What's happening to capitalism? Are we bastardizing it with bailouts and stimulus plans? Or just giving a nudge where needed? I decided to ask Don Keough, who as CEO of the Coca-Cola Co. from 1981 to 1993 helped create a global powerhouse with one of the world's most recognizable brands. He also presided over the 1985 introduction of New Coke, widely considered one of the biggest gaffes—and quickest recoveries—in business history. Keough is currently chairman of Allen & Co., the New York-based investment bank. He's also the author of The Ten Commandments for Business Failure, a folksy look at what he's learned from a 60-year career in business. Excerpts from our discussion:
Failure is a basic part of a free-market society. We all know that most businesses don't succeed, but many of the most successful entrepreneurs got their start by failing. Yet with all these bailouts and government aid, we don't seem to tolerate failure the same way these days.
I think that's right. Success is a dangerous word because it's not a constant state. Built into success is failure. If you take failure out of the game, there's no such thing as capitalism.
Look at what governments have tried to do in France, Germany, and elsewhere in Europe: take more and more risk out of the game. They want to make a nice, comfortable world where there's no risk. And over the last 25 years, I don't think one new job has been created in Western Europe. They tried to make the system so safe that it doesn't work.
Ask 100 people, "What have you learned from success?" and most of them will just look at you. But ask, "What have you learned from failure?" and you'll get lots of answers.
What have you learned from failure?
It's very difficult for leaders of companies to admit mistakes. Take New Coke, for instance. Because the issue was so great with New Coke, we had to face up to it publicly. It was a failure in judgment, no question. Once you said it out loud, it became a Frank Capra script: Big company makes bad decision, customers complain, big company reverses itself.
What happens is, there's this little bubble at corporate HQ. You get this sense of infallibility. Staff tends to be very supportive of the leadership.
The whole process made me a professional skeptic, which I had not been up till then. I became skeptical of professional research, wary of anybody who considered himself an expert. I learned to look beyond data and apply common sense, ask questions beyond the first question. I felt much more comfortable dealing with these consultants and researchers.
Obviously , there's been a lot of controversy about what CEOs get paid, especially some of the Wall Street CEOs who made hundreds of millions of dollars. Can you think of a better way for CEOs to get paid?
Part of the problem with compensation is these consultants who have almost made it a profession. These compensation doctors are advising everybody. And if you're the CEO, you're not going to hire a compensation guru to reduce your pay. I don't think anybody has looked that hard at the influence these firms have.
Each company wants to pay people at the peer-group level. And then they have to decide at what percentile do they want to pay. But sometimes the company just needs to say, "Look, this is how we do it."
We're now talking about new regulations or other ways to curb CEO pay. But there's already supposed to be a mechanism for doing that - shareholder activism and boards of directors. Why hasn't that worked?
Boards got careless. Executive pay that's not tied to shareholder benefits is just wrong. This is hard to do, running a big company, and CEOs should be well rewarded. Perhaps doubly rewarded if shareholders do really well. I did very well when I was at Coke, but so did shareholders. In 1981, market cap was $2.4 billion. Fifteen years later, it was $100 billion. One share of stock became 24.
Boards are still wrestling with the concept of governance: What is meddling, and what is governance? I'm hopeful that over the next decade they'll become more active.
What do you think is changing in our economy and in our society?
I was 50 before I even thought that it might be possible to get what I want right now instead of saving for it. This whole idea of instant gratification has been built into our system. Young people almost forget that credit cards are real money.
In Vegas, if the dealer leaves real money on the table for more than four seconds, he's out of a job. That's because they don't want you to know you're playing with real money! They want you to think it's just chips. Play money. I think what we're going through will help people learn more about money and the value of money.