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Commentary: Memo To Coke's New Boss


To: E. Neville Isdell, CEO of Coca-Cola

Re: The challenges ahead

Congratulations on your appointment as chairman and CEO. It's already clear that your reputation as an executive who doesn't dither is well-deserved. Witness the promptness with which you and President Steve J. Heyer decided to part company on June 9. Decisiveness is good, because the problems at Coca-Cola Co. (KO) run deep. It will take plenty of clear thinking and a willingness to make tough choices to straighten out a company where executives, field managers, bottlers, and even the board have sometimes worked at cross purposes. But when you boil it all down, it will take some pretty basic moves to get Coke back on track:

RAISE THE BAR Your appointment was wildly cheered by Coke employees, who admired your accomplishments before your early retirement in 2001 as CEO of a major Coke bottler in Europe. But some former execs tell me the outpouring also reflected relief that the board didn't hire an outsider who might have cracked the whip. One big problem, for example: Coke is full of career employees who have never been held to the demanding performance metrics widely used throughout Corporate America, including at rival PepsiCo Inc. (PEP) There, business-unit managers have always been accountable for their own profit-and-loss statements -- one likely reason Coke has lost share to Pepsi in the U.S. Insider or not, moving quickly to boost accountability will go a long way to waking up Coke's sleepy culture.

LOOK TO THE OUTSIDE During his three years at Coke, Heyer invigorated Coke's insular marketing operations by embracing the Internet and developing edgier ads that appeal to teens. His departure raises the fear that the recent progress may be lost -- especially if key staffers he brought in decide to bolt, too. While it's good that you're moving quickly to build a new team and replenish Coke's depleted management ranks, there's a risk in moving so fast that you don't devote adequate time to searching broadly for innovative talent. Coke needs aggressive new execs who can look at its problems with a fresh eye.

BOLSTER NEW-PRODUCT EFFORTS Coke also trails rivals such as PepsiCo in developing hot new products. Truth is, with the exception of Diet Coke -- really just a line extension -- Coke has not created a leading U.S. brand since Sprite was unveiled in 1960. And in recent years, Coke has remained far too dependent on similar extensions (Vanilla Coke, Diet Coke with Lemon, Diet Coke with Lime: I could go on) that provided only a temporary sales lift. Now, it needs to return to the forefront in pioneering new categories. As consultant Tom Pirko, president of Bevmark LLC, suggests, why not a hybrid drink that combines the best traits of sports drinks with carbonated soda?

SHAKE UP THE BOARD Your biggest job may be demonstrating independence from Coke's meddlesome board. It didn't help when, early on, reports leaked out that director Donald R. Keough had killed an edgy TV ad he found offensive -- the one where a sweaty teen wipes a cold Coke can against his armpit before handing it to a friend. Sure, traditionalists may have questioned the ad's suitability, but you've got to establish who's in charge.

At the same time, you would do well to recruit fresh talent for Coke's star-studded, but aging, board. The average age is 65 -- five years more than the average for companies on the Standard & Poor's 500-stock index -- and contains four members who have served for more than 20 years each. What's more, the board is top-heavy with diplomats and financiers, but short on the kind of marketing expertise that Coke could use. "It's criminal that Coke has not created a more vibrant, energetic, and -- if not youthful -- at least a balanced board," argues Marc D. Lewis, North American president for Morgan Howard Worldwide, a search firm.

Atlanta recruiter Joseph D. Goodwin suggests you return to some of the execs with marketing savvy who spurned Coke's overtures during the recent CEO search -- executives like James M. Kilts of Gillette Co. (G). Invite them to join the board. That may be one quick way to start putting the fizz back in Coke.

By Dean FoustWith Louis Lavelle in New York


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