For CEO, Coke Needs the Real Thing
By Dean Foust
In an age where being the CEO of a well-known company confers celebrity status, Douglas Daft never seemed to be all that comfortable as the man heading Coca-Cola (KO ). Ever since the soft-drink giant's star-studded board -- led by billionaire investor Warren Buffett and investment banker Herbert Allen -- named Daft to succeed the embattled M. Douglas Ivester in late 1999, the longtime Asia executive seemed ill at ease in the position. As the search for his successor intensifies, Coke's board likely won't soon forget Daft's uneasiness.
For the first year-and-a-half at Atlanta headquarters, Daft often lamented to confidants that he had never sought the CEO job and, more important, that he had never been groomed for it. Having risen through the ranks of Coke's business in Asia, he never much cared for Atlanta as a city -- or for headquarters politics, for that matter.
Insiders say he mused in private that he wasn't sure which other executives he could trust -- and which ones might be intent on undermining his bold efforts to redo much of Ivester's handiwork. Ex-accountant Ivester focused on core brands like Coke Classic, Sprite, and Fanta, with a goal of building an efficient distribution network that optimized profits.
Daft wanted to tear down this finance-first mentality and build a leaner company that would simply give consumers whatever it was they wanted to drink. Headquarters was "a hall of mirrors," says one former executive. "There were a number of warring camps, and it wasn't always clear who was on your side."
When the board decided in late 1999 that Ivester had to go, Daft looked like an appealing candidate: His success at pumping out alternative drinks such as canned coffees in Asia was appealing at a time when consumers in the U.S. were starting to shift away from soft drinks toward bottled water and New Age juices.
And the board believed that Daft had the mettle to carry out the heavy downsizing that Coke directors felt was necessary to reduce the bureaucracy that had developed under Ivester. But over time, Daft's lack of preparation began to show. With his professorial style, the Australia native didn't always project leadership at a time when Coke was battling against a never-ending series of crises -- including a lawsuit by a whistleblower, an Securities & Exchange Commission investigation into its accounting, as well as stiff competition from a host of feisty competitors ranging from Red Bull Energy Drinks to archrival PepsiCo (PEP ) that left Coke struggling to meet its profit goals. Coke stock has been trading for months at around $50, off its 52-week high of $66.80 last June.
Daft preferred to spend his weeks jetting around the globe to meet with large customers, Coke bottlers, and regulators. That helped mend relations with key players that had been ruptured under Ivester. But it also meant the CEO was rarely around when his management team needed him to approve decisions.
"It's fine to play roving ambassador," notes one former Coke executive. "But when you've got a CFO, chief marketing officer, and a chief technical officer back at headquarters waiting to push the button on important matters, then you've got a problem."
In Daft's absence, some of these other executives began calling Coke's star-studded board to vet decisions -- a trend that only increased the board's concerns over Daft's management, sources tell BusinessWeek Online. As these concerns escalated, Daft announced on Feb. 19 his plans to retire by yearend.
Still, his departure only creates a new problem for Coke: Who should succeed him? Daft's efforts to transform Coke led to an exodus of executives. Some were downsized out of their jobs in restructuring, while others didn't see eye-to-eye with Daft.
As a result, Coke now has a much thinner bench that it had when Daft took over. And sources say Coke's board has concerns that the only real internal candidate, President Steven Heyer, may not be ready to assume the job. The major worry: Heyer has an aggressive, impatient management style that made him a good complement to Daft, but he may not be well suited to the challenges ahead, according to sources close to the board. (Daft and Heyer both declined to comment for this story.)
So who succeeds Daft? The sell-side analysts who cover Coke are lobbying it to simply anoint Heyer -- and avoid the inevitable months of uncertainty that could drag down the stock. Shortly after Daft announced his plans to depart Coke, Andrew Conway, beverage analyst at Credit Suisse First Boston, told clients in a memo that Heyer "is ideally qualified for the CEO position," noting that he "has built tremendous goodwill with the global bottling system" that an outsider can't match.
Coke insiders worry, however, that if the board ultimately selects Heyer after having looked outside for a successor, that might weaken Heyer's credibility by suggesting he wasn't the board's first pick. And if Coke's directors learned anything when they selected their last CEO, it's the importance of having an executive who not only wants the job but has the confidence of everyone -- employees included -- in the vast Coke machine. This head hunt could take awhile.
Foust is BusinessWeek's Atlanta bureau chief
Edited by Douglas Harbrecht