† Coca-Cola was further embarrassed when an internal report from December 1995 surfaced, recommending that Coke enhance diversity and address “why there are so few African-Americans in certain areas and levels of the business.” The report was written by Carl Ware, president of Coke’s African unit.
* As this history documents, Coca-Cola had always been subject to slander and rumor. In 1993, it was Pepsi that suffered from what folklorists call an “urban legend”—that the company was somehow putting syringes into its cans. Sure enough, people around the United States came forward to claim that they had found needles in their drinks—all a hoax.
* Schools were not the only ones to grab Coke money in return for exclusive deals. In 1999, the first city in the United States signed a ten-year deal with Coke. Huntington Beach, California, agreed to allow the local bottler to put up Coke signs and to sell beverages on all city property for $300,000 a year in cash and an additional $300,000 in community programs.
~ 23 ~
Daft Dilemmas
Optimism, pride and fun have been restored in the system. New leadership is in place.
—CEO Douglas N. Daft letter to shareholders in The Coca-Cola Company 2000 Annual Report
Doug Daft, fifty-six, was completely unprepared to be thrust to the top of The Coca-Cola Company as its new CEO. Do I or don’t I accept? he briefly pondered. He said later that he felt like Bilbo Baggins, the middle-aged hobbit who suddenly found himself entrusted with the magic ring of power. “Mr. Daft radiates a kind of shock that it is his turn to run the world’s best-known soft-drink company,” one observer noted.
A former math teacher and the son of a shoe store owner, Daft had had thirty years of experience with Coca-Cola, primarily in the Middle and Far East, when he was chosen to lead the Company into the new century. Soft-spoken, affable, and direct, he was untested at the highest level, but he had the marketing background that Ivester lacked. He had experience in Japan, with its wild array of beverages, and he had overseen the building of the Chinese business from scratch. Would Daft, the Australian Coke veteran, be able to turn the company around and restore morale? Or would Coke slowly go flat?
The mantle had come to him in part because Don Keough liked him. Daft had reported to him in the 1980s and early 1990s, and Keough considered him an efficient executive who got the job done without fanfare. “The fellow is the right man at the right time,” Keough observed. Daft had also befriended board member Herb Allen in Williamstown, Massachusetts, where both men owned summer homes, though Allen was blunter than Keough. “There weren’t a lot of choices,” he said later. Soon after he became the CEO, Daft brought back Keough as a “senior advisor.”
New York Times reporter Constance Hays noted that Daft was regarded as “a kind of eccentric professor,” who had once shown up for a meeting wearing mismatched shoes. “His spectacles and tufted hairstyle gave him an owlish appearance,” Hays wrote, “but he was also known to be a keen competitor.”
A STRATEGICALLY ALIGNED HATCHET JOB
Even while Ivester was still officially the CEO—he was supposed to resign in April 2000 at the Company’s annual meeting—Daft moved with unexpected speed to change the Company. Goizueta’s mantra had been that Coke should think globally but act locally. Daft pronounced that Coca-Cola must not only act locally, but also think locally. Instead of directing the far-flung beverage empire from the North Avenue tower in Atlanta, managers should live in their territories. He promised to reassign hundreds of staffers from headquarters to posts overseas.
At the same time, however, he moved Steve Jones, a top Coke executive in Japan, back to Atlanta to be the company’s chief marketing officer, a hint that Coke might intend to offer more diverse beverages, as in Japan. Daft also swiftly convinced Carl Ware to reconsider his resignation, appointing him as the executive vice president in charge of corporate affairs and government relations.
In mid-January 2000, Daft announced that Jack Stahl, then in charge of Coke’s North American business, would serve as his president and chief operating officer, the second-in-command spot that Ivester had never filled. An accountant, Stahl had joined the Company in 1979 and had once served as its chief financial officer. Clean-cut and polite, he scribbled daily management lessons down on index cards. His in-depth knowledge of the domestic business would presumably complement Daft’s international background. “There is no doubt that Doug Daft is moving lightning quick to get the Coca-Cola Company headed in the right direction again,” an impressed Lehman Brothers analyst said.
Then Daft sent a mysterious voicemail asking people to cancel vacations, trips, and meetings so that they could be in their offices on Wednesday, January 26, 2000, for an important announcement. No one knew what to expect. A press release spoke of a “strategic organizational alignment,” not unexpected from a new CEO. On that fateful day, they discovered that this was a euphemism for a massive layoff of 6,000 Coca-Cola employees worldwide, 20 percent of the workforce. Nearly half of the employees at Atlanta headquarters—2,500 people—would lose their jobs.*
The cuts were necessary, Daft said, in order to “ensure a strong future for The Coca-Cola Company,” allowing it to be more nimble and to focus primarily on marketing. Some jobs, such as groundskeeping and payroll management, would be outsourced. But rest assured, the layoffs would all be done “with care and sensitivity.”
That was cold comfort to some employees who learned that they were fired when they listened to their answering machines. Many others kept working in a tense limbo, not knowing whether they would be axed. “There was a three-person panel formed to determine my future,” one executive recalled. “Then I was sitting on a[nother] three-person panel to assess the grade below me. I hated every single minute of it.” Weeks later, he lost his job. The new Coke leader was no longer compared to a kindly absentminded professor. Within the company he was nicknamed Daft the Knife.
That same Wednesday morning of January 26, the Company released its full financial results from the previous year, including write-downs of $813 million for the cost of overbuilt factories and equipment in Russia and Japan, as well as hits for oversold concentrate that burdened its bottlers. The Company estimated that severance packages and other expenses related to the job cuts would cost another $800 million. “It’s not as if they were short a few million dollars,” said one stunned analyst. “It’s $1.6 billion.” The day of the announcement, shares of Coca-Cola fell $2.80, tumbling another $3.50 the following day.
The dismissals also created a public furor over the pending racial discrimination lawsuit. Lawyer Cyrus Mehri had asked U.S. District Court Judge Richard Story in Atlanta to sanction a class-action suit that would cover more than 2,000 current and former African American employees, in addition to the eight individuals he represented (four more had joined the original plaintiffs). Yet blacks who were fired were being asked to waive their rights to join the hypothetical class action in order to get their severance packages. Outraged, Mehri complained to the judge and the press that Coke was attempting to “buy the silence of its African-American employees.”
Concerned black workers approached Larry Jones, an African American benefits manager in the Coca-Cola human resources department, asking his advice, so he organized a meeting of a hundred and fifty black workers at an Atlanta church. Two days later, Jones met with Jack Stahl to ask his help in changing the policy so that black employees would not be forced to sign the waiver. The next day, Jones learned that he was being fired. The Company insisted that his termination had nothing to do with the church meeting or his advocacy, but Jones didn’t believe it. Even after the Company finally backed down on the waiver issue, allowing dismissed black employees to receive severance pay and still remain in a class action, Larry Jones became a vocal critic and activist, organizing more meetings and talking about a possible Coca-Cola boycott. When Doug Ivester announced in February that he would resign as CEO immediately rather than wait until April, his $120 million “golden parachute” only added fu
el to the fire.
Attempting to salvage the situation, Daft assured the media in March that “diversity is a top priority for me,” but New York Times reporter Constance Hays noted archly that the Company “has no women among its senior or executive vice presidents” and no blacks other than Carl Ware. “White men control the company.”
RIDING FOR BLACK JUSTICE
Doug Daft, the white man at the helm of the Company, did not appear to be in control during his first year. Two weeks before the annual meeting, Coke summoned analysts to the Regent Hotel in New York City, where they expected to hear Daft’s dynamic plans to turn the Company around. Instead, they were treated to four interminable hours of lectures and videos about Coke’s local marketing efforts around the world, ranging from a soccer game in Burkina Faso to a beach party in Chile. Finally, Daft told them that Coca-Cola projected a 5 or 6 percent volume growth for 2000, which few believed. “It’s achievable,” Daft insisted, “and we’ve got the programs to do it.”*
On April 19, in Wilmington, Delaware, Daft presided over his first annual meeting, usually a brief, businesslike convocation of contented shareholders. This time (a harbinger of future fractious annual events) it lasted for two and a half hours. Daft was interrupted by protestors who demanded more recycled plastic in Coke containers. A shareholder resolution against using genetically modified corn in high-fructose corn syrup was introduced and defeated. But the meeting was dominated by the racial issue.
Larry Jones arrived with a busload of angry black former and present Coke employees who wore red hats emblazoned with “Justice Ride,” a reference to civil-rights-era freedom riders. At a church rally before they departed, they joined hands and, to the tune of Kumbaya, sang, “We are riding for justice, Lord, come by here.” A little girl held a sign that read “Will the Real Thing Do the Right Thing?”
At the meeting, Jones came to the microphone and complained that Carl Ware was the only high-ranking black executive the Company had ever had. “In 114 years, you only found one of us qualified? How long do we wait? We are never going to be anything but black employees.” Then, his voice dropping dramatically, he intoned, “Let’s stop—buying—Coca-Cola!” This anguished call for a boycott came from a man who, like any loyal Company employee, had always forced his family to drink nothing but Coke.
Jesse Jackson followed Jones to the microphone. He too criticized the Company, pointing to its board of directors, composed mostly of old white men. “Someone has not gotten the message.” There also were no Hispanics on the board, though they represented 27 percent of Coke consumers. “Law bills are up; share price is down,” he complained. “Coke will lose this case in a court of law, but worse, in the court of public opinion.” Jackson nonetheless stopped short of endorsing a boycott, probably because Coca-Cola supported his PUSH/Rainbow Coalition group, which also owned Coke shares. Behind the scenes, Jackson had met with Daft, Stahl, and Ware, encouraging them to settle the case quickly.
The boycott never gained momentum, but the discrimination case dragged on in messy fashion, due in part to Jackson’s machinations. Jackson was buddies with Willie Gary, a high-rolling African American personal-injury lawyer in Florida. In January, Jackson had introduced his friend to then-CEO Doug Ivester, hoping Gary could be some kind of legal peacemaker. Then in April, Jackson advised one of the plaintiffs, who was looking for a new lawyer, to contact Gary. Smelling big money, the Florida lawyer tried to join the existing suit, but the judge refused.
In mid-June, with lawyer Cyrus Mehri threatening to file a huge class-action brief chock-full of incriminating stories, the Company reached a tentative settlement, though the details remained hazy, and Judge Richard Story would have to approve the final settlement. Minutes after the announcement, Willie Gary and Johnnie Cochran (famous for defending O. J. Simpson) filed a new lawsuit representing four black Coke employees, seeking an outrageous $1.5 billion. It didn’t faze Gary that he had garnered millions of dollars for Coca-Cola advertising on his MBC Network, a cable channel for black viewers. Gary scoffed at the “phantom settlement.”
It wasn’t until November 2000 that the Company agreed to a $192.5 million settlement, with an average payout of $40,000 in cash to around 2,000 African American former and current employees, and up to $300,000 to the four remaining original plaintiffs. In addition, an outside watchdog panel would monitor Coca-Cola’s treatment of minorities and women for another four years.
In follow-up interviews, some Coke officials just made things worse. They admitted that black employees had frequently been paid inadequately and had been passed over for well-deserved promotions. But hey, they pointed out, that was true for a lot of white employees as well! “We bled [over this lawsuit]; there’s no ifs ands or buts about that,” said Carl Ware. “Fortunately, that’s behind us.”
Not quite. Until the following spring, employees still didn’t know exactly how much they would receive. Willie Gary urged potential plaintiffs to sign a petition saying that they were “saddened and ashamed” of Mehri’s efforts. In the end, only twenty-three opted out of the settlement, and Judge Richard Story finally approved it, but it was a torturous, protracted process.
In April 2001, the Company hired Deval Patrick as Coke’s general counsel. A black lawyer raised by a single mother on Chicago’s South Side, Patrick had served as assistant U.S. attorney general in the Clinton administration and, most recently, had been general counsel at Texaco, where he had helped settle another racial discrimination lawsuit.
“THIS IS THE BEST THEY CAN DO?”
Meanwhile, Coke’s fabled marketing machine appeared to be broken. With the “Always Coca-Cola” theme wearing thin after seven years, early in 2000 the Company switched to “Coca-Cola. Enjoy.” The television spots were predictable. In one, a young man dives down a huge waterfall, then swims to the bottom to retrieve a refreshing Coke to share with his friends. Another non-verbal beach scene features loud music over dizzying edits of surfboarding and parasailing, with Coke-swilling at the end. “Rather bland and forgettable,” one viewer noted.
Worse, however, was “Best Friends,” which begins with a celebratory college graduation. “I’ll miss you!” one girl says to another. “Best friends forever!” they chant simultaneously. But when one suggests toasting the occasion with a Coke, the other stammers that she forgot to bring one. “I never liked you,” snaps the brunette. “Cause I’m prettier than you?” counters the blonde. This degenerates into a catfight in which one loses her glasses, fumbles on the ground for them, and pulls down another graduate. “Next time,” the ad advises as a Coke bottle appears on-screen, “enjoy.” Intended to be funny, the ad was not only unbelievable but also associated bad karma with the drink.
The short-lived, ineffective campaign was replaced in April 2001 by “Life Tastes Good,” a reference to the old “Coke Adds Life” slogan. Without naming the soft drink, this effort remained diffuse and generic. One spot, using quick jump cuts, depicts hip young blacks and whites (but no mixed-race couples) smooching, dancing, swimming, skateboarding, and drinking Coca-Cola. “I’ll drink to that / wherever you’re at, / it’s understood, /no doubt in my mind / that life tastes good,” the rap cover song advises.
Another commercial shows five teenagers in a stifling, airless subway car, riding home from a rock concert. “We were six weeks from graduation,” a boy says in a voice-over. “Ears ringing, voices all screamed out.” He takes a can of Coca-Cola from his slack-jawed sleeping friend’s pack and starts to drink it. “And as I watched them sleep, it hit me: That was the best night of my life. And I kind of wished we could all stay on that train forever.” The spot ends with the little ditty and the words “Life Tastes Good. Coca-Cola.” Teenagers might have identified with the ad, but most viewers would have been horrified at the thought of being trapped forever in that subway car, and the air of lassitude was the opposite of Coke’s usual frenetic, joyful pace.
The ads didn’t work. “Summer is upon us,” one Coke insider said in mid-July 2001,
“and the Life Tastes Good ads are having no impact in the marketplace. Panic is setting in.” Coca-Cola Classic sales had slumped 6.5 percent for the four weeks ending in mid-June. Then, after the terrorist attacks on the World Trade Center on September 11, 2001, the slogan became almost an insult. Life didn’t seem to taste very good after all. The Company dropped the slogan and offered no replacement for over a year.
Nor was Diet Coke doing well. A short-lived, lame slogan, “Live It Up, Drink It Down,” was scrapped in 2000 during an actors’ strike. The next year it was followed by “That Certain Something,” aimed at independent young women. In one spot, a woman falls in the mud and, Diet Coke in hand, laughs it off—again, a negative event associated with the drink. In another, a husband who is folding his pregnant wife’s underwear describes his attraction to her. “There’s something oddly reassuring about thin, washed-out, cotton underwear,” he says. “It’s a really strange ad,” observed one critic. “For starters, let’s just pause to note that Diet Coke apparently wants its brand to be as familiar to you as old underwear.” At least the ad evoked a positive, sweet sentiment, except that many obstetricians warned pregnant women against consuming caffeine and NutraSweet. In desperation, the Company delivered steel tubs filled with free Diet Coke cans chilled in blue ice to chic Hollywood salons for five days before the 2001 Academy Awards ceremonies.
Everyone in the industry recognized the consumer trend away from carbonated soft drinks, which were slowly losing market share to juices, water, teas, vitamin-enhanced beverages, and other new entries in the increasingly fragmented marketplace. Doug Daft knew that the Company had to act. “The world in which we operate has changed dramatically,” he said, “and we must change to succeed.” He recounted the story of his frustrating attempts to push Coca-Cola in Indonesia in the early 1970s. “Then I launched Fanta, and the business just tripled and quadrupled.”
For God, Country, and Coca-Cola Page 69
