Had anyone been better groomed to become a chief executive than Coca-Cola Co.'s M. Douglas Ivester? As chief financial officer, Ivester orchestrated the 1986 spin-off of the $19 billion soda giant's bottling operations--a brilliant bit of financial engineering that helped fuel the meteoric, 3,500% rise in Coke's stock price under his predecessor, Roberto C. Goizueta. As Coke's European chief, Ivester led the company's push through the Iron Curtain, driving a trunkful of sodas into East Germany as the Berlin Wall was literally falling. And long before Goizueta's death from cancer in 1997, it was clear that Ivester--the exec who toiled until 10 most evenings while his mentor ducked out around 5--was the heir apparent.
What nobody predicted, however, was a two-year slog through crisis after crisis--some beyond Ivester's control--that would bring an abrupt end to his career as Coke's CEO. After much soul-searching, the 52-year-old Ivester on Dec. 6 stunned Wall Street by announcing his plans to retire next April, when he will hand the reins to the company's respected Asia chief, Douglas N. Daft.
TONE-DEAF. What went wrong? In hindsight, Ivester's go-for-the-jugular style and knowledge of the numbers made him the perfect second banana to Goizueta, a master strategist. But as CEO, Ivester proved incapable of managing Coke's most treasured asset: its image. An accountant by training, Ivester knew the math, but not the music, required to run the world's leading marketing organization.
A source close to the company says Coca-Cola directors--led by investment banker Herbert A. Allen--had grown increasingly distressed not just by Coke's flagging stock price, but also by the constant crises and the often inadequate responses. Another source says Warren Buffett, a major shareholder, also grew critical. Specifically, directors were concerned by Ivester's combative handling of a contamination scare in Belgium, a messy racial discrimination suit, as well as battles with foreign regulators over acquisitions and sales practices. "In many countries, Coke is no longer viewed as your Big Red Friend but a threat to your local companies," says Roy D. Burry, analyst at Brown Brothers Harriman & Co.
While Goizueta was willing to admit his mistakes--witness his quick reversal on New Coke--Ivester dug in. When the board demanded that he name a second-in-command to temper his hard style, he chose to resign rather than let the board micromanage his company, the sources say. Ivester would not comment.
With Daft, Coke's board is betting on a very different sort of CEO. Unlike Ivester, who spent only a few years away from Coke's Atlanta headquarters, the 56-year-old Australian has spent his career in the field: Daft, an ex-math teacher, handled everything from the politically sensitive Middle Eastern business to developing the vast Chinese market, where Coke now sells more than a billion cases each year.
And while Ivester was viewed by staff as a tough, unapproachable taskmaster, Daft is known as a down-to-earth guy who invites headquarters staff to his Massachusetts country retreat for the weekend. "Ivester understands it's important to build relationships, but it's just an intellectual exercise," says one Coke manager who has worked for Daft. "For Daft, it comes naturally."
Daft's task will be eased by the fact that Coke's most troubled markets in Asia and Latin America are finally showing signs of recovery. Ironically, after announcing Ivester's departure, Coke disclosed that its unit-volume shipments were up in October and November over the same year-earlier periods, a likely sign that Coke is about to show growth in the fourth quarter, the first year-over increase in quarterly results in nearly two years.
That's a good starting point for Daft. But he has a lot of work ahead of him: Coke's independent bottlers, still fuming over the recent 7.7% price hike on syrup--double the rate of recent increases--argue that Ivester was trying to gouge them to make his numbers. "It was so outrageous it was insulting," says one bottling executive. Some analysts also figure that he may settle the embarrassing discrimination suit rather than enduring more negative publicity, even if Coke were to win. And he may choose to write off some of Coke's ill-timed expansions in markets such as Russia, where some plants sit idle.
MARKETING MIND-SET. And many Coke watchers predict that Daft will wind up replacing Ivester's finance-oriented senior management team with one more attuned to marketing. "Daft has the right qualities to take this company away from its CFO-driven mind-set," says Tom Pirko, president of BevMark LLC, an industry consultant. "And Coke badly needs recasting. They have to go back to more of a marketing model."
To appease investors, analysts believe Daft may have to adopt a scaled-back strategy that uses Coca-Cola's ample cash flow not to build more plants, but to buy back stock. And if foreign regulators place new limits on Coke's ability to expand its soda business, Daft may have to diversify Coke beyond soda into other beverages. He's done it before: In Japan, one of Coke's most profitable markets, the company now generates roughly two-thirds of its revenues from bottled coffee and tea.
Still, analysts question whether anyone, including Daft, can put the magic back into Coke--and remake it into the hot-growth business it seemed under Goizueta. Marion Glover, an ex-Coke executive who now runs his own investment bank, contends that much of the 18% annual gains that Coke posted during the Goizueta era came from balance-sheet maneuvers as Ivester bought, and sold off, Coke's bottlers.
But with much of the consolidation done, Glover believes Daft & Co. may now have to settle for a lower target, say 12%. The growth under Goizueta "was outside the bounds of reality," argues Glover. "Doug inherited an impossible job to sustain Goizueta's record." The lesson: It's easy to trip when stepping into such oversized shoes.