Coke's Isdell: The Boss That Refreshes?

By Dean Foust Business Week

Many wonder why "the consummate insider" was picked, instead of an outsider who could shake up the soft-drink giant's culture Bringing back retired Coca-Cola (KO ) executive E. Neville Isdell to succeed departing CEO Douglas N. Daft appears to be a popular move with Coke employees worldwide (see BW Online, 5/5/04, "The Return of a Coke Classic"). But given the list of heavy-hitters that the soft-drink giant tried to woo to Big Red headquarters in Atlanta — including Mattel's (MAT ) Robert Eckert, Carlos Gutierrez of Kellogg (K ), and James Kilts of Gillette (G ) — analysts and corporate headhunters have greeted the May 4 announcement with a morning-after reaction of sorts.

Many are wondering why Coke directors raised expectations so high for an outsider who might shake things up — then chose a top dog whose breeding is so much a part of the company's insular culture.

Isdell, 60, has lots of friends and admirers who worked with him over a career that spanned more than 30 years at Coke and its bottlers. He's an affable Irishman who made his reputation planting the Coke flag in emerging markets during the 1960s, '70s, and '80s. And no question, he provides instant ballast, as chairman and CEO-elect, for a company wracked in recent years by accounting probes, a divisive discrimination suit, and disappointing results.

"INSIDE MAVERICK." Precedents certainly exist for successful turnarounds engineered by home-grown talent. Companies such as Procter & Gamble (PG ) and Xerox (XRX ) have done it by bringing back former execs who knew the problems and how to fix them. Some of Isdell's fans believe critics might be underestimating the former rugby player's ability to shake up a culture that many see as Coke's Achilles' heel. "He's an inside maverick who was not one of the good old boys," argues Jeffrey A. Sonnenfeld, associate dean of the Yale School of Management and a big Isdell booster.

Still, it's a fair question to ask whether Coke's board missed its chance to affect genuine change. Wall Street has its concerns. "I'm not too thrilled with the choice, and most of the investors I've talked to are disappointed," says Robert van Brugge, analyst for Sanford C. Bernstein & Co. "They searched for an outsider and got the consummate insider instead."

Some headhunters who follow Coke were similarly underwhelmed. "If I were in anyway associated with that search, I would be embarrassed," says Joseph D. Goodwin, an Atlanta-based executive recruiter who has performed past searches for Coke. "It's like going to the prom and leaving with your sister."

"THE BEST PERSON." Gerard R. Roche, senior chairman of Heidrick & Struggles — who headed the Coke CEO search — responds that Isdell was a leading candidate for the job from the outset and that Coke's board is quite pleased with the search outcome. Goodwin, says Roche, "wasn't associated with the search and doesn't know the full story."

In an interview, Coke director Donald R. Keough, who oversaw the search, said the board opted for Isdell after concluding he was the best candidate. "We were not looking for a change agent," says Keough. "We were looking for the best person to take this company into the future, and all of the board members went to sleep last night convinced that we have this place in proper hands." Isdell's three years away from Coke have given him "a wonderful opportunity to see the system without being a part of it," Keough adds.

Isdell told BusinessWeek he doesn't see the need for upheaval because he believes Daft has already made great strides in steering Coke back on course. "The system isn't broken," he says. "There's still opportunity for both Coca-Cola and the other [soft-drink] brands."

BOARD BOOST NEEDED. Isdell may well be proven right. But he doesn't have the luxury of time in getting Coke growing strongly again. At 60, he's just five years from Coke's customary retirement age — making him a transitional CEO at a time when Coke arguably could benefit from a younger chief who could put in deep roots, as Roberto A. Goizueta did after taking the helm in the early 1980s.

Furthermore, analyst van Brugge contends it isn't clear that Coke needs an internationalist like Isdell, since the beverage giant's biggest problem these days isn't in emerging markets like China. The main challenge is in mature markets like the U.S., Japan, and Germany, where growth has tailed off in recent years — and where Coke has been slow to deliver the kind of innovation that could keep profits flowing.

Even if radical reforms aren't necessary, Isdell would help himself by bringing in some fresh talent to serve on Coke's board of directors. It's average age now is 65, and some tenures stretch as long as 29 years. What's more, the 16-member board is strong on political connections and financial experience, but short on consumer and marketing expertise that could help Isdell connect with the 18- to 25-year-olds crucial to Coke's business.

"It's criminal that they haven't created a more vibrant, energetic — and if not youthful, at least a balanced — board," says Marc D. Lewis.

LURING OUTSIDERS. A spokeswoman for Coke responds: "The fact is, this board is composed of distinguished people whose own accomplishments and experiences are a great strength to this company."

Recruiter Goodwin believes that as chairman Isdell should now return to some of the outsiders who declined Coke's overture for the CEO position — like Kilts, Eckert, and Gutierrez — and ask them to serve as directors. That's a good idea. At this point, it may be the best way to reassure investors that Coke will get the changes that many think it truly needs.