Health scare may be the biggest challenge yet for Coke chairman

Douglas Ivester, chairman and chief executive of Coca-Cola, has come a long way to a difficult spot. The son of a factory foreman in Georgia, he trained as an accountant before rising to head the state's best-known company.

Mr Ivester has had little time to enjoy his success. Almost since the day he took over in 1997, the company has been bombarded by problems. First came a fall in Coke sales in emerging markets in Latin America and Asia amid a financial crisis.

The latest difficulty, a health scare in Europe after 200 people complained of sickness from drinking Coke, could prove his biggest challenge yet. The way in which Mr Ivester handles the crisis will speak volumes about his leadership, and ability to take the world's biggest soft drinks company into the next century.

The signs were initially unpromising. The crisis started in Belgium after poor quality carbon monoxide was used at one bottling plant, and fungicide on pallets attached to cans at another. After sweeping through France, the crisis reached Spain. Coca-Cola has been widely attacked for responding too slowly.

"It's a bit disturbing that a big firm with worldwide fame did not take far-reaching measures more spontaneously and more promptly," said Mr Luc Van den Bossche, the Belgian Health Minister.

A short statement and apology by Mr Ivester only increased public agitation, since it came eight days after the first reports of illness from drinking Coke were reported in Belgium. The reports eventually led Belgium and several other European countries to ban or suspend shipping of Coke products despite the company's assurance that there was no health or safety problem.

All this prompted a rapid damage-limitation exercise. Mr Ivester flew to Europe to deal with the issue, and talk to the media. On Tuesday, the company published a personal apology to consumers, in the form of a letter from Mr Ivester, in the Belgian media. A day earlier it launched a Europe-wide effort to refurbish its sales and image, running advertisements in other European newspapers but stopping short of any apology.

Handling such a public relations nightmare is unfamiliar territory for Mr Ivester, who for many years was the senior analytical figure at the company.

Under his predecessor, Mr Roberto Goizueta, Mr Ivester engineered the successful spin-off of Coke's bottling business. This produced good returns for the parent company, and helped to secure his place as Mr Goizueta's second-in-command. His way with numbers had prompted Mr Goizueta to hire him away from the accounting firm, Ernst and Whinney, in the 1970s.

The two created a partnership that steered Coke through some of its best years. During Mr Goizueta's tenure, the company's shares rose by 3,500 per cent. Its worldwide sales volume increased at a brisk 7 to 8 per cent, and the brand became ubiquitous around the world. Mr Goizueta, a Cuban-born engineer, concentrated on branding and marketing while Mr Ivester worked behind the scenes to improve the company's bottom line.

That success has become something of a burden for Mr Ivester. Since taking up the reins after Mr Goizueta died two years ago, Mr Ivester has had to prove he can continue to create shareholder value - a hallmark of Mr Goizueta's leadership. But he is also under pressure to put his own stamp on the company that for nearly 16 years appeared to be Mr Goizueta's fiefdom.

His efforts to do so have hit obstacles. Coke's plans to purchase overseas European competitors perturbed regulators, who feared the already-dominant soft drinks player would wipe out competition in their local markets. Last month, Coke had to scale down its $1.85 billion (€1.79 billion) acquisition of Cadbury Schweppes' non-US business to exclude most European markets because of concerns about competition.

Regulators are becoming concerned that Coke is growing too big - and perhaps too confident - in its ability to dominate any market it wishes. In April, Karel Van Miert, the European Union's competition commissioner, rebuked Coke for what he regarded as bending the rules. He complained that it had not submitted its proposal to buy the Cadbury Schweppes business to Brussels, and threatened the company with fines.

How much of Coke's new image problem can be attributed directly to Mr Ivester is debatable. However, analysts have noted that the company's push to buy up competitors reflects Mr Ivester's forceful business style. Some wonder whether his determination to expand Coca-Cola's empire has come to mean more than increasing the value of the company's 113-year-old brand.

Mr Ivester denied this last week, saying he monitored perceptions of the Coca-Cola brand in hundreds of countries around the world each month. "Our brand health is as strong as ever, and growing," he said, "Nothing has been done on the distribution front that would in any way take away from our efforts with regard to our brand or our image."

That does not convince all his rivals. "Government regulators and perhaps politicians feel run over by Coke," said one executive at a rival soft drinks company, "There was not such a desperate attempt to buy up share and volume [in the past] as the one you see right now."

Industry executives who know Mr Ivester say the chairman is a meticulous businessman. In contrast to Mr Goizueta, who was considered gentle and soft-spoken, Mr Ivester is regarded as blunt, and at times merciless, with his employees. He is known for tackling small problems personally, even travelling to remote parts of the world to hear Coke bottlers' complaints.

While analysts say Mr Ivester can stay the course at Coke, there are yet more troubles ahead. Global sales volumes are still declining as emerging economies continue to languish. A reinvigorated PepsiCo is experiencing great success with the launch of its one-calorie soda, PepsiOne. And in the background, two lawsuits are pending. One alleges racism at the company, and the other - filed by PepsiCo - accuses Coke of monopolising the market by pressuring independent distributors to buy its products.