Coke needs management succession plan

Dear Coke Board of Directors:

Welcome to Duluth.

Muhtar Kent

Muhtar Kent

Since your company has been performing relatively well recently, I’m sure you’ll enjoy a warmer reception during the annual shareholders’ meeting Wednesday at the Gwinnett Center than many other boards will this meeting season.

Not to throw a damper on things, but I’d like to raise an issue I think you need to address, but have not — at least as far as I or other Coke followers know.

The issue is management succession. This is something most of corporate America does very poorly. And you yourselves have had a mixed record over the past decade.

Before you picked Chairman and CEO Muhtar Kent and plucked his predecessor, Neville Isdell, from the golf courses of Barbados, you stumbled with your previous two selections — Douglas Ivester and Doug Daft.

“The CEO succession process is broken in North America and is no better in many other parts of the world,” author Ram Charan wrote in Harvard Business Review. (For full disclosure, I used this quote once before — in a column about Chick-fil-A founder Truett Cathy, one of your most loyal customers.)

Next to setting the strategic direction of a company, many business experts believe succession is the second most important job for a CEO and board. Ensuring orderly continuity of leadership is critical to reducing risk and uncertainty.

Our founding fathers, some pretty sharp guys, understood that when framing the U.S. Constitution, which spells out succession in detail. While a big public company is different than the federal government, the principle is the same. Investors are entitled to know plans are in place if something unforeseen happens to the CEO.

The fact that Kent is doing a good job and the fact that Kent has much on his plate — digesting a $12 billion chunk of the world’s largest soft drink bottler, for example — is even more reason to assure investors that a succession plan is in place.

If we’ve learned anything in this Great Recession, we’ve learned that Wall Street does not like uncertainty.

Ironically, in my view, the better a CEO is doing, the more risk to shareholders when there is not continuity of leadership if the unexpected happens.

On the day of last year’s annual meeting, I sat down with Isdell right after he handed the chairman’s job to Kent and right before he boarded a plane to return to Barbados after five years of stabilizing what had been a mess of a company.

Isdell said perhaps the most important thing he did was to select Kent to be the No. 2 executive. After all, Coke succeeded for much of the 1980s and 1990s because of the Roberto Goizueta-Don Keough one-two punch. It succeeded in the last half of the previous decade because of Isdell and Kent.

Kent has been CEO for nearly two years and chairman for one. But Coke watchers and investors have no clue about what’s on his mind or your mind with respect to succession. If you don’t want to select an heir apparent, then perhaps a small executive team is the answer.

In either case, at your two days of board and committee meetings here this week, it’s time to get the ball rolling, so you can let stockholders know you’ve got their backs on this critical issue.

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4 comments Add your comment

TnGelding

April 20th, 2010
6:36 am

Would the country and world be better off if Coke did fail? It’s harder to fill some shoes than others, that’s for sure, but it’s hard to argue against success and they did have some bad luck. I imagine the competition within the company is keen.

KO

April 20th, 2010
8:55 am

uh henry, management sucession :) you really think management knows what they are doing? these folks are as good as their underlings.

They are merely showing up to work for perks, retirement plans, and making sure they don’t screw up the golden goose. How difficult is it not to screw up a soft drink company?

Kent is doing a good job :) he ain’t doing jack except receiving reports and asking questions.

That guy couldn’t operate a bottling plant nor coordinate all the delivery trucks on his own.

Ron

April 20th, 2010
9:43 am

KO, you ask…”How difficult is it not to screw up a soft drink company?” It is easy. It is very easy to screw up a soft drink company. Ask anyone in town (or around the world) who was a witness and/or victim (including stock holders) of Doug Daft. He figured out in just two short months how-to “screw up the golden goose”. He took a global business system with purpose and direction and ran it (by his own admission) by ’shooting from the hip’ decisions. He just about ran it into the ground. It’s been ten years since Daft embarked on his organizational realignment program and Coke is still suffering from that decision.

How easy is it not to screw up the neighborhood hardware store. It is very easy to screw up the neighborhood hardware store just ask any of the witnesses and victims of Bob Nardelli over at The Home Depot.

Leadership matters.

DP > Coke&Pepsi combined

April 20th, 2010
5:54 pm

Wake me up when we are talking about Dr. Pepper…