Coke shareholders, unite!
SINCE THE DEATH OF LONGTIME chief Roberto Goizueta in 1997, no one has held the top job at Coca-Cola Co. for more than a few years. Nor have the company’s leaders revived the stock, which grew steadily in the 1980s and 1990s before going on a prolonged slide. Still, each of the departing executives has left with more than just a Coke and a smile.
Goizueta’s replacement, M. Douglas Ivester, lasted only two years but left with a severance package that some estimates valued at more than $100 million. His successor, Douglas Daft, collected more than $36 million when he left in 2004. And former President Steven Heyer, who was passed over for the top job when Daft stepped down, received a parting gift of about $24 million for his three years of service.
The extravagance of the payouts prompted more than 40% of Coke’s shareholders to demand veto power over outsized severance packages. Last week, the International Brotherhood of Teamsters, which led the drive for shareholder approval, disclosed that Coke’s board has decided to comply. Shareholders will be able to reject any severance package at least three times as rich as an executive’s annual pay and bonus.
Coke is the latest in a series of corporations to give shareholders more say in severance pay, often at the urging of their unions. Others include General Electric, Bank of America and Raytheon. There are emotional roots to these efforts: generous severance packages for high executives who didn’t succeed don’t go over well when companies are laying off workers, reducing pension contributions and forcing employees to absorb more of their healthcare costs. According to Institutional Shareholder Services, a firm that advises investors on corporate-governance issues, a majority of shareholders at more than 30 firms in the past two years have demanded veto power over severance packages.
The heart of the issue is shareholders’ loss of faith in company directors. They want executive pay and benefits to reflect how well or poorly the company is doing -- and in particular, how well its stock performs. Giving millions to executives who preside over languishing revenue and tumbling stock is akin in their minds to rewarding people for failing, something that’s reasonable only in the clubby fantasy land of corporate boardrooms.
Coke’s move is a welcome boost in accountability for the company’s top executives and directors. Granted, it may invite boards to play new games with how an executive’s pay and bonus are calculated to avoid shareholder scrutiny. And it won’t necessarily stop severance deals that are locked in as part of an executive’s initial contract. But it will give shareholders some leverage to block deals that keep executives immune from financial risk, unlike everyone else.
