I'D LIKE THE WORLD TO BUY A COKE
In 1954, Roberto C. Goizueta answered a help-wanted advertisement for a chemical engineer in a Havana newspaper and went to work for The Coca-Cola Co. Twenty-six years later, the Cuban-born executive triumphed in a bruising battle for Coke's top job. Named president in May of 1980 and elected chairman and chief executive 10 weeks later, Goizueta had overcome long odds and bested worthy rivals to command one of the world's great enterprises.
But Goizueta could hardly afford to rest on his laurels. The company he headed was mired in a hodgepodge of unrelated ventures, from shrimp farming to winemaking. Its crucial bottler system was badly decayed, with important markets left in the hands of weak operators. There was no strategic vision, and creativity was stifled by a blind adherence to tradition and a refusal to take risks. Worst of all, Coke's stock had fallen by half, and the company was barely turning a profit.
Over the next 12 months, in a period of astonishing activity, Goizueta set in motion a series of initiatives that would set the course for Coca-Cola for the next 17 years. From the time he became chief executive until his death in 1997, Coke's sales more than quadrupled, from $4 billion to $18 billion, while its market capitalization ballooned from $4.3 billion to $180 billion, a staggering 3,500% increase. The blueprint for that record--one of Corporate America's best--was largely drawn up during Goizueta's first months in office.
Note: Presented here exclusively for readers of Business Week Online is Chapter 3 "The Spanish Inquisition" in its entirety, instead of the excerpt that appears in the April 13, 1998, issue of Business Week.
I'd Like the World to Buy a Coke
As he sat in the president's office for the first time, early in the morning of June 2, 1980, Roberto Goizueta took advantage of the quiet moment to mark the occasion with a one-paragraph note to his benefactor, Robert W. Woodruff. "I would be remiss if I did not begin my first day as President of our great Company with a word of deep appreciation to you," he wrote, typing the letter without assistance of a secretary. "You have honored me beyond all expectations. I will let my performance on the job speak for itself. I pledge to you my total commitment to honor you, and those who made me their choice for the job, by moving our Company ahead to even higher levels of growth and achievement."
Goizueta was fortunate to have one sparkling instant to savor his accomplishment. In the twenty-six years almost to the day since he had first answered that help-wanted ad in the Havana newspaper, he had overcome long odds, bested Wilson and other worthy rivals, and now was second-in-command of one of the world's great enterprises and the only company (besides his father's) that he had ever worked for. He had played an insider's game at a company obsessed with outside appearances, and won. Without ever selling a case of soda pop or approving an ad, he had laid claim to one of the most coveted jobs in the world-second-in-command and heir apparent at The Coca-Cola Company.
But Goizueta's peace was quickly shattered. As they absorbed the news of his anointment, Coke's contentious bottlers mounted a rump effort to derail Goizueta's climb to the corner office, and put Don Keough on top at Coke. Even Woodruff would stand in his way. Upon receiving Goizueta's thank-you note, Woodruff had an assistant photocopy it, and placed the original in a scrapbook of important memorabilia. He was quite happy to see the Cuban sitting in the president's chair. But if Goizueta assumed, as he seemed to, that The Boss was ready to promote him automatically to the chairman's slot, he was gravely mistaken.
The Boss was not done meddling. After his bitter experience with Austin, he was leery of letting one executive consolidate enough power to countermand him as the ultimate authority at The Coca-Cola Company. Goizueta could have the titles he would need to keep the company running-president and chief executive officer-but Woodruff wanted to keep running the board. And after half a century of successful boardroom politics at Coke, Woodruff intuitively saw he would lose control of Coke's affairs if he let his protégé claim the chairman's slot. If Goizueta ran the board meetings, he would be positioned to dictate to Woodruff's prized Finance Committee. Woodruff knew that if he lost his hold on Coke's purse strings, his control of the company would end.
Physically weak and mentally depleted, the 90-year-old Woodruff still was sharp enough not to repeat an earlier mistake he had made. In the mid-1960s, he had let Austin consolidate too much power, because the strong young Harvard Law School graduate and Coca-Cola Export Company star had seemed such a promising leader. Woodruff regarded Goizueta even more highly than he had Austin, but there was no telling where the 49-year-old Cuban would take Woodruff's company if given unfettered reign. Woodruff wanted a new chairman. And he decided to take the same course he had in other decades, when he chose warmed-over Coke executives to sit as his proxy in the chairman's slot. Luke Smith, who had worked as a consultant since Austin fired him in 1978, was Woodruff's candidate. Almost as soon as he had tucked away Goizueta's thank-you note in the scrapbook, The Boss began quietly promoting Smith for chairman among his cronies on the board.
If Woodruff could conduct the matter just right, Smith might have a chance. Following the May 31 board meeting, directors were shellshocked over the perfunctory and preordained process by which Goizueta was named as Coke's president and heir apparent. Two board members, driving home together from the meeting, discovered that neither had been warned that they would name a new president at the meeting. "I wish I knew what is going on," director George Craft told The Wall Street Journal. With his close ties to the Atlanta contingent on the board, Woodruff calculated that he might channel the directors' sense of dismay into a vote for a nonexecutive chairman who could be used as a counterweight to Goizueta.
Woodruff was not the only one who had problems with Goizueta. The bottlers wanted his head. The attempt to generate warm feelings at the Great Get Together rally in San Francisco the prior summer had washed away quickly, and resentments stemming from the contract amendment and Coke's poor domestic performance bubbled to the surface again. John T. Lupton, the system's biggest bottler and the only one with a seat on Coke's board, began lobbying immediately for an alternative to Goizueta. His choice for chairman: Charles W. Duncan Jr., whom Austin had ousted and who had become Secretary of Energy in the Carter Administration. Lupton at least had a passing acquaintance with Goizueta, unlike virtually everyone else among Coke's more than 500 bottlers nationwide, next to none of whom actually had met the man.
Goizueta's rise shocked the bottlers, in part because they had convinced themselves almost from the start that Keough was a shoo-in for the job. The stocky midwestern back slapper seemed the perfect antidote to Austin's aloof internationalism. He was a back-to-thebasics manager who understood their business and would refocus attention on the U.S. market, where, in their view, Coke belonged. Many of the bottlers had not updated their views of the succession battle since early press reports had simplistically and wrongly guessed that Keough would get the job. Nothing the bottlers had heard from Coke's new corporate tower-in this time of strained relations, they did not hear much at all-had led them to think otherwise.
The bottlers nevertheless sensed the succession game was still afoot, and they were right. Goizueta, after all, had only been named president. Austin still held the CEO slot and the chairmanship. It was not inconceivable, they figured, for Keough to leapfrog Goizueta, and set their world right. The bottlers moved quickly. Immediately after the announcement of Goizueta's promotion, bottlers from Iowa, Texas, Florida, Alabama, and other states called or wrote Woodruff and pleaded with him to intervene and promote Keough. Goizueta, with his foreign name and Cuban birthright, sounded to them like another Austin, only worse. Austin, at least, had Georgia roots before Harvard scrambled his brain.
Keough believed to his bones that the game was up. The day of the board's vote, he had swallowed his disappointment and phoned Goizueta with congratulations. Goizueta's response: "We've got a lot of work to do." To Keough, it was a tacit confirmation that Goizueta planned to stick by his commitment to make him Coke's number two man. Even so, Keough did nothing to stop the bottlers' rump effort to topple Goizueta. He breezily granted approval when bottlers sought his OK before contacting Woodruff. Keough asked only that they say he had not instigated the nomination drive.
Bobby Wilkinson, a bottler from Huntsville, Alabama, took the most jingoistic stance against Goizueta, whom he had never met. "This is an American company manufacturing an American product in an American way," he wrote in a letter requesting that Woodruff make Keough Coke's next chief executive. Coke needs Don Keough, Wilkinson concluded, "a dynamic American salesman . . . to lead your renowned Company to even further magnificent success."
While a renewed power skirmish was carried on around him, Goizueta conducted himself in the only way that made sense-as if the board's designation of him as president meant that he ultimately would succeed Austin. Despite Woodruff's ongoing backroom dealing, Goizueta had reason for confidence. Unlike Austin, he had never fought with the old man. And the years of doting on him, in the end, seemed destined to pay off.
At least one potential rival, Ian Wilson, was completely done for. A few days after the board meeting, NBC-TV news got wind of a grand jury investigation into allegations that Wilson had attempted to bribe an immigration official in an abortive effort to obtain U.S. citizenship, which he desperately needed during the succession battle, when he feared his credentials as a South African citizen could turn the contest against him. When it was time for the world to find out about Wilson's immigration troubles, Goizueta did nothing to soften the blow. As head of Coke's public relations effort, Goizueta played an active role in defending Coke's image around the world. But when reporters called about the Wilson allegations on June 9, Coke's vaunted public relations machine went almost mute. "Since this Washington matter is before a grand jury, we feel like we shouldn't comment on it," was the concise statement. Wilson never was charged in the incident, but his already debilitated Coke career was over. Goizueta was lessthan generous in his postmortem of Wilson. When asked later whether Wilson had been his chief rival for the top job, Goizueta bitingly dismissed his erstwhile rival. It was Keough, not Wilson, whom he had worried about, Goizueta said.
FOR THE FIRST TIME IN HIS LIFE, GOIZUETA WAS A FIGURE OF PUBLIC interest, and the normally reserved and discreet Coca-Cola aristocrat seemed to relish the attention. In press interviews in the days after his election, dressed neatly as always but unusually expansive with reporters, Goizueta showed self-confidence bordering on arrogance when he described his management philosophies. He displayed a penchant that popped up often through the years: He recounted history in a way that fit his current business agenda. And he set out a series of goals, some of which he would never reach. Carried away by exuberance of the moment, he broke one of his most basic tenets by making forecasts he could not fulfill.
His first objective in the interviews was to portray himself as full of vigor and bright ideas, and totally comfortable at the helm of Coke. Consciously hewing to Woodruff's belief that successful people need a sense of humor, especially regarding themselves, Goizueta told jokes at his own expense while, nevertheless, making a point about his company or himself. He showed reporters lead coasters he had mistakenly purchased from a con artist in Mexico, who had persuaded them they were made of silver, underlining a message that appearances can be deceiving. He pointed to a sign on his desk that read, "Plan is a fourletter word," a strange choice of furnishings for a man who placed such high emphasis on careful and accurate planning. He even joked that his area of oversight-Coke's administrative, legal, and technical divisions, management training and AquaChem-was "the smallest profit center in the company."
Despite the efforts at self-effacing humor, Goizueta's ego still showed through. He bristled at notions that he was a rushed, compromise choice, railroaded through the board as part of Woodruff's effort to undermine Austin. He rejected any suggestion that he was appointed to the job as Woodruff's toady, to do The Boss' bidding. "I've always taken a great deal of pride in being my own man," Goizueta declared. "I've gotten to this position by being my own man. And I expect to be my own man from now on."
The fresh-faced Cuban executive declared that his managerial approach would be to "be in the midst of a crowd, but to have the independence of solitude." He'd get along fine with Austin, he declared, because his training as a chemical engineer and Austin's legal background were complimentary. And, characteristically circling his hand in the air to delineate his objectives one by one, he explained that he intended to go beyond his technical origins to focus on four key areas: "Financing, technical, marketing, and team spirit."
When explaining his background to the curious reporters, Goizueta explained that he left his father's business in Cuba because he was disenchanted with stringent government regulations. It was the first and perhaps the only time he publicly placed that interpretation on the monumental decision to move out on his own. But the statement fit the antigovernment mood that later that year would sweep Ronald Reagan into the presidency. And it very conveniently provided Goizueta an opportunity to indirectly take a lick at the regulators whom Coke recently had trounced in two crucial bureaucratic battles: the Federal Trade Commission's futile effort to declare Coke's exclusive bottling territories a violation of antitrust laws, and the Food and Drug Administration's reluctant approval of saccharine as a safe substitute for sugar.
Goizueta spoke out about heightened political tensions around the globe. He cited "the strong trend of nationalism sweeping the world" as a threat to his company's growth, unless Coke became part of the economic fabric of the countries where it did business. "Why shouldn't each country have its own national aspirations?" he asked. "I think they should. But I also think that we can support them and their local economies better than any of our competitors."
Still, in striving to appear thoroughly prepared and widely familiar with Coke's various business objectives, Goizueta uncharacteristically overreached when stating his long-term objectives. Foreshadowing years of frustratingly unrealistic optimism about Coke's foods business, Goizueta related a desire to "clone the foods division around the world." He expressed particular pride in his role in developing Minute Maid lemonade crystals, describing them as "a real breakthrough." Perhaps that was so. But the consequence of such a highly technical development was lost on a public looking for a broader gauge of leadership from Coke's new chief-in-waiting, especially one who had seemed such a noncontender just days earlier.
He dramatically underestimated Coke's future capital needs, perhaps betraying his weak background in corporate finance. Goizueta declared Coke would not need to borrow any more than the $100 million note offering that was announced just three days before his election as president-Coke's first debt offering since Woodruff had paid off the company's bills and avoided bankruptcy before the Great Depression. When Austin first proposed the offering, Woodruff had declared angrily, "You must be broke. You have to borrow money." But Goizueta and Jack Stahl, a bright young financial analyst in Coke's treasury department, helped persuade Woodruff that Coke needed the funds to avert a cash shortfall threatened by Austin's spending $126 million to build and furnish Coke's new headquarters tower, $65 million to purchase the Atlanta Coca-Cola Bottling Co., $15 million to acquire nearly 10 percent of Coke's New York bottler, and substantial outlays for Coke's money-guzzling wine business. Goizueta's "no new borrowings" pledge would barely last through summer.
Goizueta's greatest early faux pas came when he declared a longterm objective of building domestic earnings to the point that they equaled Coke's returns from its overseas operations. It was his first public break with Austin's legacy of expansive international growth. Coke had huge growth prospects overseas. Japan's soft drinks operation, alone, had topped Coke's domestic results in 1979 for the first time ever-as Wilson had announced in his disastrous final presentation to the board. In the hotly competitive U.S. market, Coke was losing, not gaining, share, and Pepsi-Cola was picking up most of what Coke lost. Domestic profits were under assault. Add it up, and the domestic parity with Coke's international results was a risky and virtually unattainable goal. If Goizueta were serious, he would have to do something dramatic, and probably very costly.
There, however, was a clear political payoff to declaring a drive for domestic parity. Predicting a 50/50 split appealed to Coca-Cola's disgruntled domestic bottlers. Not by accident, that was the very group Goizueta needed if he wanted to prevail ultimately in the struggle to become Coke's new chairman. Conveniently ignoring lingering hard feelings from Coke's effort to force a new contract on the bottlers, Goizueta blamed inflation and an incipient recession as the chief source of bottlers' woes. "The future of the bottlers and the future of the company are inexorably tied to each other," he declared, promising management cooperation and financial backing. His efforts on behalf of bottlers "are not just because I'm a nice guy, but because it makes good business sense."
GOIZUETA KNEW HE HAD TO PLEASE THE BOTTLERS, ABOVE ALL OTHERS, if he hoped to reach Coke's very top rung. It was the bottlers who were shouting in Woodruff's ears with their complaints about the business, their advocacy for Keough, their unfamiliarity with Coke's new Cuban-born president. Even the few bottlers who spoke in favor of Goizueta's promotion did not do him much good. "I'm tickled to death that they finally named somebody president," said bottler Sam Woodson of Fort Worth, Texas. "As far as I am concerned, they could have named anybody president just so somebody was it. You can't have five or six guys wandering around in the Atlanta office wondering which one of them is really in charge." It was hardly a ringing endorsement.
Coke's Roberto Goizueta (second from right), 1980
The best way to woo the bottlers, Goizueta figured, was to give them a big bear hug and invite them onto his team. He set out to do just that by inviting Coke's top bottlers to a day-long Atlanta meeting. In a deft political move, he employed Keough to do much of the heavy lifting, using the day's agenda to make it clear who was boss, and who was number two. On July 10, 1980, Goizueta hosted, at Coca-Cola headquarters, a daylong meeting of fifteen of Coke's top domestic bottlers. He chose the list well: Several of the invitees in letters to Woodruff after Goizueta's promotion, had urged that Keough become Coke's next chief executive.
For several of them, Goizueta's opening remarks offered a first encounter with Coke's new chief. The bottlers spent the rest of the day with far more familiar countenances: Keough and Coke-USA president Brian Dyson, who had hosted the Great Get Together in San Francisco a year earlier. Keough and Dyson laid out the broad strokes of Goizueta's plan. The two had starred in a campy in-house movie depicting top Coca-Cola officers gunning down the "Big Blue Gang" from Pepsi and were good with rev-'em-up rhetoric at bottlers' rallies. But these bottlers had not come for a pep talk; they wanted to talk turkey. Keough delivered, apologizing that in the past Coke executives had given the impression that "they were in one continuous meeting that cannot be interrupted by anyone, particularly a bottler or customer." He promised that Coke, under Roberto Goizueta, would do much better.
Dyson claimed that he expected improved results from a decision, made earlier in the year, to deploy in the field more of Coke's corporate ground troops. Goizueta viewed information from the field as a key ingredient of competitive intelligence, and he intended to use the field agents to increase both information flow and Coke's response to bottlers' needs. Dyson also promised to increase Coke's financial support for bottlers' advertising, an initiative first launched in 1989 to assuage the bottlers' outrage after the contract dispute.
Goizueta batted cleanup, hosting dinner at one of Atlanta's most exclusive private facilities, the Capital City Club downtown. To avoid dinging anyone's ego with the seating arrangement, Goizueta prescribed that the bottlers pick their seating assignments by lot from tags placed in a silver bowl. This tickled Crawford Rainwater, a bottler from Pensacola, Florida, who drew the seat next to Goizueta. Over a dinner of Georgia crabmeat and beef florentine, washed down by fine wine from Coke-owned Sterling Vineyards in California's Napa Valley, Goizueta gave the elite bottlers a first glimpse of his management style, the mixture of cheerleader and task master, detail maven and grand visionary, that would characterize Goizueta's approach throughout his chairmanship.
The approach, Goizueta explained, would be one of shared responsibility and shared opportunity. Both sides, the Atlanta crowd and the bottlers, would have to work hard to improve their relationship and their businesses. He promised a more aggressive, focused, and responsive approach from Atlanta, but demanded that the bottlers get tougher, leaner, and more competitive. "If your sales decline for a single week, we want to know why," he said.
Then Goizueta unloaded his most dramatic and far reaching news. It was time to "refranchise" the Coca-Cola bottling system, he said. The parent company intended to weed out weak bottlers. The purchase of Coke's Atlanta bottler and investment in Coke's New York bottler were just the start of a broader program of investment. Third-generation Coke bottlers looking for an exit strategy would find a ready buyer in Corporate Coke. The parent company intended to refurbish weak franchises and put them back out for sale to the stronger members of the Coca-Cola system. Those strong bottlers could do a more aggressive job of selling Coca-Cola and the company's other soft drinks. The value of every franchise would climb if fewer weak bottlers were for sale and the system over all got stronger.
The meeting had its intended effect. It introduced Goizueta and showed him fully in charge. Charlie Millard, the longtime New York bottler who had just sold part of his business to Goizueta, wrote a letter praising the meeting. "The bottler meeting was a most auspicious start to your presidency," Millard wrote. "You would have been proud-to hear Don and Brian position the company under your leadership. . . . The meeting and dinner with you was an outstanding ending to a memorable day." Politically, Goizueta's tactic had worked. By having Keough and Dyson present his bottlers' strategy, he had presented himself to the group as their clear boss, taking the teeth out of any potential Keough rivalry.
To add a personal touch to the relationship, Goizueta sent porcelain boxes from Tiffany's to the wives of the bottler attendees at the all-male meeting. In a note to Woodruff, he boasted about the meeting's success, dropped the names of some of Woodruff's longtime bottler friends who had attended, and explained his decision to send the porcelain gifts. "It never does any harm to get on the good side of the wives of our main bottlers," Goizueta wrote, adding a sexist twist to one of Woodruff's most frequent bromides about the need to maintain strong ties to bottlers.
Woodruff again had become Goizueta's favorite pen pal. In one note to Woodruff, he attached a copy of an industry trade publication that spoke favorably of Goizueta's financial acumen. "They now have me pegged as a 'very, very strong financial manager,'" he boasted. Goizueta failed to mention to Woodruff that the Leisure Beverage Insider story he stapled to his note included a current assessment of Coke's ongoing executive-office shuffle. It predicted that Keough ultimately would end up in Coke's top spot: "Maybe now, say Big Coke observers, it is more likely than ever before."
WHILE GOIZUETA PLAYED THE INSIDE GAME, HIS FRIENDS AT TRUST CO. used high-level boardroom politics to warn Woodruff not to meddle with Coke's destiny. In the ether of Atlanta's top companies in the early 1980s, two boardrooms stood as first among equals: those of The Coca-Cola Company and Trust Co. of Georgia, home to Coke's secret formula and bastion of old-money Atlanta. To hold a seat on both boards was the ultimate in corporate cachet. At the time Goizueta was named Coke's president, Austin was the only Coke executive among the nine Coke board members who also served on Trust Co.'s fifteen-person board. Two of Goizueta's biggest supporters outside the company, Trust Co.'s Jimmy Williams and his fellow bank board member John Sibley, lobbied to get Goizueta onto the Trust Co. board. Woodruff heard the news just a few days before Goizueta hosted the bottlers' meeting and recognized it as a strong statement by Williams and Sibley that it was time to conclude Coke's long-running succession drama.
Woodruff was boxed in. In just more than a month's time, Goizueta had laid down a marker with his expansive strategic comments to the press, raising the level of the company's potential embarrassment if Goizueta did not end up with the top job. He had headed off the incipient bottler uprising with the Atlanta meeting, and knocked Keough out of contention in the process. And Goizueta had secured a signal of support from one of Atlanta's most important companies-the sort of testimony that resonated with the tradition-bound Woodruff.
Then on July 19, in a fortuitous if sad occurrence, Luke Smith died of a heart attack. Woodruff already was backing away from his temptation to scramble the succession picture again, but Smith's death settled the matter. His first choice for the chairman's job was gone. As had happened with Shillinglaw six years earlier, a black flag once again waved Goizueta forward at a crucial point in his career. On August 6, the white smoke puffed above Coke's North Avenue tower. The Coca-Cola board had at last elected Roberto C. Goizueta chairman and chief executive officer, effective March 1, 1981.
At once, Don Keough became one of the hottest names in corporate America. Headhunters and colleagues from around the country called to inform him of opportunities to take charge at companies across the country. Keough again talked with Goizueta, who reconfirmed his intention to keep Keough as his number two man and treat him as a partner. As evidence of good faith, Goizueta even promised to keep his hands off Coke's marketing-one of the company's core strategic assets, and one that was at once both Goizueta's most glaring weakness and Keough's biggest strength.
Keough was a born salesman. The son of a Sioux City, Iowa, cattleman, his Irish-American mother sent him to Catholic schools and instilled in him the importance of a good education. After a brief stint in a Navy medical unit, he attended Creighton University, where he was an award-winning debater, studied marketing, and met his wife Marilyn (Mickie) Mulhall. While working at Omaha's start-up television station, WOW-TV, Keough befriended the young Johnny Carson and met another on-the-rise Omaha boy, an investment broker named Warren Buffett. The unassuming Omaha investor was just converting a company called Berkshire Hathaway into a sort of closed-end investment fund, and invited Keough to invest. "Don, you've got a wonderful group of children. Have you given any thought to how you're going to get the kids through college?" Buffett asked. Keough decided not to invest with Buffett.
Attracted to the business side of television, Keough migrated toward the advertising department, and soon left WOW-TV to take an advertising job at Paxton and Gallagher, maker of Butter-Nut Coffee. He came to Coke through a succession of acquisitions: the Swanson family bought Paxton and Gallagher and sold the renamed Swanson Foods to Duncan Coffee Company, which in turn was purchased by The Coca-Cola Company. Keough worked eleven years for Coke's foods unit in Houston, and his reputation as a winning salesman and demanding manager won him a posting to Atlanta as executive vice president of Coke-USA in 1973. Austin named him president of the division a year later. By 1978, Keough had marched his way into the Seven Dwarfs' contest.
But it was the middle of 1980 now, and Coke's succession showdown was done. Keough had lost. He would not become Coca-Cola's chairman or chief executive officer. He consulted with his wife Mickie and with a few bottlers and other close allies in the Coke system. Then, in an emotional off-the-cuff talk to a group of Coke's top twenty-five bottlers, called the President's Council, Keough spoke about the anguish of coming so close to Coke's top job, then seeing it grabbed away. "At times it's been difficult for me," Keough said. "The phone has been ringing off the hook with these search people asking me if I am interested in a new job," Keough told the group of bottlers, who sucked the air from the room in a collective deep breath. "The answer to them has been, "No." I can't think of a job I'd rather have than the one I have now at The Coca-Cola Company."
The bottlers greeted the news for a moment with a hush, then loud applause. Keough launched into a brief ode to the Coca-Cola family, the power of the trademark, and the importance of Coke's bottlers. The bottlers had come to expect that from Keough, but they had not expected to hear him be so frank about his sense of loss from placing second in one of the most brutal and public executive horse races in American corporate history. "It was the damnedest letting hair down that I've ever heard from a man," remarked Crawford Johnson III, one of the bottlers present.
FOR GOIZUETA, THE SAME OLD QUESTIONS ABOUT HIS PREPAREDNESS for Coke's top slot cropped up again. This time he had less patience with the line of inquiry. "It is the curse of the engineer that the fellow who drives the locomotive and the fellow who designs it are both called engineers," Goizueta declared.
Now it was time to start acting like the chairman of the board of The Coca-Cola Company. It was time for Goizueta to truly put his mark on the company, setting his own agenda, and steering his company on the course he chose. From the start, it was clear he could do so without interference from his predecessor. Austin, already hobbled by the stillundiagnosed Alzheimer's disease that many of his colleagues had attributed to heavy drinking, announced he would quit Coke's board after his March 1 retirement. For Goizueta, that meant he would not have to worry about the problem of second-guessing by Austin.
He still had to reckon with Woodruff, however. On a personal level, Goizueta sought Woodruff's counsel, just as he had once conferred with his grandfather and still routinely sought his father's opinion on major decisions. Goizueta's attachment to Woodruff grew out of the traditional Basque respect for elders. But it also arose from his feeling of obligation to the man who had selected him, as far back as 1974, as a young man of promise. There was little left to gain from Woodruff other than continuing good will, but Goizueta sent him thoughtful notes when he traveled, remembered his birthdays and employment anniversaries, and visited the Tuxedo Road mansion often when the old man was in town.
Whatever his feelings of loyalty and respect toward Woodruff, Goizueta was not about to let him interfere with his agenda for rejuvenating The Coca-Cola Company. He wanted Woodruff's approval, and recognized the power that backing from The Boss still held among the more senior members of the board of directors. But Goizueta also wanted to make certain that Woodruff could never block his program as he had done to Austin.
AT HIS FIRST BOARD MEETING AS CHAIRMAN-ELECT, IN EARLY SEPTEMBER, Goizueta made a number of moves designed to expand his authority on the board and eliminate other threats to his power. The Coke board reflected the cronyism and almost Victorian sensibilities of the Woodruff era and was a far cry from the modern notions of corporate governance Goizueta had devoted himself to since his days working on special assignment for Paul Austin. As with everything else he did at Coke, Goizueta wanted to make the company's board a thoroughly modern, competitive, and dynamic appendage capable of helping him exercise his will over the company and its prospects for success. This would mean replacing personnel, revamping bylaws, and, significantly, modernizing the way Coke's board handled the company's money.
Goizueta moved early to chop out the dead wood, imposing a series of bylaw changes prohibiting renomination of board members after their seventy-first birthday, an edict designed to flush Woodruff and his cronies off the board at the end of the three-year terms Goizueta instituted in place of open-ended service. Besides bringing new blood onto the board, the moves would prevent Coke's having a board perhaps too old and out of touch with the business to properly understand the complexities of the modern-day Coca-Cola Company. Less noticed at the time was a provision Goizueta inserted into the bylaw changes that prohibited the president and chief executive of the company from sitting on the board of directors after their retirement, regardless of the circumstances. For Austin, that would have eliminated the uncomfortable situation of having Luke Smith remain on the board even after Austin had fired him. For Goizueta, it meant that Keough, or whomever else filled the presidential slot, would never be a threat to his authority by staying on the board if he retired ahead of Goizueta, as he was expected to.
Rejuvenating the board's composition would pay off in the long term. But Goizueta also needed immediate and dramatic change. If Woodruff and everyone else on the board did not understand already that Goizueta was fully in charge, nothing would demonstrate it to them more clearly than seizing control of Coke's purse strings. That meant snatching the purse power from the finance committee, the vehicle Woodruff had used as a nettle, a governor, or a bludgeon, depending on the circumstances, throughout Austin's reign. Goizueta wanted control of Coke's capital. He needed to reduce the finance committee's role as a roadblock to progress. He could not abide the committee's blocking efforts to add debt to Coke's balance sheet. And he did not want it to block a plan he was developing to reduce Coke's imprudently high dividend payments to shareholders.
Again, Coke's new boss wasted no time. Without warning Woodruff in advance, Goizueta, at his first board meeting as chairman-elect, proposed adding to the board's finance committee the company's two top executive officers-himself and Austin (at least until Keough moved in after Austin's retirement). Woodruff missed the September board meeting, and he howled when he heard ten days later that Goizueta had outflanked him. "Not until today did Mr. Woodruff learn about the action taken," Woodruff's assistant Joseph W. Jones wrote to Garth Hamby, corporate secretary. "This is contrary to his concept of the function of the finance committee." But it was too late. The rules were changed for good, and by the spring of 1981, Woodruff would drop off the finance committee.
Just because the old man suddenly had lost the trappings of power did not mean Goizueta considered Woodruff powerless. On this point, even Goizueta's wife reminded him that Woodruff had demonstrated time and again an ability to rise up after hearing one would-be successor or another read his last rites. Olguita did not want to see Roberto mistakenly underestimate The Boss. Without the finance committee at his disposal, Woodruff lacked an obvious platform for a comeback, and he seemed physically incapable of mounting a challenge. But with his coterie still dominating the board and his track record of resiliency, Woodruff did not need structure to exercise power. He remained a potentially destructive force if not handled right.
Goizueta decided he would still seek Woodruff's counsel on big issues and would try to persuade him to endorse his major moves whenever possible. And he chose an eye popper for his first challenge. To execute his program of resuscitating Coke's weaker bottlers, Goizueta discovered he would need $200 million just for starters. The borrowing came on the heels of Austin's $100 million bond issue. And it countermanded Goizueta's own declaration that Coke would not need to go to the credit markets any time soon, so it was a risky move not just regarding Woodruff, but for Wall Street's purposes, too.
The Wall Street analysts could be brought into line. In Austin's last few years, as Coke's results declined, CFO Fil Eisenberg had virtually cut off communication with Wall Street. But Goizueta had reversed Austin's standoffish policy and embraced analysts, inviting them down to Atlanta, and meeting with them in small groups or individually in New York. Bringing Woodruff into the age of modern corporate finance would be another matter, but Goizueta already knew the drill well. As he would do as long as The Boss was engaged with the business, Goizueta began carefully and deliberately selling Woodruff on the notion of increasing Coke's debt during his frequent Tuxedo Road visits.
It helped that Goizueta had a specific need for the money. Already in the midst of being engaged in transactions to strengthen Coke's Detroit and Baltimore bottlers, Goizueta learned that The Coca-Cola Bottling Company of New York was again in play, with an asking price that topped $200 million. Trade rumors had it that Procter & Gamble wanted the bottler, to help lead its aggressive push into the soft-drink business following its mid-1980 acquisition of Crush International. Or perhaps Seven-Up, rumored to be considering a cola entry, might make an offer. Goizueta worried most about another, more likely scenario. A financial buyer could acquire the New York bottler and milk it dry, killing Coke's prospects in the vital New York market. "We can't let that happen," he told Keough.
Goizueta wanted to buy the New York bottler, and then, as quickly as possible, flip the company to a buyout group composed of friendly investors and Coke-New York's current management. But the deal would not fly with Coke's board unless Woodruff agreed to back any borrowing that might be necessary. For Goizueta, that meant approaching Woodruff about borrowing money for the second time in less than a year. He did his best to make Woodruff believe that the strategy was merely a modern adaptation of a Woodruff tactic from long ago. "Mr. Woodruff, you invented debt," he told the old man during a lengthy Tuxedo Road conversation, reminding Woodruff of a recapitalization move back when he ran the company. "Remember, you invented preferred stock. You called it Class A, but it was preferred stock." If Woodruff had used a form of debt known as preferred stock, Goizueta argued, there was no reason to withhold approval from a different, and cheaper, debt, thanks to Coke's triple-A credit rating. Woodruff ultimately backed the borrowing. In November, Goizueta inked the Coke-New York purchase for $215.8 million, his first major capital outlay.
THE FLURRY OF ACTIVITY WITH BOTTLER BUYOUTS AND BOARDROOM maneuvering did not mean Goizueta was ignoring the nuts and bolts of the company. As soon as he became president, Goizueta began a detailed study of every aspect of Coke's business. Although proud of and confident in his abilities, Goizueta had enough self-confidence to admit his limitations. He even exposed his lack of knowledge to subordinates by asking dozens of questions ranging from simple queries about market size to complex calculations of rates of return and the present value of invested capital.
During the summer and early fall of 1980, Goizueta roamed Coke's North Avenue tower peppering executives with questions. Goizueta was not a marketing man, and he spared Keough a detailed grilling about the state of Coke's marketing initiatives. But everyone else was fair game. Goizueta felt he knew Latin America well and was inclined to trust his instincts in that region. But he needed to learn about Europe, Africa, and the Far East and leaned heavily on the regional presidents of those regions.
He placed special emphasis on learning Coke's financial intricacies. Given his lack of sophistication with corporate finance, Goizueta was blessed that Austin and Woodruff had left him a fairly uncomplicated balance sheet-with only $31 million in long-term debt at the end of 1979, before the $100 million bond issue needed to fund the construction of Coke's tower. But Goizueta knew Coke's numbers well enough to recognize that he needed to unlock the power of Coke's assets by leveraging the balance sheet. In the merger-crazed early 1980s, it was not beyond reason that Coke's unleveraged financial status might attract a hostile takeover effort. The large blocks of stock in friendly hands at Trust Co. and Emory University would make a hostile bid an extreme longshot, but in the day of the junk bond, it seemed nothing was impossible.
As he began building his financial plan, Goizueta engaged in an unusual dialectic with Sam Ayoub, the number two officer in the finance department. An Egyptian-born former currency trader, who had helped emperor Heile Selasi launch Ethiopian Airlines, Ayoub was confident, opinionated, and more than competent. John Collings, the chief financial officer, was not a natural tutor. As one of Goizueta's key executives during the transition, he was absorbed with other matters. Instead, Goizueta ate up Ayoub's time peppering him with questions about currency conversions, debt coupons, country-bycountry profit forecasts, and even more basic matters. "He'd start asking questions and more questions, sometimes fifteen or twenty times a day," Ayoub recalled.
At one point, Ayoub grew impatient with Goizueta and argued loudly with him about a financial idea Goizueta was mulling. Goizueta excused himself from Ayoub's office and returned to his own. A few minutes later, he summoned Ayoub. "I don't want you to be a yes man," Goizueta began. "I don't object that you fight with me. I don't object that you shout at me, but always with the door closed. You and me alone."
Ayoub got off easily. In his case, at least, Goizueta was benign and collegial in manner and seemed to have no particular agenda at work, other than making certain he understood Coke's finances before he began turning them inside out. But as he poked around Coke's executive offices, turning over whatever rocks caught his eye, Goizueta began zeroing in on the areas where he saw weaknesses, especially the non-soft-drink businesses and certain regions of the globe where Coke was underachieving.
IT WAS ALL A BUILDUP TO THE BATTERY OF POINTED, PROVOCATIVE, and sometimes even malicious questions that rained down on Coke's top worldwide executives during a reign of interlocutory terror that became known as "The Spanish Inquisition." To those who had only heard about, but not yet witnessed, the impatient and sometimes even abusive side of Goizueta, the experience was shocking. It was not easy on anyone involved. But to some who endured the trial, it also was the first concrete sign that Coke's new chief was planning to put a strong personal stamp on affairs at his company. Financial results would count above all else. And people would be held responsible, for good or ill, for whatever happened on their watch.
The Spanish Inquisition started innocently enough. Under Austin, Coke executives from around the world were accustomed to flying into Atlanta each fall for a two-week business review and planning session. There, they discussed their five-year plans, and were handed a list of objectives that corporate managers had drawn up as their next year's budget. In the midst of Austin's global expansion program, much of the time was spent discussing opportunities to open new markets on different continents worldwide. The budget meetings were full of cheerleading sessions, wish lists and hopeful promises, but there was little hard-nosed planning and almost no accountability.
Goizueta would have none of it. Five-year plans, he felt, were a waste of time. No one could predict with any accuracy what the world would look like in five years. He wanted three-year plans, and he told the executives he would hold them accountable for meeting their three-year targets. He demanded that executives file their plans well in advance of the sessions, so he, Keough and Collings could dissect them and look for any weaknesses. Instead of waiting passively for headquarters to dictate the year's goals, each division chief now had to present a brief of his plans, and be ready to defend it. "I want you to tell me what you need to do to expand your business, what kind of capital you need to do it, and what kind of net return you're going to get," Goizueta demanded of the division heads. Turning to Keough and Collings, he reminded them that the new Coke triumvirate had their own job: to do their homework, and challenge every assumption. At the end of the day, the data would determine the few budgets that Goizueta approved, or the majority that needed a rewrite. "Facts are facts," he wrote, again and again, at the top of the budget plans, sending most of Coca-Cola's seventeen division executives back to work revising their plans.
For just about everyone involved in the budgeting process, the change from the Austin days was shockingly abrupt, and even painful. Goizueta wanted it that way. The hidden agenda, he told Keough, was to see how his executive team performed under pressure. He wanted budget season to be an adversarial process. "You saw what kind of intestinal courage they had. You saw whether they were technical or strategic, and who were the kind of people you wanted to move to better positions," Keough recalled.
As one shaken manager left the room after one session, Goizueta turned to Keough and remarked that budgeting was no longer a perfunctory exercise. "People have got to believe they are living or dying by these numbers," he said.
"Yes," Keough agreed, "We've got some toilet training to do."
IN SOME WAYS, THE INQUISITION WAS AS DIFFICULT ON GOIZUETA as it was on his underlings. As he pierced and probed, he found that the financial affairs at Coca-Cola in many ways were even weaker than he had feared. For years, no one had really focused on the cost of capital or the economic return on Coke's investments. Because Woodruff would not let Austin borrow money, Austin had responded by fueling his acquisition binge with Coca-Cola stock. But that capital actually cost more, about 16 percent per year, than even shortterm bank borrowings would have cost Coke in late 1980. All the businesses except soft drinks-the wineries, the water purification, the plastics, even the foods-were generating less than 10 percent. "We're liquidating our business, borrowing money at 16 [percent] and investing it at 8 [percent]. You can't do that forever," Goizueta exclaimed.
The horrors Goizueta discovered during the Spanish Inquisition were not limited to Coke's financial mismanagement. Strategically, the company was adrift as well. As he broke down Coke's business into its widespread component parts, Goizueta found there was no coordination, no central planning, no strategic thinking to the company's global ambitions. Decisions under Austin, he believed, were made on a purely situational basis, with no central direction or judgment parameters from headquarters. In Europe alone, Coke was pursuing three totally separate strategies in different countries, pushing packaging innovations in Belgium, line extensions of Sprite and Fanta in Germany, and bottling investment in Spain. There was no cohesion, no effort to take advantage of Coke's huge potential economies of scale. "This company has no sense of direction whatsoever," Goizueta declared at one point. "None."
Goizueta decided that he needed a model by which he and his managers could assess the business. Logical and methodical as ever, he created a matrix that broke down The Coca-Cola Company into component parts. He wrote the company's operations across the top of a sheet of paper: Concentrate, Bottling, Wine, Foods, AquaChem, Plastics. Some of Austin's diversions, like shrimp farming in South America, were such obvious losers that their fundamentals were not worth examining. On the vertical axis, Goizueta listed what he considered the vital financial characteristics of any business: Margins, Rate of Return, Cash-Flow Reliability, and Capital Requirements.
On that basis, Coke's concentrate business-the one on which Woodruff had built his company-proved a big winner. Bottling, a little less so, but still a solid enterprise. Coke's foods business was next down the line, because it ate up huge doses of capital and was vulnerable to weather. The wine, water, and plastics divisions were longshots at best. Goizueta was not comfortable with wine, which required huge inventory costs because the product was not available until years after it was bottled. The capital required for building AquaChem's huge boilers was too much, and the political purpose served by giving Coke a way to offer water-purification technology to host countries, especially the Arab League nations boycotting Coke because it did business in Israel, was not enough to save the business. Plastics just did not fit into Coke's mix.
At the start of the Spanish Inquisition, Goizueta was shocked to learn how little Coke's managers knew about the financial end of the business-ironically enough, a criticism that could have been levied against him just a few months earlier. "None of our operating executives can read a balance sheet," he grumbled. By the time it was finished, he had taken them to school and prepared them for one of the most far-reaching and important strategic imperatives of his tenure. From that point on, Goizueta warned at one of the closing budget sessions, the corporation would charge its operating units a set percentage for the capital they used. Performance, he declared, would be judged on the basis of "economic profit," the unit's operating profit after a deduction for the cost of capital. He had not put a name to it yet, but Goizueta would later refine this notion into a concept that became a trademark of his management approach: economic value added, he called it. Strategic planning would be taken seriously, Goizueta said, and objectives would be met. "Don't even come to us with a project that doesn't yield more money than the cost of money," Goizueta warned, flanked by Keough and chief financial officer John Collings. "You'll get no hearing, much less a 'No.'"
WHEN THE EXECUTIVES LIMPED AWAY FROM THE SPANISH INQUISITION and returned to their posts in Atlanta and around the world, the effect was both immediate and long term. In operating units from Los Angeles to Kuala Lumpur, Coke managers reorganized the way they ran their businesses. They stopped keeping excess inventory of syrup on hand, just in case of an emergency. They quickly switched from stainless steel syrup containers to plastic and cardboard, saving Coke a great deal of money in one blow. They drew up detailed economic models before launching plans for plant expansions or other major investments. "When you start charging people for their cost of capital, all sorts of things happen," a satisfied Goizueta declared.
The change of approach was desperately needed. Profits, which had grown 13 percent a year in the late 1970s had stopped short, and forecasts showed they would be flat-zero gain-for all of 1980. The stock market certainly was aware of the troubles. Coke's shares had fallen 50 percent since their high in the mid-1970s. Performance in the consumer marketplace was not much better. In September, Goizueta had penned a note to Woodruff boasting, "Some very good news!" Coke's market share in the United States was growing faster than Pepsi's. But Goizueta could not bring himself to mention to Woodruff that Pepsi-Cola still topped Coca-Cola in the key category of supermarket sales-another unfortunate legacy of the Austin regime.
To have a lasting impact on the numbers and Coke's corporate culture, Goizueta realized, he needed to completely overhaul the way Coca-Cola did business from the top down. It would take a long and difficult battle to mold Coke into a world-class company at every level of operation in every market around the globe. But his job, as he saw it, was to shrink the time line, to jolt Coke into the future abruptly, to shake up the managers and make them understand. It was time for these people to get on board or get out.
Goizueta hired consulting firms, picked the brains of Collings and Keough at Coke, and conferred with Jimmy Williams and a few other close associates as he tried to devise a plan for jerking his company into overdrive. He did due-diligence work, to see if action in the field confirmed what he was hearing at headquarters. In January of 1981, Goizueta and Williams took a two-week tour of Coke's South American operations, visiting six of the major markets but skipping Venezuela, the only country on the continent where Pepsi held a lead over Coke. The South American jaunt established a precedent for Goizueta of routinely bringing a board member with him when he took lengthy foreign business trips. Goizueta chose Williams for his first major trip, in part because of their close relationship and because he believed Williams could help him to focus on setting an agenda for his reign at Coke.
There were serious security concerns on the South American jaunt. Coke was under fire in Guatemala, where unions blamed the local Coca-Cola bottler when a union official had his throat cut while unloading cases of Coke from a truck. Pro-communist organizations had spread anti-Coke propaganda throughout the region. Recognizing that they might be targets of a terrorist attack, Goizueta and Williams traveled under assumed names and removed the Coca-Cola tags from their luggage. But the ruse did not work. Coke's new top man and the redhaired, blue-eyed Williams could not travel through South America incognito. While checking out of a hotel in Bogota, Columbia, a clerk handing receipts to the two men forgot to play along with the false names and said with a broad smile, "Thank you, Mr. Goizueta." Williams and Goizueta eyed each other, and burst out laughing at the ineptitude of their cloak-and-dagger work.
EVEN BEFORE HE LEFT ON THE SOUTH AMERICAN TRIP, GOIZUETA had decided to take dramatic measures that would make everyone on his senior staff realize they were operating in a new world at The Coca-Cola Company. The Spanish Inquisition had set the right tone, creating a healthy fear and an understanding of the need for change. But without an overarching vision, the revamping would not mean anything. The next step was to establish a vision for the company-guiding principles that would carry Coca-Cola through the decade of the 1980s, and a blueprint for how to implement those principles in Coke's day-to-day operations.
Two measures would set the process in place. First, Goizueta began the task of creating a mission statement for the company. When that was done, he would gather his top management from around the world and make them sign on, face to face, to his program. Booklets of platitudes had a habit of finding their way to bookshelves in managers' offices and staying there, ignored and useless. The follow-up conference would stop that from happening. It would give Goizueta a chance personally to lay down his vision, and the law.
Goizueta wanted the mission statement to combine an overarching vision of The Coca-Cola Company's mission for the next decade with a set of specific strategic steps. Objectives were useless, he knew, without a means to get there. And in setting the objectives, he continued the same Socratic method of information gathering that began with questions to Sam Ayoub about finances, continued in force with the Spanish Inquisition, and now would come to a climax as he synthesized his vision for the challenge ahead.
He approached anyone he could find who might share knowledge and experience with him. On the trip to South America, he peppered Jimmy Williams with ideas. He constantly floated draft statements to Keough, Collings, and others among his closest associates. His colleagues marveled at his seriousness and diligence for what they at first assumed was going to be a fairly perfunctory exercise. "I wondered how important it was, whether it was worth all the effort," Keough said. "But as I began to recognize how important it was to him, I realized he was up to something big."
In some instances, Goizueta's questions betrayed a surprising lack of sophistication about Coke's operations, and especially about nuances of corporate finance, such as the use of debt as a financing tool. Sometimes, his prose was all but unreadable. "I wouldn't have known how to write a chemical engineering report, and he didn't know how to write a financial report," recalled one of the executives who saw an early draft of the mission statement. Occasionally, people who read his rough drafts wondered if the chemical engineer was not just slightly over his head writing a creed in his second language, covering sophisticated issues that were fairly new to him, and boiling down a strategic vision into a few typewritten pages.
One of Goizueta's most important exercises as he completed the mission statement and prepared for the management conference that would follow was a dialectic he conducted with management consultant Michael Kami. A Brazilian native and former IBM corporate planner, Kami was an expert in organizational change. By the time he turned to Kami at the beginning of 1981, Goizueta was beyond looking for bluesky ideas. He had formed his opinions and was on the verge of implementation. He wanted to use Kami to put his ideas to a test, much as he had challenged his managers during the Spanish Inquisition.
In the years he had spent preparing for this moment, as far back as his special assignment days with Chap Tyler, Goizueta had established a set of beliefs about the chief executive's role at a major company. His job, he decided, could be broken down into three major parts. He alone, and no one else, was responsible for "the leadership role" at the company. Only he was responsible for Coca-Cola's financial security. And only he could decide what jobs to delegate and to whom they should be delegated. "In a perfect world, every decision would fall into one of those categories," Goizueta told Kami.
The consultant was impressed. Most new chief executives have strong opinions, but never had he seen one start out with such a theoretical underpinning to his ideas for running the company. "He thought things through completely in his own mind," Kami said. As the roving discussion with Kami led to specifics over the next several weeks, Goizueta laid down several important points. As much as possible, he wanted to stick with Coke's current management. A housecleaning in the executive ranks would only exacerbate the palace intrigue that had gripped Coke in the past two years, and would not solve the problem of a lack of direction from the top. He would focus on global opportunities. "A lot of markets will be opened, and The Coca-Cola Company must be there, ready to move," Goizueta told Kami.
The new Coke chief seemed proud that the management team he was building represented both an ethnic and a generational change from the past. Besides himself, Goizueta was actively promoting his reliance on Egyptian financier Ayoub, the Argentine-born Brian Dyson at Coke-USA, a Mexican marketing whiz named Sergio Zyman, and now the Brazilian Kami. A polyglot sensibility was sweeping into the executive suite of the company once so dominated by old-line Georgia families. "We're a kind of United Nations," he said.
This was a time before people started calling themselves "agents of change." But that's precisely how Goizueta saw himself. "Whatever was done before is not necessarily the right policy. We want to challenge the policy, present alternatives, and do it," Goizueta said. He was serious about delegating decisions to the field, within the parameters of the strategic objectives set at the annual planning sessions. The old "centralized decentralization" concept, which he first employed while redesigning the engineering department in 1965, was making a comeback.
"That won't always come true, but at least it's a nice objective at the outset," Kami replied. The secret, Kami noted, would be to empower people to feel comfortable taking risks. Without a willingness to accept calculated risk, delegation would only lead to a stalemate. Goizueta liked the thought, and asked Kami to speak at the management conference about the power of risk taking as a competitive force.
THE WORK ON THE STRATEGY STATEMENT WAS COMPLETE. But before Goizueta could present it at the board's March 4 meeting-his first as Coke's new chairman and chief executive-he happily undertook a rite of passage. At long last, nearly a decade after he became a satellite circling closely around Woodruff, Goizueta finally received an invitation to join The Boss at Ichauway for the last week in February. His mates for the visit were Jimmy Williams and Joe Jones, two of his biggest backers from early on, and Charles Duncan, who was returning to the Coca-Cola board.
If Woodruff had not invited Goizueta earlier because he suspected that the Cuban aristocrat was not a sporting man like Keough, Wilson, and others who had paid visits to Ichauway before him, his instinct proved true. Goizueta appeared at the plantation dressed incongruously, with a yellow ascot around his neck but a brown flannel shirt on his back. He stood in sharp contrast to the suede-elbowed hunting garb that others in the party wore at Ichauway. Goizueta had never shot skeet, much less birds, so he spent his first afternoon shooting at Coke cans lined up on fence posts by Ichuaway's army of African-American caretakers. Williams was encouraged by Goizueta's quick study of the sport. At night in the Ichauway gun room the hunting party drank and talked shop.
At the March 4 board meeting, Goizueta presented a report on Coke's market performance, the financial figures, and the stock price. He related reports from the management consultants he had hired to help him lay out a strategic plan for the company. One of the firms, Arthur D. Little, had recommended that Coke consider a move into either entertainment or pharmaceuticals. A move into either sector would be a dramatic cultural break away from Coke's roots in soft drinks and foods, but it would boost domestic revenues and help Goizueta get to his targeted 50/50 split between domestic and international. A major diversification move would be dramatic, but to Goizueta, the most important point on the agenda was the unveiling of the mission statement for the company. Printed on brown heavyweight paper, it was titled, simply, "Strategy for the 1980s. The Coca-Cola Company."
If the directors or anyone else at Coke took the statement lightly, they made a big mistake-and they did not understand Goizueta. For Coke's new chief, a statement of principles and objectives was a serious undertaking, a compact with the future that he intended to keep. It outlined Goizueta's view of the business, broken down into seven major parts, and hinted at strategic changes he was ready to undertake.
"Our Challenge," the statement opened, will be to enhance and protect the Coca-Cola trademark, giving shareholders an above-average return and entering new businesses only if they can perform at a rate substantially above inflation. "Our Business," he wrote, will continue to concentrate in soft drinks, emphasize leadership in other segments, and most likely expand into "industries in which we are not today." Only market segments with inherent real growth would be attractive. "Our Consumers" will include bottlers and end users worldwide. "Our Shareholders" will want protection and enhancement of their investment. "Our 'Bottom Line'" will focus on reaching goals, effecting real profit growth, and reducing the percent of earnings paid out as stock dividends, leaving more capital to reinvest in the business. "Increasing annual earnings per share and effecting increased return on equity are still the name of the game," he wrote in the statement's seminal sentence.
The final two sections focused on the role that individuals would play in implementing the strategy. "Our People" will have the characteristics of "courage and commitment," and "integrity and fairness," and be focused on the spirit of entrepreneurship. The statement concluded with a broad-based section about "Our Wisdom," an exhortation of guiding principles, a code of conduct that Goizueta believed would make Coke a leading company as it entered the final decade of the twentieth century. As they worked their way into the 1990s, Goizueta wrote, Coke's employees must consider "the long-term consequences of current actions," sacrifice short-term gains when necessary, adapt to changes in consumer tastes and needs, and become a welcome part of every country in which Coke does business. Finally, every Coke employee must exhibit "the capacity to control what is controllable and the wisdom not to bother [with] what is not."
No one on the board mistook the almost ethereal tone of the Strategy Statement as an indication that Goizueta was going to be the kind of big-think CEO who is perhaps more enamored of elaborate management theories than fighting in the marketplace. The Spanish Inquisition had proved Goizueta was prepared to launch the kind of guerrilla warfare needed to take Pepsi by the throat, regain leadership in all market segments, and squeeze the potential out of the farthest reaches of Coke's vast system. Goizueta, the board was learning, was a unique mix of high-minded corporate philosopher and dirt-underthe-fingernails street fighter.
He proved it, once and for all, at a Palm Springs conference of Coke's top managers in April of 1981, less than a month after officially assuming the chairmanship. It is customary at big companies for new executive teams to invite their elite managers for a retreat, to put their stamp on the new era. It is not, however, typical to open the session with a harsh kick in the ass strong enough to shake up even the old-timers waiting to collect their gold watches. But after the Spanish Inquisition, Coke's management corps knew not to expect the predictable from Goizueta. Even so, no one could have anticipated the fusillade that launched the Goizueta era at Coke.
"There are no sacred cows" was the most memorable phrase Goizueta uttered during the five-day conference, but it was hardly the only headline. In his opening remarks, Goizueta announced that a period of rapid change was about to take place at The Coca-Cola Company, and the forty executives in attendance had better be ready. "Those who don't adapt will be left behind or out-no matter what level they are," he warned. As an aide passed out copies of "Strategy for the 1980s," Goizueta warned everyone not to mistake it for a list of platitudes. "Don't take it lightly," he said.
Goizueta paid particular attention to the literal meaning of words, a habit he had adopted as far back as Cheshire Academy, while perfecting English by studying his dictionary and the movies. "I happen not to like the term 'strategic planning,' because it can lead to misinterpretations. To my mind, corporate strategy deals with what we want to be as a company, and planning, and specifically long-range planning, deals with how we become what we want to be," he stated. In case anyone suspected a distinction without a difference, the new chief underscored the point. "This may seem like an exercise in semantic hairsplitting," he said, as if reading the minds of many in attendance, "but it is in fact critical to our collective understanding of our ground rules or operating philosophy for the future." As the Spanish Inquisition had so vividly proven, plans would have dollars-andcents meaning at Roberto Goizueto's Coca-Cola.
With the audience's attention firmly in his grasp, Goizueta laid waste to Coke's self-image as he listed and then slayed the company's "sacred cows." If Coke's executives wanted to see world-class marketing, they should look at Procter & Gamble, not Coca-Cola, he said. The distribution system needed a facelift. People needed to take bold risks to survive. Concocting soda-pop formulas and processing orange juice did not amount to world-class technical strength. And the culture of complacency must change. "The only company that continues to enjoy success is the company that keeps struggling to achieve it," Goizueta said.
To those who were listening with open minds, Goizueta's concluding passage was filled with portent. "Just to give you an example that there are no sacred cows," he began, "let me assure you that such things as the reformulation of any or all of our products will not stand in the way" of seizing a real or perceived market advantage from a competitor. "The days are gone in which an inflexible adherence to a sacred cow will ever give renewed impetus [to] or breathe life into a competitor," Goizueta swore. In other words, the day of New Coke was not far away.
It was the speech of Goizueta's career. Known even within Coke as a halting and uninspiring speaker, Goizueta had galvanized his executives and catalyzed the Palm Springs conference. The "No Sacred Cows" speech breathed energy into a five-day program that covered topics ranging from the mundane "Enhancing Bottler Performance" to the buzzword of the 1980s, "Adopting Entrepreneurship as a Company Lifestyle." The daylong sessions concluded after dinner, followed by drinks with Keough at the resort bar. Goizueta used the five days to visit, one by one, with every one of his top managers. "Now we've got a compact," he would say, after they told him they agreed with his plans.
The consultants had their say, too. Michael Kami spoke about the need for speed in decision making and implementation, and created one of the conference's key buzz phrases when he advised executives to ask themselves, "How many times have you been turned down?" Until you've proposed an idea that is rejected, Kami counseled, you have not pushed the limits, and have not created change. Peter Drucker, the famed expert on management theory, delivered a talk about "Leadership and the New Management Breed," but for many in the audience the famed guru was a disappointment. It is not surprising that in 1997, Drucker said he could not recall sharing a single word with Goizueta, and did not remember anything he himself had said at the landmark Palm Springs conference. He served Coke well through the Goizueta era, though, as Don Keough's favorite bigthink consultant.
At the conclusion of the conference, Kami spent a moment watching Goizueta share quiet words with the managers, one by one, as the session broke up. They looked apprehensive, uncertain about the future. Then it was Kami's turn. Goizueta extended his hand, and congratulated the consultant on his preparation and execution at the conference. "Well," Goizueta said, "we're off to a start."
The start of something the likes of which no one had ever seen before, Palm Springs was a great opening act. But impressive as it was, it was only an overture to the series of wrenching changes Roberto Goizueta held in store for the world of Coca-Cola.
Chapter 3 from I'd Like the World To Buy a Coke: The Life and Leadership of Roberto Goizueta by David Greising, BUSINESS WEEK's Atlanta bureau chief. Copyright 1998 by David Greising. Reprinted by permission of the publisher John Wiley & Sons, Inc.
Updated Apr. 2, 1998 by bwwebmaster
Copyright 1998, Bloomberg L.P.