Another Coke Classic

Opinion | The New York Times | Wednesday, June 16, 2004
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Coke, America's most iconic brand, no longer seems to be it, or even the real thing. It isn't just Coca-Cola's lackluster performance that is worrisome. After all the attention placed on corporate governance in the post-Enron world, this blue-chip company's blue-chip board has become a weak guardian of shareholder interests. The board does not seem to have noticed that doling out tens of millions of shareholder dollars for mediocre results is no longer in vogue. The company has paid out more than $200 million in recent years to departing executives, most prominently to its former chief executives Douglas Ivester and Douglas Daft.

Steven Heyer will be the latest executive to leave Coke with a smile after a disappointing tenure. Mr. Heyer, the 51-year-old president and chief operating officer, was passed over in a very public search for a new chief executive. He will receive severance pay of at least $24 million for his three years of service. Mr. Heyer had been considered the heir apparent, but the top job went instead to Neville Isdell, a Coke veteran who now becomes the third chief executive in seven years. Mr. Heyer's imminent departure from the company was announced last week.

Roberto Goizueta, Coke's widely admired boss from 1981 to 1997, made a fortune in stock options back in the days when we were all assured that chief executive pay was pegged to performance, for better or worse. Companies like Coke haven't lived up to that bargain, as top managers get outsized pay packages that bear no relationship to their performance. This lack of oversight raises a question: what else are these directors missing?

For star power, Coke's 17-member board is unparalleled, including such luminaries as Warren Buffett, Herb Allen and Barry Diller. But the brainpower may be offset by the coziness that comes from the directors' long tenure and their business relationships with the company. For instance, Mr. Allen's firm is Coke's investment bank, and one of Mr. Buffett's companies buys fountain syrup from Coke. According to data from the Corporate Library, an independent research company, the average tenure on Coke's board is 11 years, with four members serving more than 20.

Coke's celebrity directors have not hesitated to call for regime change in Atlanta, but at an exorbitant cost. Shareholders may wonder why the entrenched board keeps failing at its main responsibility: picking a strong management team in the first place.

In the past few years, Coke has faced a number of shareholder resolutions aimed at compensation reform. But to achieve that, the shareholders may have to go after the board itself.

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