In the spotlight – Muhtar Kent
Coke's choice of Muhtar Kent as its next CEO ensures a smooth transition from Neville Isdell, and has gone down well with the company's bottling partners. But while the promotion of a chief operating officer associated with so much progress made by Coke in recent years can be seen positive, Chris Brook-Carter believes Kent faces some stern challenges, not least shaking off controversy over his alleged involvement in insider trading in the 1990s.
The news last week that The Coca-Cola Company's heir apparent and chief operating officer, Muhtar Kent, is to succeed E. Neville Isdell as chief executive officer in July next year will have come as a huge relief to those with a vested interest in the soft drinks giant's success.
Kent has been groomed by Isdell for the position since he rejoined Coke in May 2005 and became president in December 2006. However, Coke's recent track record in executive succession made nothing a certainty, and a repeat of the last two CEO appointments, which left the company demoralised and haemorrhaging executive talent, could never be ruled out.
Most recently, this was seen four years ago when Isdell came out of retirement to beat then COO Steve Heyer to the CEO's chair. For some, Heyer was Coke's natural heir and the decision to pass him over left the boardroom and management divided. Although Isdell's track record over the last four years suggests the move was the right one, at the time it summed up a company that was struggling to convince itself or its investors that it had any direction at all.
Isdell, who will remain as chairman until the company's annual shareholders' meeting in April 2009, has worked hard to turn that situation around. Those looking back over his tenure will judge positively a man who has overseen rejuvenated beverage sales and profits across the world, improved bottler relations and the arrival of new talent to replace that which had been lost during a difficult time in the company's history.
But perhaps, given the past, his greatest triumph has been to ensure a smooth handover to Kent, as this epitomises the new confidence the Atlanta-based group wants to portray.
"I have a very, very strong belief that successful management transition is one of the key jobs of the CEO and the chairman," Isdell said in an interview recently. "It's one of the key goals I set for myself. ... I've been working on it for three and a half years, and I'm trying to do it the right way."
That "right way" was to convince Kent to rejoin the Coke family after a stint as president and CEO of the Turkish drinks company Efes Beverage Group. Before that, he had been in the Coke ranks since 1978 in a variety of marketing and operating roles. But his relationship with Isdell really grew from 1989 to 1995, when he was president of Coke's East Central European division. During this period, Isdell and Kent jointly oversaw the company's successful move into Eastern Bloc countries as the Iron Curtain fell.
His rise up the Coke ranks was not without its hurdles though, and after three years at the helm of Coca-Cola Amatil Europe, he left the company in 1998, following controversy surrounding insider-trading allegations. Kent settled out of court and continues to deny any wrongdoing.
On balance, however, the drinks community seems to think Coke has got its man.
"We have confidence in the board's judgment and continue to recommend KO [Coca-Cola] shares believing that operating performance will continue at or above long-term targets," said Stifel Nicolaus beverage analyst Mark Swartzberg.
Importantly, Kent has been right at the forefront of so much of the progress that has been made at Coke in recent years. Isdell has turned to him to fix troubled international markets and he headed up the company's largest acquisition, its US$4.1bn purchase of Energy Brands, the producer of Glaceau Vitaminwater. His stock is also high amongst the bottlers after working to repair relations with some of the bigger partners.
John F. Brock, president and CEO of Coca-Cola Enterprises (CCE), said last week: "Muhtar and Neville are a strong leadership team. Muhtar has a solid understanding of our unique challenges and opportunities in North America and Europe."
Kent still faces challenges. North America remains problematic for carbonated drinks and Coca-Cola is still playing catch-up with rival PepsiCo in efforts to diversify a portfolio still heavily reliant on this unspectacular category. Improving morale in-house is also a job in progress - the self-inflicted wounds of the beginning of the decade are deep.
But in truth the only black mark appears to be the decade-old insider-trading fiasco at Amatil. "This event may be taken as an occasion to re-raise the question of Mr Kent's ethics," warned Swartzberg.
Coca-Cola's board had an outside law firm investigate the matter before re-hiring Kent and as Swartzberg points out: "Local regulators ultimately dropped their investigation of the matter and…this subject has been vetted by Mr Isdell and the board, implying the board's knowledge of and confidence in Mr Kent's character is high."
However, others believe the matter still needs addressing. "The issue remains on investors' minds and, given Kent's increasing role at the company, we think Coke will need to continue trying to get investors comfortable with the situation," another analyst was quoted saying.
At the moment, Isdell talks as if the issue is closed, but many in the investment community still seem to feel there are questions to answer. Convincing them otherwise could be Isdell's final triumph.
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