Coke prays things will go better with Isdell

Can the new Irish-born chief executive put the fizz back into world's soft drinks giant?
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You would have to envy a man who is chosen to head a company like Coca-Cola. The drinks giant surely constitutes one of the most powerful brands in the world. And what's more, there seems to be no shortage of fizz in its fortunes: its first-quarter numbers showed a 35 per cent rise in revenues from a year ago.

You would have to envy a man who is chosen to head a company like Coca-Cola. The drinks giant surely constitutes one of the most powerful brands in the world. And what's more, there seems to be no shortage of fizz in its fortunes: its first-quarter numbers showed a 35 per cent rise in revenues from a year ago.

Why, then, should Neville Isdell, whose appointment as the 12th chairman and chief executive of Atlanta-based Coca-Cola was announced on Wednesday, be approaching his throne with considerable trepidation? The answers are many. Coca-Cola may be bubbling, but there is turbulence in the fizz.

The 60-year-old Irishman ­ he was born in County Down ­ at least knows the territory as well as anyone alive. He joined Coca-Cola in 1966 after graduating from Harvard, and climbed its corporate ladder in positions in several continents before retiring in 1998. Even then, he didn't really leave, becoming chairman of Coca-Cola Beverages, one of Coke's publicly owned bottling companies, which has since merged with the Hellenic Bottling Company.

But he will need to draw deep into his well of experience to handle the Coke Colossus. Among his immediate challenges: soothing the ruffled feathers of Coke's number two, the chief operating officer, Steve Heyer, who was passed over for the top slot; addressing federal investigations into alleged fraud in its accounting practices; and convincing Wall Street there is still growth in the venerable brand.

He will also have to deal with the board of directors that chose him. It is packed with some of the biggest names of corporate America, whose expectations of him will be exceptionally high. They include the legendary investor Warren Buffett, Barry Diller, the financier Herb Allen, and Irish-American entrepreneur Don Keough.

The choice of Mr Isdell puts to an end months of speculation at the company since the current chief, Doug Daft, announced his decision to step down at the start of the year. He was by no means the only name in the ring. Those who were courted but decided they would rather not take the reigns in Atlanta included the Gillette chief executive, James Kilts, Carlos Gutierrez of Kellogg, and Mattel's Robert Eckert.

Intriguingly, there was one last-minute entrant. Fortune magazine reports that none other than Jack Welch, the former chief executive of General Electric, was approached at the end of April. He had just married Suzy Wetlaufer, the former editor whose earlier extra-marital affair with Mr Welch helped cloud his reputation after his departure from GE.

The Coca-Cola board was apparently starry-eyed about the prospect of landing him. Mr Welch reportedly decided against moving to Atlanta while on honeymoon in Barbados with Ms Wetlaufer, with whom he is writing a book.

So Mr Isdell it is, and the handover is set to happen later this summer. Reaction to his appointment seems somewhat divided. Investors and observers welcome the depth of his experience with the company. But many are uncertain whether an insider like Mr Isdell can be the right person to give Coca-Cola a new start in the new century and deal with rivals such as Red Bull, the increasingly popular energy drink, and the various players in the bottled water industry.

First, he must contend with Mr Heyer, someone he barely knows. Many assume that Mr Heyer may now be tempted to run for the exit. "If he leaves, those loyal to him may leave," Caroline Levy, an analyst with UBS, commented. "It seems realistic to expect Coke to experience more upheaval over the next nine to 12 months."

This would not be what's needed at Coke, which has suffered turmoil in its ranks of late. Aside from laying off 3,700 of its workers last year, it has seen the defection of several top executives. Those who have fled include its top lawyer, its human resources boss and North America chief.

Also pressing are the company's legal difficulties. It emerged this week that US prosecutors are likely to empanel a grand jury later this month to dig deeper into allegations of accounting malfeasance already under investigation by the Securities and Exchange Commission and the District Attorney's Office in Atlanta. Coca-Cola cannot afford to join America's rogue's gallery of corporate evil-doers.

The allegations are not of an Enron or WorldCom scale, but they remain potentially serious. Prosecutors believe that Coca-Cola may have indulged in so-called "channel stuffing" by shipping exaggerated amounts of concentrate to some of its bottling clients, notably in Japan, as a means to inflate its numbers to meet quarterly financial targets.

Then there is the question of momentum. Volume growth at the company reached only 4 per cent last year, which is historically disappointing. Problems may be greatest in the United States itself where competition from other beverages, especially Red Bull, combined with highly publicised concerns about obesity, have contributed to a steady decline in Coca-Cola sales.

Mr Isdell will also inherit the mess of the company's botched attempts to market its Dasani bottled water brand in Europe. Dasani was first introduced in Britain and was quickly withdrawn after it emerged that it was purified tap water and contained a potentially carcinogenic impurity.

Known as a charismatic and energetic motivator of his troops, Mr Isdell denies that Coca-Cola has in any way grown tired. "I in no way accept that the growth in Coca-Cola is in any way over," he insisted this week. "I believe that it is the world's greatest brand and there is significant growth to be had with Coke".

One question investors will inevitably be asking him: is it time that the company followed the example of its long-time rival, Pepsi Cola, and expanded beyond beverages into the food and snack markets?

Fans of Mr Isdell hope that in the coming five years ­ Coke has a strict policy of retirements at 65 ­ he can become as important to the company's fortunes as was his predecessor-but-three, Roberto Goizueta.

"Neville will use his charm and intelligence to manage all the constituencies, including the Coke board, much as Roberto did," said John Sicher, the editor and publisher of Beverage Digest. "If anyone thinks Neville is a pushover, they're in for a rude awakening."

But some are disappointed that the board was not braver in going for an outsider who could make over the company with an entirely fresh eye. Robert van Brugge, of Sanford Bernstein in New York, suggested that Mr Isdell's appointment raised a question of "how committed the board is to remaking the company's culture." He went on: "The successive appointments of Don Keough and Neville Isdell, and the effective displacement of outsider Steve Heyer, signal that the board believes a return to the pre-1998 days is the type of change the company needs," he wrote this week. "We respectfully disagree."

When Mr Isdell finally left the Coca-Cola family in 2001 ­ or so he thought ­ he moved to the pleasant climes of Barbados to head his own investment company. Maybe he was hoping for a more relaxed life in the Caribbean. In Atlanta, relaxation will not be on his agenda.