Neville Isdell’s tenure as Coca-Cola’s leader saw senior management changes, a big acquisition and a focus on improving employee morale. After his unexpected announcement Thursday that he will step down as CEO next year, Isdell said more challenges lie ahead for the world’s biggest beverage company.
Isdell, 64, who has been CEO since 2004, will be replaced as chief executive by his second-in-command, Chief Operating Officer Muhtar Kent, effective July 1. But Isdell will remain chairman of the Atlanta-based company’s board until The Coca-Cola Co.’s annual meeting in April 2009. Isdell’s role at the company after that is unclear.
The split of the chairman and CEO roles will be a first at Coca-Cola. Isdell said the board will determine later whether to keep that arrangement or return to having the roles held by one person.
“The nature of business is there are always challenges,” Isdell told reporters.
Asked why he chose now to set a date for his departure as CEO, Isdell said simply, “because it’s the right time.” He added, “I’ve been working on succession since Day 1.”
Coke shares rose 2 cents to close at $63.07 Thursday. They are close to the upper end of their 52-week range of $45.56 to $63.44.
During Isdell’s tenure as CEO, company profits have steadily risen, particularly on the international side. Also during his tenure, a Justice Department investigation of business practices at the company concluded with a settlement, and the final chapter closed in an almost $200 million discrimination settlement involving the company.
As COO, Kent, 55, has overseen significant initiatives, including the $4.1 billion acquisition of Glaceau, maker of Vitaminwater and other brands, earlier this year. He will continue to hold the title of president.
Deutsche Bank analyst Marc Greenberg said in a research note that he believes the challenges for Kent will be investor reaction if Coke merely hits its long-term growth targets, the reaction if sales volume of Vitaminater stalls in a transition year and the impact if other key executives depart.
For now, Greenberg said he doesn’t expect any major changes at Coke.
“Kent has played a formative role in shaping the current course — ’steady as she goes’ is likely the mantra,” he said.
John Sicher, an industry expert and editor and publisher of Beverage Digest, said naming Kent as Isdell’s successor is a positive move for Coca-Cola.
“He understands the company and the system literally as well as anybody in the world and better than most,” Sicher said.
Sicher added, however, that business challenges lie ahead for Coca-Cola and Kent after Isdell steps down as CEO, particularly in the company’s key North American market.
“I think the big challenge for Muhtar is unlocking or trying to figure out how to get North America back into a stronger growth mode,” Sicher said. “That hasn’t happened yet, and that needs to be the top of Muhtar’s priority list.”
Isdell, in a conference call with reporters, agreed challenges remain in North America.
“It’s not something that will be turned around successfully overnight,” Isdell said. But he said he believes the segment is moving in the right direction.
Kent first joined Coca-Cola in 1978 and served in a variety of positions until 1998, when he left to become president and CEO of Efes Beverage Group, one of Europe’s largest international beverage businesses. He returned to Coca-Cola in May 2005 as president of the North Asia, Eurasia and Middle East Group. He was named president of Coca-Cola International in January 2006 and appointed president and chief operating officer of the company in December 2006.
Kent told reporters that he realizes there are challenges ahead for him.
“We have confidence the United States has growth left in it,” Kent said.
He said that on a positive note, “We were at each others’ throats with our bottlers a year ago; we are aligned now.”
Kent did not say whether he has any immediate plans to tweak other leadership roles at the company, but he indicated there could be some “fine-tuning” in management ranks under his watch. Coca-Cola’s former No. 2 executive, Steve Heyer, stepped down soon after Isdell was named CEO.
“I don’t think it’s a significant surprise that Muhtar is the new CEO, but the timing I know is,” Isdell said. “I wanted to manage this in a way that was clearly, diligently performed.”
Before Isdell was hired as CEO, Coca-Cola conducted a national search for a replacement for his predecessor, Doug Daft. With the immediate naming of Kent as Isdell’s successor, it appears a national search will not be needed this time.
Sicher said he was not surprised by that.
“Muhtar has been the heir apparent for some time,” Sicher said.