Business Today

Coke is out of the ditch, now it needs to go faster: E. Neville Isdell

Edward Neville Isdell, who is the 12th Chairman of Coca Cola, without doubt has the juices flowing once again at the beverages giant. Come end of June, Isdell, will be replaced by Muhtar Kent. Recently in India on a pleasure-cum-business trip, he took time out to speak with Business Today’sSanjoy Narayan and R. Sridharan.
Listen to the unabridged interview

Print Edition: April 6, 2008

E. Neville Isdell
E. Neville Isdell

In June 2004, when the Coca Cola board picked Edward Neville Isdell to become its 12th Chairman, the 60-year old was already into his retirement. A little over two years earlier, Isdell, a native of Ireland who moved to Zambia at age 10, had retired as the Vice Chairman of the Coca-Cola Hellenic Bottling Company and the parent company had re-engaged him as an international consultant. Coming out of retirement to rescue a company where one has worked nearly four decades may not have been the easiest of things to do, but Isdell, 64, without doubt has the juices flowing once again at the Atlanta-headquartered “sparkling” (read: carbonated) beverages giant. Since his arrival at the corner room at Coke, the stock has risen from $40 or so to about $60. Come end of June, Isdell, who also has his own investment company (currently in a blind trust), will step down as the CEO and be replaced by his hand-picked successor, Muhtar Kent. Isdell, who will continue to be the Chairman till April 2009, was recently in India on a pleasure-cum-business trip, hoping to shoot tigers (he’s an avid wildlife photographer, thanks to his long stint in Africa) at the Bandhavgar National Park in Rajasthan. He squeezed some time out to speak with BT’s Sanjoy Narayan and R. Sridharan on Coke’s turnaround and the challenges ahead. Excerpts:

End of June this year, you’ll be completing four years as Coca-Cola’s CEO and handing over the reins to Mr Muhtar Kent. Coke appears to have turned around in this period. What is your assessment of this turnaround and how did it happen?
I’m going to use the analogy that Muhtar actually uses and I think it’s a good one. He says the car is out of the ditch, it’s back on the road, it’s moving forward, but now it needs to go faster. That’s about what I thought I could do in four years, because, given my age, I wasn’t going to be around for 10-15 years as was Roberto Goizueta (Chairman & CEO of the company between 1980 and 1997). So I set myself the goal of doing just that, and also, having the right succession to come in. That was the other piece, and I worked on that from Day One. I absolutely believe I have got the right succession in place. I believe we’ve got our winning culture back, I think we’re on the right track. I do not believe we are where we need to be yet; there’s still an awful lot that needs to be done. But I think I’ve achieved pretty much what I set out to do.

What was the challenge and how did you attempt to address it?
What did I inherit, if you want to put it that way? A company that essentially had stopped growing—it was still growing, but modestly, it had lost its momentum. That’s one. Two, we were 10 points below the engagement (read: employee morale) score of our peer FMCG companies, and way below highperforming companies in a whole range of areas. Then, we had a number of issues around court cases. So, there was that black cloud that had to be erased, and our brand scores were going down, which was as bad as not having the morale. We didn’t have advertising that was working, (partly) because we were significantly under-investing behind our brands and under-investing behind innovation.

It was a situation where if you take a little bit off, you say ‘it didn’t make a difference, did it? So we can take a little bit more’. The other (problem) was, I think, industry self-inflicted. I believe that sparkling beverages were in secular decline. And (Coca-Cola’s) stock price was headed south as a result of that. That’s just the product of all the rest. I was asked in one of my early meetings, ‘what are you doing about the stock price?’ and I said ‘nothing. I am paid to run the company, not to manage the stock price. You run the company well, the stock price will look after itself’.

Getting the morale back up must have been quite a challenge.
What I did was I got the top 150 managers and we took a three-day session and Atul Singh (President & CEO, Coca-Cola India) was part of that. I played back the research, essentially went into a big ballroom, posters around, cartoon characters, speak bubbles that said exactly what the people had said in their own words. Direct quotes, and (to Singh) you can add them if you remember, “we’re arrogant”, “we don’t believe in management”, “we’ve lost the will to win”, “our brands are not performing anymore…” any others?

Atul Singh (President & CEO, Coca-Cola India) : There were lots and lots.

Isdell: It wasn’t pretty.

Singh: No, it wasn’t pretty at all. And I think, to me, on the other side coming in, it was the first time we said, well, at least, we’re being truthful to each other. Because, we were living in this cocoon, where, for several years, things were not going well and nobody was talking about it. And this was the first time the Chairman of the board was… you know, getting people to open up. Put it up on the wall, and talk about it. And we spent three days.

Isdell: Over about a six-month period came what we called “the manifesto for growth”, which is a 10-year plan, 2015, about how we’re going to run the business, what the revised mission is, what the values are and, by the way, the values aren’t very different from what the core values were. And fortunately, I think, coming from retirement gives you more confidence, but also, agreeing to a long-term objective with the board was very, very important in terms of getting through this here.

You mentioned that you’re not there yet, there’s distance to be covered. What exactly do you mean by that?

E. Neville Isdell
“I don’t think that running a business is necessarily about personality. It’s about success. It’s all about the business”

Our goal is to be, once again, the world’s most (admired) company. That’s a long way to go. We’ve moved up in the Fortune global. It’s just come out; we’ve moved from #24 to #19, from 2007 to 2008. But we’re still only #19 and I wouldn’t use Fortune as the only measure, but as one of the measures. And we’re not always gonna be #1. I mean, we actually define it as being in the top 3, but the aspiration is, once again, to be the most respected company. I also have a belief that the reputation side of a company, in the 21st century, is going to be very important to its so-called valuation, because then the long term is more assured than just short-term results. So, that’s why I don’t think we’re there yet.

But has Pepsi (which ranks three places higher than Coke on Fortune’s Most Admired Companies list) stolen a march over Coke as the more responsible cola company? (Pepsi CEO) Indra Nooyi does get a lot of positive press.
Iwould not agree with that. I think it’s a neck-and-neck race. Take the momentum we have, and it’s going to be a good race. Indra Nooyi… I don’t think that running a business is necessarily about personality, it’s about success. She’s been very successful, she deserves to be seen as a personality. It’s all about the business, and I intend to keep making this business successful. But you mustn’t personalise it. It’s the worst thing you can do—to believe your own good media. And, I probably don’t get enough of it to have to do that (laughs), but I work hard at it all the time. But, yeah, you mentioned snack foods, they run a great business, they run it very well, it’s very profitable. It’s not one we’re going into, we’re going to stay in beverages.

Going back to the challenges you had to deal with, one hears that one of the major things you did was to get the board to look beyond colas.
The challenge actually was the opposite. The challenge was convincing people that there was growth left in sparkling beverages, more than actually the diversification. Call from the investors was diversification and the fact is that 80 per cent of our business is sparkling beverages, and unless we get that growing, we can’t diversify fast enough to get the growth that we need. And anyway, I had a fundamental belief that there’s nothing wrong with sparkling beverages.

The core of the health and wellness debate is about calories, it’s about obesity. We’ve got a zero-calorie soft drink. You name me any food product that can do zero calories. That was one of the real successes, Coke Zero. Coke Zero is our most successful launch in 25 years. And that has re-energised the whole cola category for sparkling beverages. I really did not have any difficulty in convincing the board that we needed to build in the other area, it was how we were going to do it.

And acquisitions?
My view was that we didn’t need any major acquisition, that we would have bolt-on acquisitions because we could grow organically. Yes, there were times when we needed to make reasonably substantial ones; we spent $501 million buying the Multon juice company in Russia, $4.1 billion for Glaceau, we had Jugos del Valle in Mexico. Quite a few softwater acquisitions in Europe, because that’s quite important, but those are normally country-specific. But organically, Minute Maid Pulpy, which you see as being successful here, has been hugely successful in China, where it actually originated. There are other brands, such as in the energy segment, where we’ve done very well, you know, Full Throttle, Burn.

E. Neville Isdell
“I think we’re on the right track. I do not believe we are where we need to be yet. An awful lot still needs to be done ”

If you look at beverage servings worldwide, 53 billion of them are sold annually. Coke and all its brands would still form a very small percentage of that. So there’s huge room to grow. Where do you see future growth coming for Coca-Cola?
You’re absolutely right about the overall opportunities. (Growing urbanisation, and) the number of people coming out of poverty in developing countries are all opportunities for FMCG companies. Then, of course, the tailwind is what we do. More brands, better brands, we’ve got better advertising, we have immensely strong cash flows… so we’re able to invest behind it. By the way, the data does indicate that the fastest growing category in FMCG is non-alcoholic, ready-to-drink beverages. So that’s where we need to focus.

What’s driving Coke is its non-US business. Do you think, as these markets mature, a slowdown may happen as more and more consumers veer towards the view that maybe colas aren’t good for you?
You could argue at high per capita markets that growth is going to slow. Well, our highest per cap per bottle growth was in Mexico last year, which was our highest per capita in the world. Now you’re talking about developed markets. So, some of our strongest growing markets were Spain, France, Italy last year. We’ve regenerated growth in developed markets, they’re actually not that high per capita, so there’s still growth that’s left. Part of that was Coke Zero, our most successful launch in 25 years.

Coke Zero is now a billion-dollar brand in terms of revenues…
Yeah… we now have 14 billiondollar brands. But you also have to modernise, Coke Zero is part of that. I don’t believe this one’s going to be that major one. But Diet Coke Plus, where we got 14 vitamins and minerals than Diet Coke. The one that’s going to be very important is something that’s probably 3-4 years down the pipeline, you will see it coming out, other than Coca-Cola, primarily because of just quantities. But we’re working with Cargill on a natural zero-calorie sweetener. I think in the next 12 months, you’ll actually see it coming to market. That then, is going take the negative halo effect of artificial sweetness from Diet products.

We brought our group Presidents in, six people who run our business around the world, and we showed them some of what we have...deep research, and all I can tell you is that one of them who is 56-57 says, “I wish I was 20 years younger.” That’s what we’ve got coming. And yes, it’s not all gonna be sparkling, it’s gonna be still (read: non-carbonated) as well. If you take what we’re doing with particular additives that help cognition, that will be across all the platforms. So health and wellness is going to be a major piece of it. Health and wellness is not a category, it’s a need state. A lot of people define it as a category, we see it as a need state and, therefore, we can use it in various categories.

You brought Coke back to India in 1993. How do you think the Indian market has moved, as well as Coke’s fortunes in India?
I think there are a couple of different phases. I think we had a pretty good start. Obviously, a big chunk of that was the acquisition of brands from Ramesh Chauhan (of Parle) that I was involved in negotiating. Then, probably going back until about two years ago, we had a number of problems and issues. And you can debate whether they were self-inflicted or whether we were unlucky or whatever. We lost momentum, there’s no question. But if you see the last seven quarters (at Coca-Cola India), we’re talking double-digit growth. We’re back on track. And if you ask me, part of what went wrong (is that) we hadn’t created around us a legitimacy… a level of confidence in us as a business system in India. If I think of where we need to be, we need to be almost perceptually Indian. We need to be an inherent part of every community in which we operate.

Finally, as you said, you’ve taken care of succession planning. But there’s one thing that seems to be bothering some institutional investors and that is the old insider trading allegation against Mr Muhtar Kent. What would you like to say to such investors?
Well, I think we’ve already told the investors and the investors have accepted what we have told them because it was raised at the time I appointed him international President, and it was raised when I appointed him President. And the interesting thing is it was not raised when I appointed him CEO. It has been recorded as a codicil in press articles as recording the past. But it has not become an investor issue at all. I have no major investor who has expressed any concern whatsoever. So I think that’s something the board has looked at, it is ancient history and I think it has been consigned to that. I have absolutely no doubts about his integrity. I’ve known and worked with him very closely for 20 years. There’s another dimension to the formal investigation piece and there’s also my own belief in his integrity.

Click here to listen to the unabridged interview

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