company as heavily populated markets in those regions continue their economic development in the years ahead.

But will his turn at the reins follow the storied and immensely successful paths of Woodruff and Goizueta or the brief and tumultuous run of Ivester? No one knows the answer to that question. As no less of a business visionary than Henry Ford reportedly once put it, "You can't base your reputation on what you are going to do." Daft will start building his reputation as Coke's top dog next April. Until then, investors will need to judge the company's value based on its own merits, rather than the perceived merits of its incoming leader.

Related link:
Fool on the Hill, "Thoughts on Success and Succession," 06/30/99