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The 1970s were a decade in which the total return to shareholders averaged less than 1% per year. “Its empire was strung together as a loosely knit chain of very eccentric fiefdoms, affording Atlanta virtually no control over how its bottlers chose to grow, or not grow, their Coca-Cola business.”[1] Unknown to the company, the Chairman was suffering from Alzheimer’s and Parkinson’s. It also had to cope with numerous disputes with bottlers. “The company had no sense of direction whatsoever…Unprofessional would be an understatement. We were there to carry the bottlers’ suitcases.”[2]
Governments in a number of countries made trouble for Coca-Cola tinged by anti-Americanism, and consumer tastes were shifting to waters, juices, teas, etc. Coca-Cola also made some product gaffes and it had diversified into completely unrelated fields. Then it suffered the onslaught of the Pepsi Challenge – blind tasting very small amounts of cola (Pepsi’s is sweeter and so often preferred in small quantities) – which caused some market share loss.
Figure 9.2 Coca-Cola’s share (after adjusting for splits) 1971-1980
Time for a change
In 1981 when the man in charge of the 1970s errors was already out of the door the nonagenarian Robert Woodruff was in no mood to accept his chosen successor. Instead he asked Roberto Goizueta to become Chairman and CEO. A Yale graduate, Goizueta started worked for Coca-Cola in his native Cuba, but in 1960 was forced to flee. He held tightly to his Coca-Cola shares and his job in the firm and spent the next twenty years working his way up the ranks.
The moment he was asked to lead the company Goizueta asked if he could have Don Keough at his side, a man many assumed to be the front-runner to be Chairman. Keough was named President and Chief Operating Officer and a given a great deal of freedom. The two worked together more like partners than boss and junior. Put crudely, Goizueta was the Atlanta strategist taking tough decisions on closures, etc., while Keough was the charismatic energetic globetrotting team-builder and chief enthusiasm-inducer.
Keough describes Goizueta’s attitude “We weren’t here to be a nice company; we were here to be a growth company. We were going to get our balance sheet in order. And we were going to reward the hell out of performance, but we were no longer going to pay for perfect attendance.”[3]
Employees were motivated to generate high returns for shareholders through bonus incentives, stock options and large stock grants when they retired. This made dozens, in not hundreds, of managers millionaires, but, importantly, they only became rich if shareholders were doing well. Buffett commented in his 1993 letter,
“Don is one of the most extraordinary human beings I’ve ever known – a man of enormous business talent, but, even more important, a man who brings out the absolute best in everyone lucky enough to associate with him. Coca-Cola wants its product to be present at the happy times of a person’s life. Don Keough, as an individual, invariably increases the happiness of those around him. It’s impossible to think about Don without feeling good.
“I will edge up to how I met Don by slipping in a plug for my neighborhood in Omaha: Though Charlie has lived in California for 45 years, his home as a boy was about 200 feet away from the house where I now live; my wife, Susie, grew up 1 1/2 blocks away; and we have about 125 Berkshire shareholders in the zip code. As for Don, in 1958 he bought the house directly across the street from mine. He was then a coffee salesman with a big family and a small income.
“The impressions I formed in those days about Don were a factor in my decision to have Berkshire make a record $1 billion investment in Coca-Cola in 1988-89. Roberto Goizueta had become CEO of Coke in 1981, with Don alongside as his partner. The two of them took hold of a company that had stagnated during the previous decade and moved it from $4.4 billion of market value to $58 billion in less than 13 years. What a difference a pair of managers like this
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