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Tone Deaf: Ivester Had All Skills Of a CEO but One: Ear for Political Nuance

--Clumsy Handling of One Flap After Another Cost Him Coke Board's
Confidence
--How to Irritate the Europeans
By Wall Street Journal staff reporters Betsy McKay, Nikhil Deogun and Joanne Lublin:
12/17/1999
http://www.wiley.com/college/man/schermerhorn371939/site/reading/coke.htm
ATLANTA -- The job of running a giant company like Coca-Cola Co. is akin to
conducting an orchestra.
But M. Douglas Ivester, it seems, had a tin ear.
Just over two years ago, Mr. Ivester was widely considered the ideal successor to
Roberto Goizueta, the revered and long-serving chairman of Coke. A brilliant and
driven financial strategist, Mr. Ivester worked at Mr. Goizueta's side for more than a
decade and was the architect of much of Coke's success during that time.
Directors marveled at Mr. Ivester's intensity, his attention to even minute details.
Warren Buffett was fond of telling how he had once noticed that his grandson's
favorite pizza parlor in Omaha, Neb., served Pepsi, and how he mentioned this to
Mr. Ivester in passing -- only to find that the next time he stopped in, the place was
serving Coke. Mr. Ivester "looks at anytime anyone swigs any beverage other than a
Coke product as a personal insult," said Mr. Buffett, whose Berkshire Hathaway Inc.
is Coke's biggest shareholder.
After Mr. Goizueta's death in October 1997, Mr. Buffett expressed nothing but
confidence in Mr. Ivester. Mr. Goizueta's "greatest legacy is the way he so carefully
selected and then nurtured the future leadership of his company," Mr. Buffett said.
Other directors evidently felt similarly. A board meeting to pick the new chairman
and chief executive lasted a mere 15 minutes.
No great calamity has befallen the mighty company since then. The company's
earnings have been under pressure during his tenure, but a big reason for that, the
severe Asian economic downturn, was clearly not of the CEO's making. Yet this
month, the 52-year-old Mr. Ivester abruptly announced he will step down in April,
and about all he said by way of explanation was that he had "come to believe our
company will now best be served by fresh leadership that will bring its own energy
to bear." The board quickly promoted Douglas Daft, who ran Coke's Middle and Far
East divisions, to president and chief operating officer and designated him to
succeed Mr. Ivester.
The story of how this happened is one of powerful board members and stockholders
gradually coming to the conclusion that Coca-Cola was headed down the wrong
path under Mr. Ivester. It wasn't the obvious problem of weakening earnings and a

gyrating stock price, though Coke has suffered those woes, but rather something
more elusive: Mr. Ivester's tone deafness in his handling of a series of small crises.
Alone, none was so bad. But taken together, they worried the 12-member board,
some of whose members felt that Mr. Ivester wasn't listening to them. Mr. Ivester's
way of handling controversies made the company he loved seem insensitive and
arrogant. Not only did his personal image suffer, but, more troubling to the board
members, the image of the company suffered.
And important people were watching Mr. Ivester's performance. People like Mr.
Buffett; Herbert A. Allen, a director and head of Allen & Co., a New York investment
bank that is a large Coke shareholder; and Donald Keough, Coke's former No. 2 and
now Allen & Co.'s chairman.
It isn't clear whether an ultimatum was ever given to Mr. Ivester, although several
people close to the company say none was. Instead, they say, the CEO sized up the
situation himself. He "knew he wasn't gaining the confidence of people out there,"
one of these people notes.
One of Mr. Ivester's worst missteps came in October and involved Carl Ware, the
chief of Coke's Africa division and its highest-ranking black executive. Mr. Ivester
decided on a management reorganization that meant Mr. Ware would no longer
report directly to the chief executive -- in effect, a demotion. Such a move would
need to be carefully handled by any CEO, but especially the chief of Coca-Cola; the
company faces an employee lawsuit alleging racial discrimination.
Through the back-and-forth of the well-publicized suit, Mr. Ware had stood at Mr.
Ivester's side, agreeing in May to be co-head of a company-wide diversity
committee. Mr. Ware, former president of Atlanta's city council, is the face of CocaCola to much of the city and was a symbol of how African-Americans could advance
at Atlanta's most famous company. Called one of the "12 most powerful blacks in
corporate America" by Ebony magazine, Mr. Ware was also one of a dozen
executives to join President Clinton on a trip to Africa in 1998. "This is a guy you
light candles around," says a person close to the board.
So how did Mr. Ivester break the news to Mr. Ware? By telephone to the executive,
who was in Europe, say several people. Mr. Ware soon announced his retirement, set
for the end of next year. To board members as well as some current and former
executives, Mr. Ivester's handling of the matter was ham-handed. "Ware was a big
blunder," says a person close to the company.
Had this been the only misstep, Mr. Ivester might have survived. But there had been
other incidents, earlier in his tenure. His persistent attempts, in the face of foreigngovernment opposition, to acquire French soda company Orangina and the overseas
business of Cadbury Schweppes painted a bull's-eye on Coke for overseas
regulators. Coke's handling of a contamination scare in Belgium brought the
company heavy criticism in Europe.

Then, Mr. Ivester discussed in an interview with a Brazilian newsmagazine Coke's


testing of wireless technology that would enable vending machines to change prices
based on the weather. Translation: the hotter the weather, the higher-priced the
Coke. To Mr. Ivester, the accountant, the concept was just the law of supply and
demand in action. To the board, the ensuing flap was Murphy's Law at work.
For a consumer-product company that, in the words of a person close to the board,
"is a giant image machine," the pummeling of Coke's image was increasingly
intolerable.
All along, Mr. Ivester resisted directors' advice to name a No. 2 executive to help
him with day-to-day duties and serve as a sounding board for decisions. And just
last month, he managed to anger Coke bottlers by deciding to raise the price of
soft-drink concentrate next year by twice as much as usual.
Some directors had known all along that Mr. Ivester was a little rough around the
edges, famous for a take-no-prisoners attitude. But they expected him to grow into
the more-statesmanlike role of chairman. As board members of Coke, they were
accustomed to plaudits during the 16-year Goizueta reign. Now, they began to get
questions from ordinary people asking, "What's wrong with Coke?"
"The directors aren't blind," says a person close to the board. They started to think
it was naive to suppose Mr. Ivester would develop, on the job, CEO skills that he
lacked. "It's like telling a person who doesn't have a sense of humor to be funny,"
this person says, adding that the conclusion began to form in some directors' minds
that they had picked "the wrong guy."
There was never any complaint about Mr. Ivester's devotion to Coke. He was a
driven man. The son of a factory foreman from the tiny cotton-mill town of New
Holland, Ga., Mr. Ivester became an accountant and joined Coke in 1979 after a stint
as its outside auditor. Often reporting to his office at seven in the morning and
working seven days a week, he quickly climbed through the ranks.
He impressed both Mr. Goizueta and Mr. Keough with his financial ingenuity and
passion to succeed. After being named chief financial officer in 1985 at the age of
37, he engineered a big consolidation of Coke's bottlers that gave the company
greater control over the bottling system while wiping assets and debt off its balance
sheet.
Told he could either count money or earn it, he then chose the operations side. He
became head of the European business and then ran the flagship U.S. business.
Everything Mr. Ivester did he did by the book, studying management texts and
getting tutoring in skills that he lacked, such as marketing. He kept a folder of
articles on management and leadership, highlighted and marked for follow-up
reading. He kept handy a copy of "Life's Little Instruction Book" (sample advice:
"Keep a tight rein on your temper") and a slim 1923 book called "Matters of
Importance" (which advised, "Be courteous, pleasant and always friendly to people
you come in contact with").

Subordinates got a taste of his attention to detail when he gave all U.S. employees
laminated cards with numbers to call if they ever saw a vending machine out of
stock or anything else askew.
Mr. Ivester's critics and fans always worried that he lacked the engaging manner
and diplomatic skills of the aristocratic Mr. Goizueta. Without a ready wit to soften
his aggressiveness, Mr. Ivester sometimes came off as highhanded or ruthless. In
his first speech to the soft-drink industry after becoming president, he dismayed
some listeners by likening rival firms to parasites or sheep -- and Coke to a wolf. But
for every time Mr. Ivester "drew blood" with his comments or his style, there was
always Mr. Goizueta to "wipe it off," says a high-ranking former executive.
Although Mr. Ivester was Mr. Goizueta's choice as successor by the early 1990s, Mr.
Goizueta's 1994 decision to postpone his retirement beyond age 65 was seen as a
sign that Mr. Ivester needed more grooming.
Then in October 1997, Mr. Goizueta died of lung cancer. Coke was in just about the
best shape in its 113-year history: It commanded a 50% share of the world market
for soft drinks, and the stock was a Wall Street favorite. Mr. Ivester -- seemingly
adept at handling both data and people -- looked like the person to keep this string
going. Fortune magazine dubbed him the "prototype boss for the 21st century."
Mr. Ivester's ways weren't Mr. Goizueta's. Where his illustrious predecessor had
remained aloof from the day-to-day business, Mr. Ivester was hands-on. Board
members urged him to recognize that Coke was too big a company for one person
to run without a second-in-command, but he said he wanted to "de-layer" the
organization and didn't need a "filter." Instead of appointing a president, he himself
kept in touch with 16 executives who reported to him directly.
Despite the outward confidence, some people who know Mr. Ivester say he was
unsure he could follow in Mr. Goizueta's footsteps. For one thing, he had been very
close to his mentor. His mother, Ada Mae Ivester, says he was "heartbroken" over
Mr. Goizueta's death. She recalls mentioning to her husband, on the day of Mr.
Goizueta's funeral, "Buck, he's never going to get through this."
Another person says Mr. Ivester seemed to have felt most at ease as No. 2 to Mr.
Goizueta. Mr. Ivester "was very comfortable with him and would have loved to have
him stay on as chairman. He may not ever have gotten over it."
Mr. Goizueta had been gone scarcely two months when trouble hit the longinvincible Coke empire. As Asian economies -- the key to Coke's long-term growth -imploded, analysts reduced their earnings estimates. At a company that was
renowned for its earnings predictability, estimate cuts became a common event as
the crisis spread to Russia and then to Latin America. Given the cause of the
troubles, investors and board members didn't hold Mr. Ivester responsible.
But a year into his job, they did start to wonder about some of his decisions. Mr.
Ivester's first big move as CEO was an attempt to acquire Orangina from Pernod
Ricard SA. While the price of $880 million was huge for such a small brand, the

board and Wall Street bought Mr. Ivester's rationale that Coke could take this
undeveloped brand and profitably run it through Coke's massive distribution
system. It seemed another adroit strategic move by Mr. Ivester.
By September 1998, it looked anything but adroit. The government of France
decided to reject the bid for the quintessentially French drink after Coke rival
PepsiCo Inc. argued that such a takeover would harm soft-drink competition in
France. Coke got early signals of the French decision, and some people close to Mr.
Ivester recommended he withdraw the bid before the turndown was announced.
Instead, Mr. Ivester plowed ahead, ultimately losing the effort but managing to
trigger news stories in Europe suggesting that already-giant Coke was trying to take
over the soft-drink market. A Coke spokesman says the company was contractually
bound to pursue the acquisition until the French government made a final decision.
"The company lost an incredible amount of credibility with Orangina," says one
person close to the company. "It's not smart to give up all your political credits for
10 cases of something."
It was a similar story a few months later, in December 1998, when Mr. Ivester
sought to buy rival Cadbury Schweppes's overseas brands. The effort was initially
blocked in several countries, including Australia and Mexico, again on the argument
that Coke already had too much market power.
Although Coke got the deal done in 161 countries, Mr. Ivester had to scale down the
bid to exclude much of Europe. And not before more bad press and a rapping of the
knuckles by the European Union's competition commissioner, who accused Coke of
trying to circumvent the EU and "pull the wool over our eyes."
Finally, in four European countries, EU antitrust officials armed with search warrants
marched into offices of Coke and bottling companies. For two days, they went
through files looking for evidence that Coke had abused its powerful market
position. The matter is still pending.
Coke contends its dealings in Europe are legally free of antitrust taint, but to many
experts that isn't the point. "They took the view that this was a legal process similar
to FTC hearings in the U.S.," says a person close to Coke. "They completely missed
the point that it's political."
More evidence of Mr. Ivester's deafness to European political nuance came during
this year's contamination scare in Belgium and France, in which more than 200
people complained of nausea and other symptoms after drinking Coke products. Mr.
Ivester, who was in Paris when the first schoolchildren fell ill, flew home. In the first
few days of the crisis, while Coke officials declared that the products didn't pose a
health hazard, he kept silent.
At least one director counseled him to get himself quickly to Belgium and speak up.
Mr. Ivester said he wanted to respect a request from the Belgian health minister to
keep the matter behind closed doors and not use the press. But board members

advised him not to believe a politician. Sure enough, the health minister himself
appeared on Belgian television and criticized Coke.
A few months later came another public-relations gaffe. Asked by a Brazilian
newsmagazine about Coke's testing of vending machines that could change prices
according to the weather, Mr. Ivester gave a theoretical response that came across
as both a defense of the technology and a confirmation that it would hit the streets.
"Coca-Cola is a product whose utility varies from moment to moment," he said. "In a
final summer championship, when people meet in a stadium to have fun, the utility
of a cold Coca-Cola is very high. So it is fair that it should be more expensive. The
machine will simply make this process automatic."
A Coke spokesman says the remarks were taken out of context. Though the
company had tested the technology in a lab, it never had an intention of introducing
it, the spokesman says, and bottlers confirm this. Nonetheless, the CEO's answer
created a flap, seeming to cast the company as one that wasn't customer-friendly.
In October, directors who had long wanted Mr. Ivester to appoint a No. 2 were
relieved when he outlined plans to reduce the number of executives reporting to
him to six from 16. The new arrangement would free the CEO from overseeing
employee benefits, corporate aircraft and many other mundane issues. Mr. Ivester
told directors he would seek their approval at the next board meeting in midDecember.
Why wait? they replied. "I appreciate your support. Let's go," Mr. Ivester told the
board, according to one person.
The board apparently failed to notice one ramification: Mr. Ivester was about to push
Mr. Ware, the executive overseeing the Africa business, down a rung. He was among
the 10 who would no longer report to the CEO. When Mr. Ware then announced his
retirement, "there was a lot of criticism in the company about why it was necessary
to make Carl lose so much face, and what that meant about Doug's judgment," says
a person close to the situation.
As these controversies unfolded, one person says, Mr. Ivester occasionally talked of
stepping down, wondering aloud if he was the right man for the job. Mr. Ivester's
mother -- who says she is "elated" that he has given up the ultrastressful job -- says
he had sometimes talked about leaving. A Coke spokesman, though, says he never
heard Mr. Ivester express any desire to leave.
The end came on Dec. 6, when Mr. Ivester announced that he will voluntarily leave
one of the most prestigious jobs in business next April, after only 2 1/2 years, to
give someone else a chance to try to do it better. Says a person close to the board,
"It was like a pitcher who wasn't throwing any strikes and the bases are loaded. He
finally took himself out of the game."