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The Management
by WealthEffect Staff
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Judge a management by how well it plays the hands it's dealt
  A company's managers must be willing, able, and honorable  
  How Coke stacks up  

After you've analyzed the potential of a company, consider the effectiveness of its management in realizing that potential. A great company can do just fine, almost regardless of its managers. Growth in profits is not enough — the measure of a management is its success in maximizing that growth.

A company with average potential might need extraordinary managers to grow its profits at 10% a year, whereas a company with extraordinary potential might be limited to 12% growth by a mediocre management. As an investor, you might not be too interested in buying a piece of either company. Fortunately, great companies tend to attract great managers.


The personal qualities you should look for in managers are simple: desire, ability, and ethics. In this, there is no difference from the qualities you would look for in hiring people to run a business you started. In both cases, you're trusting these people with your money.

Throughout its history, Coca-Cola has benefitted from strength at the top, perhaps never more so than in the last two decades. From 1981 to 1997, Roberto Goizueta and his top lieutenants, Doug Ivestor and Don Keough, set a standard against which all senior managers should measure themselves. He focused the company on its core competency, but embraced new products within that core. During his tenure, Coca-Cola got out of the movie business as it expanded the number of its brands in the soda business.

As other companies tried to grow by acquisition, Goizueta recognized that the best investment of his shareholders' money was in the one business he already led. The vast sums of money earned by Coca-Cola were used to build future growth and to repurchase shares of stock. In buying back some 500 million shares, the company increased the ownership stake of every existing shareholder.

During the sixteen-year period which Goizueta led Coca-Cola, earnings rose 15% a year vs. 11% a year in the prior period. Now, 11% a year is a pretty good growth rate, a good deal higher than the growth rate of the average company. But 11% was not the potential for this extraordinary company — 15% was attainable. This extra 4% a year might not seem like much but, in actual dollars, the incremental amount was about $1.5 billion to shareholders.

A great management is reflects not just in its decisions but also in its impact on the culture of a company. Roberto Goizueta and his team inherited a strong culture, and then strengthened it further. A sense of this culture was captured by Mark Pendergrast in his excellent book, For God, Country and Coca-Cola, Pendergrast described a former high-school buddy who now worked for the company: "He had been born again, and though he never tried to convert me, I knew he believed in a religion which I continue to find somewhat amusing, somewhat alarming, and ultimately mystifying. He had become a Coca-Cola man."

To see the Investment in Coca-Cola Under Goizueta chart, click here.

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