The Real Story How did Coca-Cola's management go from first-rate to farcical in six short years? Tommy the barber knows.
By Betsy Morris With additional reporting by Patricia Sellers, Julie Schlosser, Ellen Florian, John Helyar, and Patricia Neering.

(FORTUNE Magazine) – Now that Coca-Cola Co. has written the denouement to its latest public spectacle--now that it has landed a new chief executive after a search so remarkable that another FORTUNE 500 CEO, A.G. Lafley of P&G, calls it "one of the strangest processes we've ever seen"--let's stop a moment, step back, and take stock of what's been happening at this company. Until just six years ago it was considered a crown jewel of corporate America, proud steward of the world's biggest, best-known brand. Since then, with breathtaking speed, it has become a case study in business dysfunction. Let's call this Coca-Cola: the real story.

It is a story with three layers. First there is the one that Coke would like you to focus on: financial performance. After a tumultuous period, the company is in solid--it would say stellar--shape, having just posted a 35% jump in first-quarter earnings. Then, in sharp contrast, there is the management layer: a roiling six years of public blunders and musical chairs in the executive suite, unsettling at any company but especially so at Coke, where impeccable leadership was always considered critical to maintaining the integrity of its brand and its reputation on Wall Street. Partly as a result, Coke's stock has been trading in the $50 range, well off its high of $88 in 1998.

And then there is the third layer, the one that's most interesting and least transparent: governance. Coke has been overseen by a mostly old-boys club of directors that one corporate-governance expert calls the "Coca-Cola keiretsu" because it so resembles the web of interlocking relationships typical of corporate boards in Japan. There's nothing illegal about it, but lately Coke's board has been ineffective to the point of farce. In just six years this group has installed one CEO, ousted him and installed another so inexperienced that he needed constant shoring up, and finally, after a very public search that found no outside takers, named a third--a retired Coke executive who had been passed over for the top job earlier.

At its heart, this third layer is a story of byzantine maneuverings and warring tribes, of spin and counterspin, of old grudges and character assassinations. The tale is long on thwarted ambitions and short on real strategy. It is positively Shakespearean, most akin to Henry VI, in which vying nobles engage in the Wars of the Roses and cripple the kingdom.

Of course, Coke isn't crippled yet. In fact, it's a testament to the brand's strength that it has remained vigorous in a time of management fiasco. Consider the litany of blunders. Last summer a fumbled response to a whistleblower lawsuit brought on investigations by the SEC and the U.S. Attorney's office in Atlanta. Coke botched the British introduction of Dasani bottled water so badly that in March it had to scotch plans for other European markets. Coke's decision not to investigate possible union-related murders at its bottlers in Colombia has become a public relations nightmare.

On Easter Sunday, Coke announced that its general counsel, Deval Patrick, was leaving, and aspersions on his work were leaked to the press. Three days later Coke backtracked, saying it had asked Patrick to stay till year-end. Since Patrick is a prominent African American who had headed up the Justice Department's civil rights division, this didn't help Coke's troubled race relations. The company was sued by employees charging racial discrimination in April 1999 and settled for $192.5 million in November 2000. The Patrick announcement also drew more attention to what has become a rapidly revolving door: Only one of Coke's 13 senior officers has lasted five years--and he's on his way out.

It's been obvious for some time that the company's management team is in disarray, yet when its CEO, Douglas Daft, announced in February that he planned to retire, the board was unprepared. It had no succession plan. Clearly, a company can't go on like this indefinitely.

To understand what has happened at Coke, you have to look back to 1996. That's when people on the 25th floor of Coca-Cola headquarters noticed that Coke's beloved leader, CEO Roberto C. Goizueta, was slowing down, overcome sometimes by coughing spells, succumbing, it would later turn out, to lung cancer. Goizueta had overseen a sustained, 16-year increase in the company's value that had become the stuff of corporate legend and made a lot of investors rich. But when he began to flag, a power vacuum opened up at Coke--and into it stepped Donald R. Keough, the central, powerful, and paradoxical character in this drama.

Many people see Keough as the company's guardian, savior, and keeper of the flame--the man who has, since Goizueta's death, worked behind the scenes to keep Coke on course. Keough served for 12 years as Goizueta's very strong and effective No. 2--a hard-charging, irrepressible president and COO until he retired from the company and the board in 1993. In truth, though, Keough, now 77, never really retired from Coke. He has continued to serve as consultant, advisor, and behind-the-scenes power broker. He officially rejoined as a director after Coke abolished its 74-year-old age limit in February.

"You want all of Keough you can get," says James B. Williams, 71, retired CEO of SunTrust Banks in Atlanta and a Coke board member since 1979. "When you can't have him as a board member, you take him as a consultant. If he's eligible to be a board member, you put him back on the board."

But to others, Keough is a big part of Coke's problem--a man who never got the top job and, according to many who have worked closely with him, never got over it. (Keough declined to comment for this story.)

There is no question that Don Keough eats, sleeps, and breathes Coca-Cola. But his constant involvement in Coke's affairs has too often amounted to meddling that appears vindictive and even vengeful, reflecting his own thwarted dreams, outsized ego, and overt, old-fashioned cronyism. And at worst, he has acted in ways that bear the whiff of self-dealing--a shadow CEO, working from the wings at Allen & Co., a small New York City investment firm with a big reputation that might have had nothing to do with Coke if its longtime boss, Herbert A. Allen, hadn't sold Columbia Pictures to the beverage maker 22 years ago, gaining a seat on Coke's board.

Keough's supporting cast is a board of directors who, no matter how rich, smart, and powerful, have somehow failed to see that you can maim the golden goose with weak top management. Their actions have frustrated analysts, raised eyebrows among major shareholders, and confounded other corporate leaders like P&G's Lafley, who asked about the recent CEO search: "Is the board running the process?" Surprising as it seems given Coke's blue-chip board (including Warren Buffett, Barry Diller, and Home Depot's Bob Nardelli), this looks like the gang that couldn't shoot straight.

Some directors bristle at the charge that their governance has been below par. When the proxy advisory firm Institutional Shareholder Services challenged Buffett's seat on Coke's audit committee on the ground that Coke does business with his company, Berkshire Hathaway, Allen responded with a vitriolic op-ed piece in the Wall Street Journal. He compared the challenge to the Salem witch trials, where "reasonably stupid people accused reasonably smart and gifted people of being witches and casting spells. Then they burned them.... Up until the geniuses at ISS said it, nobody knew that Warren was really a witch. Thank God those folks are here to save those of us who actually have a share in the Coca-Cola Company."

Other defenders of the board point to results. Coke's latest first-quarter numbers were rosy--that 35% increase in net income was accompanied by a 13% increase in revenue, to $5.1 billion. The company has done a lot to strengthen its bottlers, cut costs, boost profit margins, and increase cash flow. Says director Jimmy Williams: "If you would write five pages on Coke's performance, earnings, cash flow, and market penetration, we'd look like the same old animal we used to. These other things are just taking the limelight. We feel pretty good about the way the company is moving. We just have bumps in the road that are so doggone visible, it's hard to get people to focus on the business."

Coca-cola may be a globe-straddling FORTUNE 500 company, but it remains in many ways an insular, idiosyncratic place with its own distinct folkways, the kind that can breed suspicion and court intrigue and whispers. There's even an oracle of sorts at the Thomas Barber Shop, at the corner of Northside Parkway and West Paces Ferry Road in the part of Atlanta's Buckhead neighborhood where Coke executives traditionally settle. Walter "Tommy" Thomas has cut the hair of top Coke executives for years, at $15 a pop. Keough, whom Tommy calls "Big Dog," gets his hair cut there. (Big Dog, he says, "is tough as nails, sharp as a tack, and he can talk the spots off a leopard's back.") Former CEO Doug Ivester gets his hair cut there too. When Steve Heyer, Coke's president, arrived three years ago, he was told to get his haircut there too, if he knew what was good for him. (He does.) You learn a lot about Coke at the barbershop. Tommy knew that Skeeter Johnston wouldn't be made CEO of Coca-Cola Enterprises, the big bottler, even though his daddy, Summerfield, had been pushing for it. Tommy warned Coke president Jack Stahl that his days were numbered, and they were. (Stahl is now CEO of Revlon.) Nearly every main character in this story has signed the COCA-COLA sign on Tommy's back wall. He understands all the feuds and knows where all the skeletons are buried. "I don't go to Tommy because he's such a great barber," says one Coke executive. "I go because I'm afraid not to."

Tommy is a passionate shareholder and Coke watcher and has been since the days when he cut the hair of Coke's legendary patriarch, Robert Woodruff. And what's happening today all goes back to Woodruff --"the boss," as he was called--the longtime CEO who built Coke into the world's best brand by deft strategic management and grand gesture. It was Woodruff who made Coke available for a nickel to every U.S. soldier in World War II, thereby quite literally conquering international markets as the armed forces helped deploy Coke bottling plants around the world. And it was Woodruff who, 25 years ago, emerged from the shadows and his retirement at age 90 to pull Coke out of its first succession crisis.

Then, as lately, the company had a weak leader (CEO J. Paul Austin had Alzheimer's, it was later revealed), trouble with bottlers, and worries that people had grown tired of Coca-Cola. In a six-way succession contest set up by the board at Woodruff's behest, the gregarious Don Keough looked like the lead horse. But he didn't win. The CEO job went to Goizueta, an executive vice president with no operating experience who had risen through Coke's technical side and forged a strong bond with Woodruff, often visiting him on the way home after work.

Keough became Goizueta's celebrated No. 2. From the team's first New York road show, Goizueta was gracious. "The day of the one-man band is gone," he told analysts. "It would be absolutely a crime for me to try to lead the bottlers the way Don Keough can. I would look like a phony.... My job is to pick the people, then give them the responsibility and authority to get the job done."

Over the next dozen years, theirs became one of the most effective partnerships in corporate history. They complemented each other--the Cuban-born chemical engineer whose family wealth had been confiscated by Fidel Castro, and the Iowa salesman who had once been a talk-show host in Omaha, where he shared an apartment with Johnny Carson. Goizueta was cerebral, quiet, charming, a business philosopher, while Keough was infectiously gregarious, the king of schmooze. Goizueta was happy to preside from a clean desk atop company headquarters on North Avenue in Atlanta. Keough liked to travel, wine and dine customers, joust with bottlers, regale audiences. Keough adored the limelight, and Goizueta, a modest man, was happy to share it. He paid Keough as much as most CEOs made, and showered him with praise.

It all looked smooth and collegial, but behind the scenes it was a delicate balancing act of big egos. It was well known that Keough and Douglas Ivester, Goizueta's heir apparent, couldn't stand each other. Keough wanted more of the credit for the company's big acts, like the creation of Coca-Cola Enterprises, its biggest bottler. And God forbid that Goizueta learn a little piece of news before Keough did. Employees followed the "lollipop protocol," making sure, recalls one, that "if you give a lollipop to Roberto, you damned well better be sure you give one to Don" almost instantaneously. "The trouble with Keough," one former top executive was fond of saying, "is that he wants to be the bride at every wedding and the corpse at every funeral."

When goizueta died, in October 1997, it didn't take long for feuding to begin. To use the Wars of the Roses analogy, think of the Ivester people as the house of York and the Keough people as the house of Lancaster. Newly crowned as CEO, Ivester began to exile some Lancaster dukes and rebuke others. He demoted senior vice president Carl Ware, the company's highest-ranking African American. E. Neville Isdell, Ivester's one true competitor for the top job, went into exile to head a bottler in Britain.

The timing of Ivester's ascension couldn't have been worse. The Asian currency crisis that began that summer ravaged Coke's business. The revenue stream from a completed bottler consolidation dried up. Practically from day one, Ivester had trouble meeting Coke's famously dependable earnings targets.

The biggest problem, though, was his tin ear. Ivester was high in IQ but terribly short on EQ. A self-made, stubborn, very shy son of North Georgia millworkers, he had gotten where he was through brains and hard work. He resented Keough's grandstanding, say people who knew him well, and never fully appreciated the importance of Goizueta's almost daily chats with directors. (Ivester declined to comment.) Before long, head-down and full tilt in a turbulent market, Ivester had alienated European regulators, executives at big customers like Wal-Mart and Disney, and some big bottlers, including Coca-Cola Enterprises (on whose board sat Warren Buffett's son Howard). As he raced to put out fires, he became increasingly isolated from his own board of directors. One person was keeping in touch with them, though, even in his retirement--Don Keough.

Now you have to know this about Keough. When he greets you, he shakes your hand and puts his left hand on your elbow and leans in, radiating both genuine warmth and terrible power, and he can make you feel like a million bucks or scare you to death. He is charming. He has twinkly eyes and relentless energy. He doesn't look or act his age. After retiring from Coke in 1993, he began a new career as chairman of Herbert Allen's Allen & Co., which is headquartered in Coke's New York City building at 711 Fifth Avenue, the old Columbia Pictures building. His office is just down the corridor from Allen's.

At the time it looked as though the Allen job was just another lollipop for Keough--a nice way station to retirement for a man who had already stayed on two years beyond Coke's mandatory retirement age. But Keough's role at Allen & Co. would be far more than ceremonial. Keough had a blue-chip Rolodex that included, among others, his close friend and one-time neighbor in Omaha, Warren Buffett, who had joined the Coke board in 1989, as befitted his status as the CEO of Berkshire Hathaway, Coke's largest shareholder, with more than 8% of the stock. Keough continued to attend Coke board meetings as a consultant to Goizueta--right up until Goizueta died and Ivester declined to renew Keough's consulting contract.

By shutting out Keough, Ivester made a fatal miscalculation. When Keough sent the rookie CEO memos and suggestions, Ivester's replies were short, curt, and designed to keep the former executive at a distance. Making matters worse, Ivester hadn't done much over the years to ingratiate himself with Keough's ally, Herbert Allen, either. In fact, he had done just the opposite.

Herbert Allen is wiry, restless, fiercely private, and fascinating. He wasn't the founder of Allen & Co.; he took over the business from his uncle and his father. But Allen greatly raised the firm's profile--far exceeding its modest size--by burnishing his image as a player (his annual Sun Valley, Idaho, media conference is a summit of industry heavies) and by taking an active role in firms he had a stake in. Allen & Co. owned about 7% of Columbia Pictures when that company was roiled in 1977 by a check-forging scandal. Allen, a director, led the board's ouster of Columbia's CEO and replaced him with Fay Vincent, an SEC lawyer who had been a Williams College contemporary of Allen's (and who is a director of Time Warner, parent of FORTUNE's publisher).

It all worked out nicely for Columbia when, in the early 1980s, Coke's rookie CEO came calling. Columbia was just what Roberto Goizueta needed to provide profit growth and a little Hollywood smoke and mirrors to buy time to figure out Coke. He paid a premium price for Columbia, gave Allen a seat on his board, and opened up a lucrative new source of business for Allen & Co. as Coke's de facto investment advisor. From 1982 until 1989, the firm would earn annual fees on Coke business anywhere between under $1 million and $30 million (the payoff from Coke's 1989 sale of Columbia to Sony).

But Allen's Coke income declined substantially in the early '90s as Ivester gained influence, and then dried up altogether in 1993, the year Keough retired. Ivester even let it be known that he was considering selling the 711 Fifth Avenue building.

He didn't get the chance. In early December 1999, after attending a board meeting for a Ronald McDonald House charity event, Ivester was met at a Chicago airport by Warren Buffett and Herbert Allen, who delivered a bombshell. They told him they had lost confidence in his leadership.

Ivester agreed to retire, assuming that the two Coke directors represented the whole board, according to sources familiar with the events. But at a special board meeting the following Sunday night, Ivester's departure came as such a shock that board members asked if he was sick or if something horrible had happened at the company that they weren't aware of, and were angry that he would walk out with the company in turmoil. By the following morning Ivester was out, but bad feeling in the boardroom lingered for years.

In came Doug Daft, a Keough man, who, as it happened, had houses in Britain and Switzerland and one in Williamstown, Mass., not far from Herbert Allen's, where the two men socialized.

Few outside Coke had ever heard of Daft. An Australian, then 56, he had joined the company as a planning officer in Sydney in 1969 and had spent most of his 30 years in Asia, including a terrific run as president of Coke Japan, one of the company's biggest markets outside the U.S. He was low-key, unassuming, not much of a communicator, very press-shy. A lover of wine, travel, and the arts, Daft was one of the few Coke executives who made time for outside interests. He had been preparing for retirement. He would come to be called Coke's "accidental CEO."

Part of his success in Asia, according to several direct reports, was his consensus-driven style, his knack for diplomacy. He couldn't stomach conflict, though. "He ran from a fight," said one. "He was a nice man, but a terrible pick for a CEO." (A company spokeswoman said Daft wouldn't be made available for interviews because "you have to understand, we're trying to do as little damage as possible. We're trying not to blow the place up.")

Daft, who had spent the bulk of his 30-year Coke career jetting around Asia, didn't have a clue about presiding over Coke from Atlanta. Not long after his promotion, a feng shui consultant was summoned to make some decorating changes, according to an employee who worked on the 25th floor at the time. The monk rearranged telephones so the cords wouldn't snake in the wrong direction. Life-sized ceramic roosters were placed in the offices of Daft and two other executives. The four flagpoles outside the building that had traditionally flown the American flag, the Georgia flag, the Coca-Cola flag, and a flag honoring the day's visitor (usually a customer or a bottler) were taken down. If Woodruff and Goizueta had been skillful communicators, this new CEO seemed oblivious to the effect of his gestures. Employees were aghast: The Australian CEO doesn't like to fly flags. It's a cultural revolution. (Down at the barbershop, Tommy would come to say: "The stock went from 69 to 36 under Daft. If that's good luck, I don't want none.")

Tommy is a big fan of Big Dog's, and he says it's no wonder that Keough had to get so involved. In fact it was mandatory. More than good luck and harmony, Daft needed a lot of advice and coaching, so he turned, of course, to Keough. The two had nearly daily phone conversations, Daft told FORTUNE in March 2001. "It's nice to have someone who can tell you you're a fool." Keough was once again welcome at Coke board meetings (always excusing himself for executive sessions). Allen & Co. once again began to advise Coke. In 2001, Allen & Co. gave Coke advice to the tune of $3.5 million; in 2002 Allen's various interests got $2.75 million and last year an Allen affiliate, one in which his son and Keough's are both principals, received some $10 million.

Daft demonstrated what one insider called a "magic bullet mentality," looking for quick fixes. Within weeks he began the bloody job of downsizing the company, cutting 5,200 jobs to bring costs in line and address what was widely perceived as bloat. The company now concedes that the cuts were ham-handed, aimed more at reducing head count than at pointing Coke in any strategic direction. Ivester's mantra had been "Think global, act local." The closest thing Daft had to a vision was "Think local, act local," reflecting his long experience in the field, which naturally led him to think that a lot of Coke's problems were caused by bureaucracy at headquarters. "He had a real disdain for Atlanta," says an executive who worked with him.

But Coke had always worked as a complex matrix. While 70% of its revenues came from more than 200 countries outside the U.S., the keepers of the flame were at headquarters, setting and zealously guarding the standards for advertising, quality control, public relations, legal matters, and more. "The genius behind this global company, beyond the systems and the trademark, was the web of controls: lawyers at corporate being matrixed to lawyers in the field--same with finance, technical, marketing, quality control," says a former top executive. "A lot of that was ripped out." Goizueta the strategist had created and nurtured this system of tight controls from headquarters in the glory years; Keough the salesman had been busy with other things.

Just as Ivester had pushed out many of Keough's favorite executives, now Daft got rid of Ivester's. Turnover was ferocious. In the past 42 years, the company has had two new heads of marketing, two new heads of European operations, and new executives running its North America, Latin America, and Asia divisions, as well as its human resources and legal departments.

Daft sought Keough's imprimatur on big personnel decisions, according to people who know both men. One of the few times he stood up to Keough was when he named Jack Stahl (an Ivester man) his president and chief operating officer. Keough objected. In an obvious vote of no confidence, Stahl was not named to the board. Before long Stahl was left out of important meetings, including a key strategy meeting in Wyoming that included all his direct reports. He left for Revlon.

Keough orchestrated the return of Brian Dyson, a seasoned Coke executive, from retirement. He also cast the key vote on whether hotshot Steve Heyer, president and COO at Turner Broadcasting, could be recruited as a possible successor to Daft. After Cathleen Black, president of Hearst Magazines and a Coke director, recommended Heyer, he was immediately sent to see Keough, who took a liking to him.

When Heyer arrived in 2001, he appeared at first to be another magic bullet. It didn't take long, though, for the brash executive to run afoul of the culture and Keough. Heyer was hard-driving and harsh. Worse, he had a sense of entitlement. Coke executives, who know they depend on bottlers to turn their syrup into a finished product, had a saying: "If your bottler drives a Cadillac, you drive a Buick. If your bottler drives a Buick, you drive a Ford. If your bottler drives a Ford, you walk." Heyer drove up in a Mercedes, and bought a house on Tuxedo Road, the street where Robert Woodruff had lived. Even Goizueta never did that.

He got a lot of attention too, dangerous at a place where traditionally the executives-in-waiting have been carefully coached not to steal the spotlight. In the past year, Heyer has developed a fan club among bottlers and analysts who credit him with stabilizing the place, getting control of the budget, conducting layoffs sensibly, and delivering a clear business strategy. A keynote speech he gave at a conference in Beverly Hills a year ago February was so well received that Coke was swamped with requests for copies. After that Heyer was put on what colleagues sarcastically called "probation" and warned to lie low: no more public speeches or interviews. The buzz on Heyer was that he didn't really have Coke in his veins; he could neither motivate the troops as Keough had done nor be an ambassador for the brand as Goizueta had been. At the barbershop, word was that Heyer was not going to get the top job. He didn't. (Heyer declined to comment.)

Whisper campaigns like that demoralized people. Sometimes press releases were written even before senior executives were notified that they were about to "retire." Those who left had to keep their lips sealed if they wanted to get their severance and retirement benefits. Often senior executives were either damned with faint praise or tarred by leaks that looked as though they came from on high. "It was almost thuggish," says a former employee. And at a company where morale depended on the belief that Coke was not just brown fizzy water but the magic of the Woodruff legacy--patriotism, globalism, civility--this was a hard blow. "They've let the genie out of the bottle, and it's very hard to know how to get it back in," says one insider.

During the Daft years, Keough was rarely seen at headquarters, but his presence was always felt. As advisor, power broker, rainmaker, he continued to be a logical behind-the-scenes touchpoint for Coke customers, bottlers, and suppliers. "I talked to him a fair amount," recalls one former executive. "It was conversational stuff. I did not feel it was meddling or overstepping bounds." But he was powerful, and everybody knew it. "Nobody wanted to cross him," the executive says.

Early on, Daft tried to push Coke into the fast-growing noncarbonated-drink business. Keough attempted to help him buy Quaker Oats, which owned Gatorade, in November 2000. But the attempt turned out to be an embarrassing flop that undermined Daft's credibility as a CEO who could stand up to his board. A Quaker proxy filed later gave an account of the strange tale.

In the three-way bidding for Quaker, Coke, represented by Allen & Co., offered the sweetest deal--a stock transaction valued at more than $115 a share plus downside protection if Coke's stock were to fall. As part of the offer, Coke insisted that Quaker break off talks with Pepsi and Danone. On Nov. 18, Quaker's board agreed to that requirement, but only if it could get assurances that Coke's board would support the deal.

So Quaker CEO Bob Morrison did the logical thing: He consulted with Don Keough, who would seem to be in the know, since he was an advisor to Daft, a principal of Coke's investment firm and a business partner of one of its most powerful board members. In a conference call, Daft and Keough assured Morrison that the board had been informed of the proposed transaction and that management was committed to finalizing it and getting board approval in time for the Thanksgiving holiday. Quaker ended its other talks.

Imagine the surprise when, three days later, the Coke board killed the deal. So sure were Daft and Morrison that it would go through that they'd had publicity shots taken together. Champagne was on ice. Quaker's board was awaiting word, having approved the deal five hours earlier. Coke's public-relations machine had called newspapers to alert them.

But when the Coke board gathered, according to a person with knowledge of the meeting, directors Buffett and Peter Ueberroth raised objections to the deal. Buffett did the math and deemed that giving up 10% of Coke stock for Quaker's assets was a bad bet. Daft didn't have a good grasp on the due diligence and didn't fight for the deal. Ueberroth asked, "How much are the bankers getting?" Somebody computed that roughly $28 million would go to Allen & Co. Daft, the board's chairman, couldn't win over his directors.

A lot of people blamed the deal's failure on Daft's unwillingness to fight for it. But the Ivester crowd had another take: payback. Ueberroth, according to two people close to the situation, had felt blindsided by Ivester's ouster. (He declined to comment.) He didn't want to be railroaded again.

After Heyer was named president, Daft was rarely around. Board members say he spent a lot of time traveling and mending fences with bottlers. But he also spent a lot of time in Coke's New York offices, a few floors away from Allen & Co. in the Fifth Avenue building. One of his direct reports in Atlanta worked for him for more than a year and met with him only once.

Daft could be indecisive and mercurial. This March he abruptly reversed a four-month-old decision to let general counsel Patrick investigate Coke's problems in Colombia. Patrick had announced at an awards dinner last fall in Washington that he would look into the labor violence at Coke's Colombia bottlers, and with a green light from Daft had begun the process. Patrick told Daft he wanted to resign, but Daft didn't want to announce the resignation until the April board meeting. Word leaked out, though, and Patrick was made livid, say people close to him, by news stories implying the board was unhappy with his work. (Patrick declined to comment.)

The handling of the announcement backfired and attracted Jesse Jackson to an annual meeting that became a symbol of Coke's problems. Stockholders at Wilmington's Hotel du Pont got leaflets thrust at them by demonstrators chanting, "Coca-Cola, killer Cola, toxic Cola, racist Cola." In the ballroom, as the company's directors were introduced, not a single one stood up to face the crowd. Daft muddled through the meeting, gradually losing control. He urged a child questioner to "Drink Coke, Sam," and then paused. "That is, if your parents let you." A shareholder activist got unruly, and eight dark-suited security guards wrestled him to the floor. "Stand down, security, stand down!" Daft called from the podium.

The only other executive to speak was Keough, who had rejoined the board in February and had been put in charge of the committee searching for a new CEO. He assured the crowd that the board would land Coke the best possible candidate.

Indeed, the committee was conducting a strangely public search. The possibility of taking the Coke job was floated to Bob Nardelli, who said he wasn't interested, and to Steve Burke, executive vice president of Comcast, who also declined. Directors put a very hard press on Jim Kilts, CEO of Gillette, on whose board Buffett used to sit, but he bowed out of the running because he and his wife didn't want to move to Atlanta. At the reception after Jack Welch's wedding to Suzy Wetlaufer, on April 24, Coke director and search committee member Jim Robinson, former CEO of American Express, spoke with Welch about the job. Welch, the retired CEO of GE, was so interested that talks continued through the following week. But Welch withdrew his name, too--he was having too much fun.

The person outsiders thought would be the logical lead candidate for the job--Steve Heyer--never appeared to be much in consideration. Heyer hadn't fit into the culture, having run through too many secretaries and having unceremoniously canned Jeff Dunn as head of North American operations, even though his father was a former Coke executive and close friend of Keough's.

The man drafted for the job--out of his retirement in Barbados and the South of France--was Neville Isdell, a tall, charismatic, globetrotting operating executive, a darling of Keough's, sidelined a decade ago in the race to the top.

Isdell greeted the troops last week, with Daft at his side, and showed just the reassuring blend of humility and pride that Coke demands of its CEO. At last, employees were relieved to hear, they had a CEO who could give a morale-building speech. Isdell has the leadership and operating experience to stabilize the company, and a sensibility that might, once and for all, put an end to the blood feuds.

But the real test of Isdell will be whether he can stand up to the past, and to Don Keough. He will have to address long-term strategic questions and restore the company's bench strength. He will have to figure out how to realign the system to deal with a big problem: consumers, particularly young ones, who shun mass-market products because they don't want to be like everybody else. He will have to figure out how to keep the focus on Coke but still push the hip, new, lower-margin products that are all the rage.

Isdell's biggest challenge of all, though, was evident in a phone interview with FORTUNE the day after he was named CEO. Keough was right there on the speaker phone, jumping in every chance he could. Isdell ran through his plans for tackling the job. "I believe there is significant future growth to be had for brand Coke," he said. "Obviously some of that will come out of new markets--the Chinas, the Indias--but there is still growth in the U.S. and Europe." Midway through the interview Keough interjected his own message: "For the first time in 119 years, we have as the head of the Coca-Cola Co. a person who has worked on both sides of the system...He brings a fresh new perspective into the system with the experience of being a bottler and a concentrate person, having worked on five continents. . ."

At the barbershop, Tommy's laying odds that Isdell will succeed "if the board leaves him alone." Even though things seem at last to be settling down at Coke, that doesn't mean that Keough will be any less involved. "When the Big Dog dies," he says. "He'll have a telephone in his grave and be talking with the people at Coke."