Two things never changed at the Coca-Cola Company from 1886 to 1985, the first 99 years of its operation: First, Coke was the gold standard of soft drinks and second, the Coca-Cola Company was devoted to maintaining its basic formula. The Atlanta based-firm brilliantly used innovative, constantly changing advertising campaigns to convince the world just how their brown, frothy elixir was “the standard beverage.”


Coca-Cola advertisements exhorted discriminating patrons in 1912 to “demand the genuine – refuse substitutes.” In 1916, an ad proclaimed, “It’s fun to be thirsty when you can get a Coca-Cola. Just one glass will tell you.” Beginning in 1924, the company’s slogans were often variations on the theme that a drink of Coke was “the pause that refreshes.”


In her recent book titled, The Real Thing: Truth and Power at the Coca-Cola Company, Constance L. Hays, a veteran reporter for the New York Times, focuses mainly on the events that followed the introduction of New Coke in 1985. The story of that historic flop has been told before, but Hays links the New Coke saga to the roller coaster rise and fall of the company’s stock price in the years that followed. Coca-Cola profited from its mistakes in the New Coke debacle, Hays suggests, and then went on to make even bigger ones.


Three main protagonists populate Hay’s crowded cast of characters: Roberto Goizueta, chairman and CEO of Coca-Cola from 1981 to 1997, Donald Keough, president of Coca-Cola from 1981 to 1993, and Douglas Ivester, chairman and CEO from 1997 to 1999. There is also a more intangible presence – the century-old mystique of Coca-Cola. William Allen White, a celebrated journalist of the early 20th century, once called Coca-Cola the “sublimated essence of all that America stands for, a decent thing honestly made, conscientiously improved with the years.”


Those words have a haunting resonance for Hay’s protagonists. Each was essentially decent, conscientious, and dedicated to the proposition that Coca-Cola was the real thing, the only thing. Goizueta was the heroic immigrant, Keough the can-do super salesman, Ivester the hard-working, rural Southerner made good. Yet their combined efforts ensured that the company they loved would loose much of its hallowed luster.


Roberto Goizueta emigrated from Cuba in 1960 after Fidel Castro seized power. Born into an aristocratic family, he worked as a quality-control specialist for Coca-Cola before being promoted to a job supervising the company’s remaining plants in the Caribbean. By dint of hard work and the patronage of Robert Woodruff, Coke’s legendary ex-CEO and power-behind-the throne, Goizueta rose to become a contender in 1981 for the position of chairman and chief executive.


He gained the prize, besting Donald Keough, a gregarious, well-liked Coke executive. Keough’s career was marked by years of experience dealing with the independent bottling firms whose love/hate relationship with the company required people management skills of the highest order. Keough had those diplomatic skills and a staunch loyalty to Coca-Cola, earning him the number two spot under Goizueta. The austere, chain-smoking Cuban and the Iowa-born corporate cheerleader made an unlikely team at the helm of the New South’s leading corporation. But despite an initial disaster, their relationship became a very, very profitable one.


That initial disaster was the 1985 introduction of New Coke, a move by Goizueta to repulse the gains made by arch-competitor Pepsi at the expense of Coca-Cola’s market share. Goizueta’s move infuriated the legions of Coke’s loyal patrons and was quickly countered with the revival of the century-old formula in the guise of Coca-Cola Classic. Hayes recounts this now familiar story with a rather breathless gusto although she might have emphasized the extent of the “Pepsi Challenge” in greater detail to underscore the difficulties faced by Goizueta. Coca-Cola was facing the unthinkable prospect of losing its elect status when he assumed corporate leadership. Introducing New Coke was not quite the clueless blunder often featured in textbook explanations.


The manner of unveiling New Coke, however, was a needless disaster. Coca-Cola’s bottlers, despite their squabbles with the company, were a fount of knowledge about the likes and dislikes of Coke drinkers in their districts. Yet they were never consulted about New Coke. The new product was simply substituted from on high as a replacement for the soft drink that millions had loyally bought for generations.


This giant misstep was compounded because the company leadership refused to take the lesson to heart. Goizueta never admitted he had made a mistake. A 1998 speech by his successor warning that “arrogance is the greatest enemy of the Coca-Cola company” might have been such an admission. In fact, the speech dealt with the threat of self-satisfied complacency among Coke executives rather than of cavalier disregard for bottlers and patrons.


The man uttering those words was Douglas Ivester, who replaced Goizueta after his death from lung cancer at age 66 in 1997. Ivester, an astute, workaholic accountant, had perfected the plan which rescued Coca-Cola after the New Coke debacle and sent its stock value into orbit. For years, Keough and other Coke executives had tried to wear down the bottling firms into selling-out or toeing the company line. Ivester perfected a plan of diabolical simplicity to finally achieve this goal. He favored a massive buy-out of Coke’s independent bottlers while encouraging others to expand operations, provided they did so on new terms favorable to Coke. But instead of loading Coca-Cola with the debt of the purchases, he proposed establishing a client firm, Coca-Cola Enterprises, which would consolidate the bottling firms while assuming the debt. The Coca-Cola Company could then raise the price of the syrup for making Coke at will, evade antitrust legislation and use its escalating profit margin to entice powerful investors like Warren Buffett to “catch the wave.”


Ivester’s plan worked to such a degree of perfection that jokes about New Coke quickly subsided. The figures quoted by Hayes are a reflection of this phenomenal success. In 1981, the total value of the publicly-owned shares of Coca-Cola was $4 billion. In 1997, the value had risen to $145 billion. As Hayes writes: “A sea of brown syrup was washing over the planet, driven ahead of the magnificent vision that Goizueta had had for his company. On May 1, 1996, the board approved one more stock split. People who had owned a hundred shares of Coke at the beginning of 1986 and did nothing but hang on to them now held title to 2,400. For the people who held thousands or millions of Coke shares, wealth blossomed like a well-fertilized peach tree, a tree beyond their imagining …”


The Coca-Cola Company, always ambitious in its search for market share at home and abroad, aggressively invaded foreign markets during this period. When Ivester assumed the reins of power from the fallen Goizueta, this looked like a winning strategy. Pepsi’s legal team, however, scented a weakness, believing that European governments would not accept the premise that Coca-Cola Enterprises was a separate business entity. Pepsi petitioned the French government to halt Coke’s projected purchase of Orangina because it represented in their view a monopolistic chokehold on commerce.


The Orangina deal’s collapse in 1997 triggered a chain of disasters culminating in Ivester’s resignation in December 1999. Several of the factors contributing to his downfall were not of his making, including a racial discrimination suit filed against Coke by disgruntled African-American employees, the collapse of the Russian ruble and a serious recession in Japan.


But Ivester did make one bad mistake: He ignored advice from Donald Keough. Ivester was a micro-manager who believed he could handle operations without a second-in-command. He also denied Keough, who had retired by this time, the opportunity to play the role of elder statesman that Robert Woodruff had played earlier. Keough’s repeated overtures to help Ivester with his mounting problems were spurned.


Hays uses her investigative skills to discover the background to Ivester’s dramatic confrontation with powerful board members Warren Buffett and Herbert Allen in a Chicago airplane hanger in 1999. The meeting precipitated his fall.


The true extent of Keough’s wire-pulling in Ivester’s “retirement” is impossible at this time to assess but it was certainly a major factor, as Hays’ narrative makes clear. Keough was the chairman of Herbert Allen’s investment firm and had maintained a network of contacts with Coke bottlers like Summerfield Johnson Jr., who was “obviously unhappy” with Ivester. The most telling piece of evidence was the selection of Doug Daft to replace Ivester as company chairman. Daft was a protege of Keough and his policies at the helm of the company closely followed Keough’s counsel.


Hays also analyses the dramatic fallout of Ivester’s ouster. Coke’s share price had begun to rebound after dropping since the Orangina rejection. On the day Ivester announced his resignation, the stock price of Coca-Cola was $68.31. It swiftly went into free fall, plummeting to below $38 in 2002. Warren Buffett lost $4 billion of his investment in Coke during that period, and massive job layoffs at a firm which hardly ever gave out pink slips cost 6,000 loyal Coke employees their jobs.


Coca-Cola’s fall from grace is a cautionary tale which Constance Hays recounts with emotional power and perceptive insight. She chronicles an obsessive drive to secure profits today at the expense of financial security tomorrow. But it is a hopeful story too, for she relates that Coca-Cola’s rebuilding strategy is emphasizing a bigger role and greater profits for the company’s bottlers and a reliance on the quality and mystique of their soft drink, the very factors that made Coca-Cola “the real thing.”