9 Lessons You Can Learn From Roberto Goizueta
Roberto Goizueta had a very successful career as the head of the Coca-Cola Company. 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%. He also fixed the mistakes of his predecessor.
His work resulted in the 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. This formed the backbone of the Coca-Cola distribution system.
Goizueta focused on putting capital into all the right projects. He had such good results that even Warren Buffett would have to admire him.
A few key ideas helped Goizueta transform this soda company that had lost market share in the U.S. for nearly 15 straight years. It became a global powerhouse; it rewarded shareholders with profits, dividends, and share repurchases.
Here are nine lessons we can learn from Goizueta.
Know Your Priorities
Goizueta managed to become a billionaire after fleeing Cuba with very little money. But due to his smart stock ownership, he also had 100 shares of Coca-Cola stock. The son of a wealthy Havana family, Roberto, left his homeland and started his career and life anew in the U.S.
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. The Goizuetas prioritized business ownership. This meant either the acquisition of a company, holding a minority stake in private business, or buying 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 control as much of the company as he could.
Don't Be 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. It doesn't matter whether you’re a small business owner, auto mechanic, school teacher, police officer, or something else. The ability to constantly improve your skillset by dedicated, disciplined, and focused learning can make a big difference. It could change your path from a slow-moving career to a rapid ascent to leadership positions. You must be willing to risk looking foolish to become knowledgeable.
Return on Capital Is Key
After taking the leadership reins, Goizueta didn't only expect his operating chiefs to be able to read a balance sheet. He also wanted them to 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, were executives praised, compensated, and promoted. In other words, they were paid well 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 CEOs of the conglomerate’s various operating subsidiaries.
This change came after a startling revelation Roberto had upon taking the reins at Coke’s Atlanta headquarters. As Greising said:
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.”
Know 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. It also increased the strength of the firm’s core brand.
Goizueta worked with a group of fantastic generals. Chief among them is Donald Keough. Keough was 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. Later, there was a $100 million first-year marketing campaign. It was an unprecedented figure at the time. Even in the hallowed halls of “Fortress Coke,” as Greising called it, this was no small change. Failure would have been a public embarrassment.
Not every new product worked out as well as Diet Coke. Such failures include New Coke. But Coca-Cola ultimately emerged stronger because of it. People around the world realized just how much they loved the Coca-Cola they grew up with. It had become such an integral part people's lives.
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 sent his autograph back to the man. Perhaps he was 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 just want to hide. 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.
Understand Politics and Networking
Roberto Goizueta understood politics. He went out of his way to communicate regularly with the legendary Chairman of Coca-Cola, Robert Woodruff. And he also sent letters and kept in contact with an influential network of business leaders.
Here's one example. 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 sacrifices 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. But what if that's a struggle for you? Just keep in mind that the dividends can be enormous later in your life or career. You never know who is going to rise to a position of power. You also don't know what could happen if you unnecessarily alienate someone who otherwise could have been a strategic partner.
Trust the Science
“Keep the scientist’s candor.” This 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 warned. 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, you should be 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 a high quality of life, you'll measurably improve your results by focusing on facts. 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 and went to work. Within a few decades, he had taken control of one of the most iconic brands in history. And he was also generating personal earnings in the billions of dollars throughout his career.
Know the Power of Incentive
The most effective executives know that you'll get the type of behavior you reward. Many of the mortgage industry's problems during the 2008 crisis resulted from a compensation system. It paid brokers based on the total number of mortgages they underwrote; it had no regard to the ultimate profitability of those loans. This biased compensation system led to the expected behavior of massive growth in loan sales. They weren't looking at 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 the 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 is the compensation system you design. It doesn't matter whether you're raising your children or paying your employees. 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. But it all changed when 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.
Keep Things Simple
According to Greising, the famous CEO simplified his job into three main tasks:
- The leadership role
- The company's financial security
- Delegation of jobs
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 mainstream cinema. Berkshire Hathaway is about sourcing low-cost capital through insurance subsidiaries; then, its goal is to put 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. You might accomplish little besides maintenance.