Douglas Daft's Retirement Sparks Sharp Debate Over Steven Heyer

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CHICAGO ( -- The controversy over Steven Heyer's chances of becoming Coca-Cola Co.'s next CEO or chairman -- or both or neither -- continued to electrify the corridors of the world's largest soft-drink
Photo: Chris Cassidy
Douglas Daft's retirement announcement has set off a debate over the fate of Steven Heyer.
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company as well as the offices of Wall Street analysts and investors today.

In an extraordinary corporate drama that began Thursday afternoon, Coke's current chairman-CEO, Douglas Daft, issued a written statement announcing he would retire but the statement made only cryptic remarks about the search for his successor.

Not a sure thing
Mr. Heyer, who is widely viewed as a marketing visionary, joined the company in 2001 and skyrocketed to a prominence that made his ultimate ascension to the top spot seem a sure thing. In fact, the first round of news reports on Mr. Daft's Feb. 19 announcement widely speculated that Mr. Heyer would quickly be named his replacement.

But the situation soon became much more complicated. On Friday, the Financial Times reported Coca-Cola's corporate board was sharply split over the issue of Mr. Heyer's suitability as a candidate for the top post.

Further adding to the sense of mystery and suspense of the situation is that neither Mr. Heyer nor Mr. Daft have made themselves available for further comment.

Executives with knowledge of the move said Coca-Cola is expected to use Heidrick & Struggles of New York -- the same executive search firm that brought in Mr. Heyer -- to conduct a search that will evaluate Mr. Heyer as well as a number of other outside candidates for the top spot.

A spokesman for Heidrick & Struggles declined to comment. A Coke spokesman also would not comment on the search.

'Very surprised'
"We were very surprised by what appears to be a vote of low-confidence from the board of directors with respect to Steve Heyer," Carlos Laboy, beverage analyst with Bear Stearns, wrote in a note to investors. "We had considered Mr. Heyer the obvious candidate to succeed Mr. Daft." He downgraded Coca-Cola shares to peer perform from outperform on the succession question and how it could impact the company's business model going forward. He reinforced his support for Mr. Heyer, noting that his concerns would disappear if Mr. Heyer were elevated to the post.

Others indicated that the move signaled Mr. Heyer shouldn't be automatically given the post and that Coca-Cola was prudent in looking outside. Manny Goldman, a former analyst turned consultant, said Mr. Heyer lacks experience in the complex soft-drink industry. "He hasn't proven himself," he said.

One executive close to the marketer said Mr. Heyer's aggressive and direct manner and his demand for accountability runs counter to the Atlanta-based company's genteel Southern culture. "There's a lot of sitting around talking, where nobody takes responsibility and nothing gets done," said the executive, noting that Warren Buffett, chairman-CEO of Berkshire Hathaway and the most powerful director of Coca-Cola, prefers a "gentlemanly" executive style. Mr. Buffett is not commenting on the situation, his assistant said.

'50-50 at this point'
Bill Pecoriello, beverage analyst with Morgan Stanley, said the board's search puts shares at significant risk. "While we strongly believe the best move for the Coke board is to name Steve Heyer the next CEO of Coke as quickly as possible, the reality is the chances are closer to 50-50 at this point in time, as several key board members are not fully behind Heyer," he said in a note today to investors. "Our investment case has been built on the view that Steve Heyer has put a strategy in place that we largely agree with and assembled a team of executives who we felt had good potential to get the job done. The issue in our view for this 'work in progress' has been execution. That execution is now at risk."

Mr. Pecoriello said the issue now is whether Mr. Heyer has the power internally to execute his strategy, especially if the situation drags on.

"Political tensions are already running high inside the company and the uncertainty surrounding who will be in charge six months from now won't help," Mr. Pecoriello said, noting that the company is revisiting its business model with Coca-Cola Enterprises, the company's largest bottler critical to global execution. "If Steve Heyer feels he can't get the job done or is being 'set up' for failure, he might decide to leave before the board even finalizes a decision. If Steve hangs around but the board decides to bring in an outsider, there could be several months to over a year of disruption as a new CEO either learns the soft-drink business or re-familiarizes [himself or herself] with the many changes that have taken place in the industry over the past several years. Net net, the uncertainty is now running high for Coke."

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Hillary Chura contributed to this report.

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