At Coke, Heyer's Exit Clears Deck

06/01/04
By: Chad Terhune, Joann S. Lublin and Betsy McKay, Wall Street Journal Online

Steven J. Heyer, the No. 2 executive at Coca-Cola Co., is departing after being passed over for the beverage giant's top job.

The move had been widely anticipated but nevertheless deepens the leadership vacuum at Coke as its new chairman and chief executive officer prepares to rebuild the company's management ranks.

The exit of the 51-year-old Mr. Heyer, who led efforts to revive Coke's stagnant marketing and was a vital figure in dealing with bottlers, customers and Wall Street, had been widely anticipated after he lost a bid for the top job to E. Neville Isdell.

Mr. Heyer's decision to leave grew partly out of his recent discussions with Mr. Isdell over his future role at Coke, a person close to the situation said. The pair disagreed over Mr. Heyer's duties that would result from Mr. Isdell's planned restructuring of management, according to this person. Coke directors also weren't willing to promise Mr. Heyer that he would eventually succeed Mr. Isdell. Mr. Isdell said in a message to Coke employees yesterday that the two executives concluded Tuesday that Mr. Heyer "could best realize his aspirations outside of the company."

While Mr. Heyer's resignation clears the deck for Mr. Isdell to reshape Coke as he wants, the new CEO isn't likely to appoint a new president and chief operating officer anytime soon, because there is no obvious internal candidate, according to people close to the company.

Those considered to be contenders to eventually fill the role include Irial Finan, a 22-year veteran of the Coke system who succeeded Mr. Isdell as CEO of a big European bottler; Donald Knauss, head of the company's North American operations and Mary Minnick, head of the company's Asia operations. Mr. Isdell also could seek an outside candidate. A Coke spokeswoman declined to comment.

Mr. Heyer, in a statement, said he plans to stay on at the company "over the months ahead" to ensure a smooth transition, though nothing would prevent him from leaving Coke immediately to take another job. Messrs. Isdell and Heyer, through the company, declined to comment. (See related story¹.)

Mr. Heyer stands to leave Coke with more than $20 million under the employment contract signed when he joined the company in April 2001, according to the people close to the company.

Some Coke board members initially balked at granting Mr. Heyer some of that compensation if he left because his responsibilities were watered down under Mr. Isdell, according to people close to the situation. After being contacted by the company Monday, several board members agreed to making the full payment.

Coke still is working out final details of Mr. Heyer's severance package, including the pricing on Coke shares. Because Coke is treating Mr. Heyer's departure as a resignation for "good reason," he will be eligible for a severance package valued at about $23.7 million, according to an analysis by Daniel P. Moynihan, a principal at Compensation Resources Inc., a pay-consulting firm in Upper Saddle River, N.J.

It is important for Coke to identify its next generation of leaders, partly because Mr. Isdell is 61 years old, giving him four years in one of corporate America's highest-profile jobs before reaching Coke's customary retirement age. The company also has suffered in recent years from turmoil in its executive ranks and confusion over its strategy for re- invigorating growth in its core cola product.

Many industry analysts are concerned that Mr. Isdell will have to reassemble Coke's marketing team. Mr. Heyer was the point man on crafting a hipper image for Coke and built his own roster of marketing executives, some of whom are considering leaving. Daniel Palumbo, Mr. Heyer's selection last year for chief marketing officer, has been a disappointment within Coke so far, according to people close to the company.

If Mr. Palumbo leaves, according to people familiar with the situation, Ms. Minnick, head of Asia for Coke, could be asked to take over as marketing chief.

While Mr. Isdell's appointment last month provided some stability at Coke, he hasn't given any indication of his strategy for bringing more fizz to the company.

Mr. Isdell is spending his first 120 days in meetings with employees, bottlers and customers, and his only major move since taking over June 1 has been to fill a senior human-resources position, an initial step to rebuild the company's depleted ranks and improve employee morale. In a phone interview on the day he was named CEO, Mr. Isdell said he has "no fundamental disagreement" with Coke's current strategy.

Some on Wall Street are looking at how Mr. Isdell handles his relationship with Coke's board. "We see it as imperative that new CEO Neville Isdell visibly establishes that he -- and not the board -- is calling the shots, that he can form a strong and stable management team and succession plan," said Marc Cohen, analyst at Goldman Sachs.

One scenario discussed by Coke insiders calls for Mr. Isdell to create two chief operating positions, with one overseeing international operations in Africa, Asia, Europe and Latin America and the other in charge of North America, Coke's largest business. Such a move would revive a structure Coke used in the early 1990s and allow Mr. Isdell more time to identify an eventual successor.

Messrs. Finan, 46 years old, and Knauss, 53, are considered contenders for the international and North American operating roles, respectively. Another candidate for the top international role is A.R.C. "Sandy" Allan, who heads Coke's operations in Europe, though the 59-year-old executive isn't seen as a long-term option because he is expected to retire soon.

Signs that Mr. Heyer's days at Coke were numbered emerged in February, when the company launched its first-ever outside search for a CEO. While respected for his intelligence, Mr. Heyer was criticized for a brash management style and a penchant for self-promotion. One of his fiercest critics was Donald Keough, the powerful former Coke president and board member who led the CEO search.

In hunting for his next job, Mr. Heyer is expected to target media, entertainment and packaged-goods concerns, several recruiters said. Walt Disney Co., for instance, "needs somebody like Steve," who is "very demanding," observed Pat Mastandrea, a long-time Heyer acquaintance who runs the Cheyenne Group, a New York search boutique specializing in the media, and entertainment industries. A Disney spokeswoman said the company isn't searching for a new CEO.

Ms. Mastandrea thinks Mr. Heyer might emerge as a prospect for the No. 1 job at J.C. Penney Co.

Mr. Heyer could ably lead America Online if Time Warner Inc. spun off that unit, because "you would have to rebuild that company," said Hal Reiter, president of Herbert Mines Associates Inc., a New York search firm. Private-equity firms anxious for a top-notch executive to run a portfolio company also could find Mr. Heyer attractive.

"He kept his ego in check and demonstrated some class and maturity" by not quitting while Coke directors looked outside, said Andrea Redmond, co-head of the CEO- and board-services practice at search firm Russell Reynolds Associates Inc. in Chicago.