9 Lessons You Can Learn From Roberto Goizueta
Roberto Goizueta had a very successful career as the head of the Coca-Cola Company, and many regard him as one of the greatest executives and managers in history. During his tenure, the Cuban immigrant grew the value of Coca-Cola’s common shares by more than 3,500% while fixing the mistakes of his predecessor.
It resulted in the beverage company's involvement in everything from shrimp farming in South America to plastics manufacturing. Goizueta strengthened, consolidated, and spun off a substantial part of the bottler network into Coca-Cola Enterprises, which formed the backbone of the Coca-Cola distribution system. Goizueta focused on allocating capital to all the right projects, with such spectacular results that even Warren Buffett would have to stand up in admiration.
A few key ideas helped Goizueta transform a soda company that had lost market share in the United States for nearly 15 straight years into a global powerhouse, rewarding shareholders with profits, dividends, and share repurchases.
Goizueta Knew His Priorities
Goizueta managed to become a billionaire after fleeing Cuba with very little money and one hundred shares of Coca-Cola stock due to his intelligent stock ownership. The son of a wealthy Havana family, Roberto left his homeland and started his career and life anew in the United States.
Thanks to his father, Goizueta knew the importance of working for himself. As David Greising put it in his book "I’d Like the World to Buy a Coke: The Life and Leadership of Roberto Goizueta":
Before Goizueta began work, his father had one last request. He wanted Roberto to buy shares of stock in Coca-Cola. "You shouldn’t work for someone else; you should work for yourself," his father said. He suggested that Roberto should buy 100 shares of Coca-Cola, and lent him the $8,000 he would need for the purchase. The shares were placed in a custodial account in New York, where they remained until his death.
Adjusted for inflation, that’s roughly $58,300 in today’s terms. Before homeownership, before establishing credit, before an expensive car or furniture, the Goizueta family prioritized business ownership, whether that meant the acquisition of a company outright, holding a minority stake in private business, or purchasing shares through the stock market. The Goizueta family understood that one of the best ways to amass substantial wealth was through business ownership.
By the time he had risen to the office of Chairman and CEO of the Coca-Cola Company, Roberto Goizueta owned more than nine million shares of Coca-Cola common stock. He had never sold one of those original shares. He wanted to own as much of the company as he could.
Wasn't Afraid to Look Foolish
According to Greising, “As soon he became president, Goizueta began a detailed study of every aspect of Coke’s business. Although proud and confident in his abilities, Goizueta had enough self-confidence to admit his limitations."
Greising continues, "He even exposed his lack of knowledge to subordinates by asking dozens of questions ranging from simple queries about the market size to complex calculations of rates of return and the present value of invested capital."
In other words, Roberto Goizueta was a learning executive. Whether you’re a small business owner, middle manager, auto mechanic, school teacher, or police officer, the ability to constantly improve your skillset by dedicated, disciplined, and focused learning can make the difference between a slow-moving career and a rapid ascent to greater positions of responsibility. You must be willing to risk looking foolish to become knowledgeable.
Treated Return on Capital as Gospel
After taking the leadership reins, Goizueta expected his operating chiefs to not only be able to read a balance sheet but understand how to interpret the performance. Each business unit was charged a certain cost for the capital to fund its expansion projects.
Only by performing well against these capital costs, in what is now known as economic value-added, were executives praised, compensated, and promoted. In other words, they were paid handsomely for actions that made the owners—the shareholders—wealthier and the company stronger. It is similar to the model used at Berkshire Hathaway by Warren Buffett in setting pay structures for the Chief Executive Officers of the conglomerate’s various operating subsidiaries.
This came after a startling revelation Roberto had upon taking the reins at Coke’s Atlanta headquarters. Once again quoting from Greising:
For years, no one had really focused on the cost of capital or the economic return on Coke’s investments. Because [Coca-Cola Chairman] Woodruff would not let Austin [the former CEO] borrow money, Austin had responded by fueling his acquisition binge with Coca-Cola stock. But that capital cost more, about 16 percent per year, than even short-term bank borrowings would have cost Coke in late 1980. All the businesses except soft drinks—the wineries, the water purification, the plastics, and even the foods—were generating less than 10 percent.
The author goes on to point out that Goizueta wisely realized, “We’re liquidating our business, borrowing money at 16 [percent] and investing it at 8 [percent]. You can’t do that forever.”
Knew How to Take Calculated Risks
Diet Coke has remained one of the most successful new product launches in corporate history. It generated billions of dollars in profits for Coca-Cola shareholders and increased the strength of the firm’s core brand.
Working with his cadre of fantastic generals, chief among which is Donald Keough, the brilliant Omaha native who effectively served as the marketing genius and the embodiment of Coca-Cola itself throughout his career, Goizueta was able to launch a product that brought an entirely new segment of consumers under the corporation’s umbrella.
It wasn’t an obvious decision. The launch was backed by a $250 million initial research budget and then, later, a $100 million first-year marketing campaign, an unprecedented figure at the time. Even in the hallowed halls of “Fortress Coke,” as Greising called it, this was no small change, and failure would have been a public embarrassment, both personally and professionally.
Recovered From Disaster
Not every new product worked out as well as Diet Coke had, such as the New Coke fiasco. However, Coca-Cola ultimately emerged stronger because of it. Americans, and indeed those throughout the world, realized just how much they loved the Coca-Cola they grew up with, which had become such an integral part of Friday night football games, movie showings, and backyard barbecues.
Never forget that you can turn disaster into an opportunity. It isn't always easy; in fact, the very experience of failing is often painful. You might take solace in the knowledge that you can do it in relative obscurity.
When New Coke was released, a man sent a letter to Goizueta and asked for the autograph of the "stupidest CEO" in history. Goizueta complied and sent his autograph back to the man, perhaps poking fun at himself. When you take risks, there is a chance you are going to fall flat on your face. It may not be pleasant, and you might want to crawl under a metaphorical rock. Get up, dust yourself off, and remember that the great investors and business leaders of the past often failed many, many times before making their fortunes.
Understood Politics and Networking
Roberto Goizueta understood politics. Not only did he constantly go out of his way to communicate regularly with the legendary Chairman of Coca-Cola, Robert Woodruff, but he also constantly sent letters and kept in contact with an influential network of business leaders.
After a meeting with some important Coca-Cola bottlers, he was savvy enough to send porcelain boxes from Tiffany & Company to the men’s wives to thank them for their sacrifice to the company.
This sort of effort might come more naturally if you genuinely enjoy being with people and speaking to them on a personal level. However, even if it's a struggle for you, the dividends can be enormous later in your life or career. You never know who is going to rise to a position of power, nor the consequences of unnecessarily alienating someone who otherwise could have been a strategic ally.
Kept a Scientific Viewpoint
“Keep the scientist’s candor,” was one of the CEO’s classic taglines. In essence, this was a way for him to protect against the error that Charlie Munger, Warren Buffett's right-hand man, so often warns us about. It can be tempting to twist data to fit the end agenda that we want rather than letting the facts lead us where they logically would on their own. It means letting go of your preconceived notions, or as Munger puts it, being willing to destroy your own best ideas.
Failure to follow this Goizueta philosophy sometimes leads people to throw good money after bad when an investment is going downhill and its value has been damaged.
If you strive to experience good investment results and high quality of life, you'll measurably improve your results by focusing on facts, and then rationally analyzing them to determine how you can react in a way that will get you one step closer to your goals.
How many people might have declared personal defeat after losing all of their power, privilege, and wealth when a communist dictator took over their country? Instead, Robert Goizueta rolled up his sleeves, went to work, and, within a few decades, had taken control of one of the most iconic brands in history, while simultaneously generating personal earnings in the billions of dollars throughout his career.
Knew the Super Power of Incentive
The most effective executives know that you'll get the type of behavior you reward, whether with cash, prizes, status, or power, and less of the behavior you discourage. Many of the mortgage industry's problems during the 2008 crisis resulted from a compensation system that paid brokers based on the total number of mortgages they underwrote without any regard to the ultimate profitability of those loans. This biased compensation system led to the expected behavior of massive growth in loan sales, without any regard for the bottom line.
Roberto Goizueta understood the power of compensating the behavior you want to reward. He measured management success on company projects as a specific return of capital that hit above a rate of return established by Coca-Cola headquarters for use of the money.
This approach had an immediate effect. Bottlers began switching from metal containers to plastic, saving untold millions of dollars in capital expenditures that instead flowed to Coke's bottom line.
One of the single most important decisions you will make in your own life, whether you're talking about raising your children or handling employees, is the compensation system you design. Charlie Munger points out that it was a single stroke of the pen that caused FedEx to solve its delivery problems by tweaking the way package handlers were paid.
In short, once the goods were processed through a hub, the workers were allowed to go home and were still paid for a full night of work. Up until then, nothing had mattered. No bigger bonuses, salaries, or benefits got the employees to do the job on time until they were told they could go home early yet get paid the same. The problem was instantly solved. It is the power of a good compensation system.
Kept Things Simple
According to Greising, the famous Chief Executive Officer simplified his job into three main tasks:
The Leadership Role
The Company's Financial Security
Delegation of Jobs to Specific Employees or Groups
In a perfect world, Goizueta commented, everything would fall into one of these three categories. Simplicity is key if you want to get ahead. Great fortunes are often built on one or two really good ideas. Sam Walton's Wal-Mart was all about delivering goods at a lower price with lower costs and increased volume. It was revolutionary at the time.
Disney was about creating great content in animation that was on par with films in the mainstream cinema. Berkshire Hathaway is about sourcing low-cost capital through insurance subsidiaries and putting it to work in a tax-advantaged way in high-quality businesses that earn big returns on capital. Determine clear, simple ideas and goals if you want to be successful. Otherwise, you may find yourself reacting to events all day, accomplishing little besides maintenance.