All eyes await white smoke from Atlanta
By Chris Brook-Carter | 27 April 2004
With the board of Coca-Cola in the final stages of selecting a new CEO, all eyes are on the soft drinks giant. And amid concern that it has suffered from a leadership vacuum since Douglas Daft announced his decision to step down, the pressure on the board is growing ever more intense. Chris Brook-Carter takes a look at the contenders.
The hunt for the next CEO and chairman of The Coca-Cola Company has quickly become one of the most eagerly followed corporate dramas in the last decade, and any announcement, when it finally comes, is likely to cause contention and ruffle feathers who ever the appointee.
That a company of Coke's class has allowed one CEO to announce his resignation without an heir ready to take over the reins has caused concern enough. However, the fact that the current headhunt is being conducted out of "deficiency instead of strength", as one analyst put it, has led many investors to wonder who indeed is running the company - and more importantly, who will be running it when current CEO Douglas Daft steps down.
"Tell me who is running this company" is all investors want to know, Marc Greenberg, beverage analyst at Deutsche Bank, was quoted as saying last week. "They can't feel better about the business until they know that."
It is a message that seems to be sinking in at the boardroom in Atlanta, because if the press coverage is anything to go by, the pace of the headhunt is picking up.
Six serious names have been linked to the position in the past week, although Coke itself will not comment on particular individuals, saying only that the board's priority is to seek the right man as quickly as possible.
That, however, even for a company of Coke's experience and persuasive powers, may not be as easy as it sounds. On face value the position should be easy to fill. The job has considerable attractions - the group is one of only a handful of companies that owns a truly global brand and it is encountering the sort of difficulties a good CEO could really make his name on by turning round.
What is more, the beverage industry is not a complex one, so Coca-Cola did not have to confine its search to existing beverage executives. "At some levels this is a simple business," says Mark Swartzberg, beverage analyst with Legg Mason. "It is about building brands and making money out of them."
However, a Coke CEO still needs a unique set of skills. Not only must he be a firm leader but he also needs to be a negotiator and conciliator given the company's range of troubles, from allegations of financial corruption and poor race relations to its position as the archetypal American brand in a world growingly hostile to anything linked to the Stars and Stripes.
"Anyone the board is looking at will have to have the right operational skills," a former Coke executive said last week. "But to lead the Coca-Cola Company, it's a lot like being in politics. You have to be well-read, a good communicator, be skilled in diplomacy and love geo-politics."
There are also the economic pressures of kick-starting profit growth in a marketplace demonstrating lacklustre characteristics at best.
But perhaps most unique of all is Coke's bottler system. Keeping the giant bottling companies happy and profitable, from Coca-Cola Enterprises in the US, Femsa in Mexico, Coca-Cola Hellenic Bottling in Greece or Coca-Cola Amatil in Australia, is integral to Coke's own success. "Bottler relations are important," says Swartzberg.
"The hardest task of any CEO of Coca-Cola is to conduct the harmony of the system orchestra," Coke's hometown newspaper The Atlanta Journal-Constitution quoted another analyst saying last week.
It is the complexities of this system that would favour an internal promotion from within Coke to take over from Daft. However, all but one of the contenders is from outside the drinks giant and indeed the beverage industry itself.
And if the pickings seemed slim internally, then the drinks giant may be in for a shock when it looks at the health of its external list too, as three of the six favourites profiled by the US business press last week have seemingly already ruled themselves out - though the extent of politicking involved remains unclear.
COO and president of the Coca-Cola Company, Heyer is not only the only internal candidate, but until February the man everyone assumed would get the top job when Douglas Daft resigned. His chances of success seem to be slipping away, despite still being the favourite of many in the investment community.
His experience with Coke's bottler system is a huge asset and he is probably the man most of the bottling companies would like to deal with - a message the board can ill afford to ignore. Coke's recent economic improvements are also "a feather in Heyer's cap", according to Swartzberg. "He [Heyer] understands brand building and we are seeing better net revenue management - you can attribute that to the work of Steve Heyer."
That said the board have had several years to evaluate the performance of Heyer and it is clear since they launched this hunt that some at least have serious questions about either the business outlook he has helped build for Coke, or the man himself. Importantly, it is believed, Don Keough, the former president of Coke, who returned to the company in February and is leading the search, feels Heyer's style is too abrasive. His chances many feel are probably no better than 50-50 now.
Until late last week, Gillette's CEO was considered the leading man for the job, news that was popular among investors and analysts alike. Known as something of a turnaround specialist, Kilts was the top man at Nabisco and Kraft before Gillette persuaded him to take on the chief executive roll at the problem-hit consumer goods giant.
His tenure at Gillette is recognised as a great success. Kilts has revived the company's lacklustre stock performance by slashing costs, launching new advertising and ultimately improving profits. Doubters wonder if Kilts' low media profile and outward seriousness are suitable for the Coke role, but the fact that he is also a favourite of Warren Buffet, who is a large shareholder in Gillette and Coke, has helped sway some critics his way.
However, Coke's stock price fell last week when the Wall Street Journal reported sources close to the man that suggested he had asked Coke to rule him out of the hunt. The stumbling block appears to be an unwillingness from Kilts to move from his Rye N.Y family home.
James Kilts' protégé at Kraft, Bob Eckert is now CEO of the world's largest toymaker Mattel, which owns brands such as Barbie. He is credited with a similar turnaround at Mattel with the one achieved by Kilts at Gillette. An experienced leader, he joined Mattel in 2000 from Kraft where he was most recently its president and CEO - a position he held since October 1997. However, as an industry figure Eckert still lacks the stature of a Kilts and, on face value at least, he too seems not to want the top job at Coke, saying last week during a conference call that he had "no plans to leave Mattel."
The chief executive of Kellogg, Carlos Gutierrez, is of Cuban extraction, which may be attractive for a company that reaps nearly 80% of its profits overseas. An energetic man and only 50 years old he has a reputation as a man of drive and energy - both attractive properties to a company like Coke. He became president and CEO of Kellogg in 1999 after successfully transforming the group's Mexican division.
Another businessman with a reputation as a turnaround specialist, Gutierrez took the helm at Kellogg when the company had been underperforming for five years. But Gutierrez refocused the business on its core cereals and snacks, and Kellogg's shares have risen by 32% between 1999 and 2002.
However, Kellogg's, while top of its own field, is no Coca-Cola and some fear the jump to the beverage giant may be a move too far. Those fears may prove insignificant anyway as Gutierrez is the third of the high profile candidates to cast doubt on his own wishes to join Coke by saying through a spokesman: "I am not a candidate for any job other than my current position."
Of all the candidates, the least is known of Kerry Clarke, one of two vice chairman under AG Lafley at the consumer goods giant Proctor & Gamble and president of its global market-development and business operations. He is currently considered the easiest candidate from outside the company to tempt. He was passed over for the top job at P&G in favour of Lafley, but is still credited with much of the good work that has gone on at the company since, including the restructuring and refocusing of the group, which has made it a top performer in the FMCG world. That said, he is the only contender with no executive experience.
Some reports in the US last week suggested the Coke board were also considering Neville Isdell. The well-liked Irishmen has already lost the race to become Coke's CEO once in 1997, when he finished behind Doug Ivester. Having been head of Coke's European business in the 1990s he has a great working knowledge of both the industry and the company itself and, having moved on to head up Coca-Cola Beverages, one of the publicly-owned bottlers, before retiring to Barbados three years ago, he knows the bottling system inside out too.
"He's hands-on, detailed-orientated and engaged, and has all the skill sets to run Coke," CSFB analyst Andrew Conway was quoted as saying last week. "The only negative is that he's been on the beach for a period."
Sectors: Soft drinks
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