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Book Review: The Life and Leadership of Coca-Cola’s Roberto Goizueta

By Jim Fink on December 29, 2011

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When I think of a leader, I normally think of someone who inspires people through an extroverted personality and personal magnetism.  Roberto Goizueta, CEO of The Coca-Cola Company (NYSE: KO) from 1980 to 1997, was not such a man.  Indeed, he was a “halting and uninspiring speaker” who “betrayed a surprising lack of sophistication about Coke’s operations and, especially about nuances of corporate finance, his prose was all but unreadable.” Furthermore, he was “cerebral and introverted” and “face-to-face confrontation was not his strong suit. He seemed incapable of personally firing people from the Coca-Cola family. Furthermore, he exhibited “an inability to work with people he could not control.” As biographer David Greising, author of I’d Like the World to Buy a Coke: The Life and Leadership of Roberto Goizueta, states:

Goizueta, for all his authority, strategic vision, and leadership skills, still could never muster the kind of heartfelt devotion from Coke’s rank and file, and even some of the company’s top executives, that fell so naturally to [Coke President Donald] Keough. Goizueta frequently heard Keough described as “the heart of Coca-Cola” or “the keeper of the trademark,” while people more often referred to him as “the brain of Coca-Cola.”  It pleased Goizueta to be thought of as smart and shrewd, but there was part of him that coveted Keough’s unique ability to win the affection and personal loyalty of the people who worked for them at all levels of the company. 

In addition, Goizueta was an engineer with very little experience in other parts of the business.  For example, ignorance of marketing was Goizueta’s “most glaring weakness.”  Other weaknesses included a lack of financial knowledge about rates of return and present value of invested capital and a lack of operational experience.

Despite his lack of charisma and business experience, Goizueta was the most successful CEO in Coke’s history, increasing Coke’s profits four-fold during his 17-year tenure (1980-1997) and enabling Coke’s stock price to grow at a 24 percent compounded rate, more than double the appreciation of its chief competitor PepsiCo (NYSE: PEP) and quintuple that of the S&P 500 index:

Source: Bloomberg

 

How did he succeed?  Not through charisma, but through intelligence, hard work, and political savvy. Goizueta had a “unique genius” for strategy and long-term thinking.

Master of Office Politics

And talk about managing your career!  Goizueta was the master of playing “the inside game.” In addition, “Goizueta had outmaneuvered, outrun, and outlasted every one of his rivals.” Goizueta was a kiss-ass who dressed well and heaped praise on Robert Woodruff, the living legend and octogenarian soul of Coke. Woodruff’s father had bought Coke in 1919 and he himself had been president of Coke for over 30 years (1923-54). Even after Woodruff stepped down as president, he remained on the board of directors for another 30 years. Goizueta made it a daily ritual on his way home from work to stop at Woodruff’s house to chat.  He also wrote poems to Woodruff and sent him flowers.  Furthermore, Goizueta was willing to lie about his background in order to make himself look better in his boss’ eyes.  For example, Goizueta claimed he knew no English when he fled to the United States after the Cuban Revolution when, in fact, he had been the best English student in his high school class.  He also lied about having graduated tenth in his Yale College class. 

Coke was a very image-conscious place, so Goizueta made sure that his image fit the bill:

In Coke’s image-conscious executive suite, Goizueta’s reputation for genteel manners and strong technical command of his work promised that he would do well. . . .  [Goizueta] dressed the part of Coke’s future chief executive even though he still was a very junior middle manager.  With impeccably tailored dark suits and carefully groomed hair, he had a seriousness and thoughtfulness that impressed everyone who dealt with him.  Goizueta seemed confident working among Coke’s top executives and an air of nobility came naturally to him.

Goizueta also had a knack for not irritating anybody in power.  When Woodruff and then-CEO J. Paul Austin started to quarrel over the direction Coke should take (expansion v. fiscal restraint), Goizueta stayed out of it:

Alone among Coke’s top executives, Goizueta somehow found a way to stay neutral.  “Goizueta was the most astute politician of all of us.  He avoided taking sides and was very clever about it,” recalled Broadwater.

Instead of confrontation, Goizueta got his way indirectly: “The political tactic of isolating an opponent and making him look like an obstructionist, going over his head when necessary, became a signature Goizueta gambit.” 

Technocrat Who Demanded High Financial Performance

Being political helped Goizueta be appointed CEO of Coke.  But Goizueta needed additional skills to succeed once he had obtained power.  He insisted that Coke executives justify their business decisions by demonstrating that their profitability.  He set a hurdle rate of 20 percent return on investment for all business initiatives, thereby introducing the notion of “economic value added.” He engaged in strategic thinking and central planning for Coke’s operations, in contrast to Woodruff’s “intuitive” management approach that grew the business in an undisciplined, ad hoc manner.  He promulgated a “mission statement” that communicated his vision of Coke to all managers so that they knew profit and customer satisfaction were their primary objectives.  He gave a speech in which he told managers that there were “no sacred cows” in the Coke organization and that nobody should feel safe.  He engaged in a “Spanish Inquisition” whereby he questioned and criticized every manager’s business plan and fired people who didn’t measure up to his standards.  He acted like a “tyrant” who felt no remorse at giving managers “a harsh kick in the ass.” 

Goizueta was not perfect, however.  He made a mistake in buying Columbia Pictures and funding Ishtar (although he was lucky enough to sell Columbia at a profit to Sony), in introducing New Coke, and in promoting the dysfunctional MagiCan.  These mistakes pale, however, with his successes in rejuvenating the bottling business, introducing Diet Coke, and dominating Pepsi in the international marketplace. The most striking example of this international dominance occurred in Venezuela, where Goizueta somehow convinced PepsiCo’s local bottler and distributor to switch sides and join the Coke team, especially with the Venezuela coup.

Risk Taking is the Mark of a Leader

One of Goizueta’s best attributes was his “virtually unlimited tolerance for risk.” This risk-taking ability allowed Goizueta to make the bold changes necessary to remake Coke.  For example, when Ivester warned Goizueta that selling Coke in East Germany was dangerous because it was unclear how the company would be paid, Goizueta replied: “I don’t care.  Just ship the product.  Sooner or later we’re going to get paid somehow.” He was right. 

When Goizueta was asked what he looked for in a chief executive, Goizueta replied that energy was most important, with intellectual courage a close second. Goizueta had both of these leadership qualities in spades.

Why Coke is a Special Company

Goizueta was a great CEO, but he only succeeded as well as he did because Coca-Cola was a great product to begin with. A company does not become the largest equity investment at Warren Buffett’s Berkshire Hathaway (NYSE: BRK-A) (NYSE: BRK-B) because of a great CEO. Buffett invests in great businesses.  Buffett has adopted a saying originally made famous by Peter Lynch:

Go for a business that any idiot can run – because sooner or later any idiot probably is going to be running it.”

Coca-Cola, which got its name from using coca leaves and kola nuts in its original syrup recipe, is such a business. In an October 1998 Q&A session at the University of Florida business school, Buffett explained (pp. 12-13) why Coke’s business was such a great investment opportunity:

  • Strong international growth in 200 countries for at least the next 20 years
    • Per-capital consumption of Coke goes up every year despite the product being 100 years old
    • 80% of Coke’s revenue is generated outside of North America
  • “Bargain product” that gets cheaper and cheaper in terms of a person’s earnings power
    • In 1936, a 6 ½ ounce bottle was priced at five cents
    • In 1998, a 12 ounce can was priced at 20 cents
    • This means that the per-ounce price of Coke only doubled in 62 years, only one-sixth the rate of inflation over that time period.
  • Coke has no “taste memory:”
    • “You can drink one at 9 o’clock, 10 o’clock, 1 o’clock, and 5 o’clock. The one at 5 o’clock will taste as good to you as the one you drank early in the morning. You can’t do that with Cream Soda, Root Beer, Orange, or Grape. All of those things accumulate on you. Most foods and beverages accumulate. You get sick of them after awhile. There is no taste memory to cola and that means you get people around the world who will be heavy users – who will drink five a day, or for Diet Coke, 7 or even 8 a day. They will never do that with other products. So you get this incredible per capita consumption.”

Buffett Disses Pepsi Cola

Interestingly, Buffett’s childhood cola of choice was Pepsi, which he started drinking at age 6. A value investor from birth, Buffett said in a CNBC joint interview with PepsiCo CEO Indra Nooyi that Pepsi sold 12 ounces for a nickel whereas Coke sold only 6 ½ ounces for a nickel, so “at half of the price, Pepsi was a good buy.” What was funny about the interview is that Buffett refused to say that Pepsi cola was a good product! All he would admit was that he loves the salty snack products of PepsiCo’s Frito-Lay division (which don’t compete with Coca-Cola): “I will eat some Cheetos and Fritos today, but I will also drink five Cokes.” Buffett is so hyper-competitive that he will never say anything bad about a company he owns or good about a competitor. We saw that in his recent unforgivable defenses of Goldman Sachs (NYSE: GS) and Moody’s (NYSE: MCO). 

Coke’s Amazing Stock

Coke is one of the greatest growth stocks of all time. It went public in 1919 at $40 a share. By the end of 2009, that same share was worth $7,162,677, a compound annual growth rate of 14.4%, much higher than the general market’s 8%-9% annual average! A compound annual growth rate of 14.4% for 90 years is simply amazing. Talk about a one-decision growth stock! It grew even during the Great Depression. Compare its performance to that of the Dow Jones Industrial Average:

 

 

1924 Closing Price

1932 Closing Price

Change

Coca-Cola

$80.00

$150.00

+87.5%

Dow Jones

$121.25

$60.26

-50.3%

Coke’s Wonderful Business Model

Every investor’s goal should be to find companies with sustainable competitive advantages like Coke. Coke’s cola has always tasted the best and cannot be cloned despite endless efforts by competitors to do so. Coke’s worldwide exclusive distribution network is virtually impossible to replicate. When you combine the best product with the best distribution network, you have an unbeatable business – a “wonderful” business. Such a business will make a great investment regardless of when you buy it – market timing is completely unnecessary. As Buffett said in his University of Florida remarks, getting the “what” right is the key to investment success, not the “when”:

If you are right about the business you will make a lot of money. The wonderful business – you can figure what will happen, you can’t figure when it will happen. If you are right about what, you don’t have to worry about when.

Since Goizueta

As current Coke CEO Muhtar Kent said in a Nov. 2009 investor day event, Coke “lost its way” after Goizueta died in October 1997:

We were too internally focused and not focused enough on the changes taking place with our consumers and customers. In essence, we were too busy looking at the dashboard, but were not sufficiently paying attention to the world outside our windshield.

Since 2004, however, our momentum and direction have returned along with the belief that we can win again.

The 1998 to 2004 “dark period” was marked by the CEO tenures of Douglas Ivestor and Douglas Daft. As one writer put it, the “short and turbulent tenures” of these two disastrous Dougs involved:

botched takeovers, disastrous product launches, contamination scares, regulatory disputes, a race discrimination scandal, and constant feuding between factions within the management and boardroom.

But the Coke CEOs since June 2004 have been much better. Neville Isdell from June 1, 2004 to June 30, 2008 and particularly Muhtar Kent since July 1, 2008 have been outstanding. While Coke stock has underperformed both the S&P 500 and PepsiCo since Goizueta’s death in 1997, this is primarily due to the horrible performance during Ivestor and Daft. Since 2006, Coke stock has outperformed both the S&P and PepsiCo significantly:

Source: Bloomberg

Is Muhtar Kent the Second Coming of Robert Goizueta?

I’m confident of Coke’s future success because there are similarities between Kent and Goizueta. Like the Cuban Goizueta, the Turkish Kent came to the United States with little more than the cash in his pocket. And also like Goizueta, Kent answered a newspaper ad to land his first job at Coke. Last but not least, Goizueta and Kent look like they could be brothers.

Another hard-working immigrant CEO with an international perspective is just what the doctor ordered to make The Coca-Cola Company a “wonderful business” for decades to come.


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