Flat sales, flat board: there's no fizz in the way Coca-Cola's directors have been acting of late.

Author:Sutton, Gary

MOST OF COCA-COLA'S profits come from selling caffeinated sugar water to teenagers. But a majority of the Coke board is way overdue for Social Security, and that's one reason this company got confused.

Always a solid business, Coca-Cola boomed under a youthful, foreign-born Roberto Goizueta, its first non-Wasp CEO. Goizueta believed there was more international potential. He proved it. Goizueta also spotted financial opportunities by integrating the Coke bottlers. In his 16 years of running Coke, the stock value went from $4 billion to $145 billion--until then the largest creation of shareholder wealth ever, anywhere.

Goizueta was no dummy. He cultivated his board as hard as he worked the markets. Coke acquired Columbia Pictures. Herb Allen, a Coca-Cola director, owned Columbia and pocketed a 16-fold return on his investment for a few years of ownership. That didn't bother anyone. Coke pumped more cash into Columbia and resold it to Sony, eliminating the weird hookup. Allen's firm, Allen & Co., advised on that disposal too. Coca-Cola was doing so well that these conflicts of interest just didn't matter.

Goizueta's compensation for 1991 was set by Allen, alone with Goizueta, and their agreement was announced to the board. Goizueta's $80 million bonus was the largest in world history. He was to become the first manager-billionaire. Shareholder results--governance issues aside--suggest his compensation was earned.

Warren Buffett invested. Coke gained control of most of its bottlers and started slipping debt into these separate entities so it didn't need to be reported. Buffett's son joined the Coca-Cola Enterprises board, the largest collection of bottlers. So there was a chunk of leverage buried there, alongside some nepotism.

Unfortunately, Goizueta smoked. He died from lung cancer in 1997, 16 years after taking over Coca-Cola. Under his leadership, mistakes like the New Coke debacle had been handled, and the company always emerged stronger. But all cola sales were flattening worldwide while non-carbonated drinks were growing, and the international markets, unthinkably, showed signs of saturation.

Goizueta's two lieutenants, Don Keogh and Doug Ivester, were obvious candidates to replace him. Ivester won.

Ivester began to ignore Keogh. Big mistake. Keogh became chairman of Allen & Co. and joined Buffett's board at Berkshire Hathaway.

Coke was hit by an embarrassing European recall. Keogh whispered to Fortune magazine how Ivester bungled that...

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