The Real Essence of Business

The Executives’ Club of Chicago
Chicago, Illinois
November 20, 1996

Remarks by
Roberto C. Goizueta

At The Coca-Cola Company, our publicly stated mission is to create value over time for the owners of our business. In fact, I would submit to you that in our political economic system, the mission of any business is to create value for its owners.

Usually, wherever I go, people are full of questions for me. Today, I am here to ask you one simple question: Why should company managements focus so strongly on creating economic value?

Why shouldn’t the mission of business be to produce something? Or why shouldn’t it be to serve our customers? Or why not philanthropy? Why is it not to make products of the highest quality? Or why not to create jobs?

So . . . why share-owner value?

This question has a three-part answer. First, increasing share-owner value over time is the job our economic system demands of management. Second, by increasing share-owner value, we are able to contribute to society in meaningful ways. And, third, it keeps management from acting shortsighted.

Let’s look at these answers one by one. First, creating value is a core principle on which our economic system is based; it is the job we owe to those who have entrusted us with their assets.

We live in a democratic capitalist society. Here, people create specific institutions to help meet specific needs. Governments are created to help meet civic needs. Philanthropies are created to help meet social needs. Churches are created to help meet spiritual needs.

And companies, such as the ones that you and I work for . . . are created to meet economic needs. One role of government, in turn, is to provide the necessary climate for business to carry out its function.

My job is to make The Coca-Cola Company grow profitably, which inherently stokes the economy . . . here and everywhere else in the world we do business.

While performing its role, business distributes the lifeblood that flows through our economic system, not only in the form of goods and services, but also in the form of taxes . . . salaries . . . philanthropy.

Society benefits from commerce, in fact, it thrives on it. And make no mistake, our companies, in turn, benefit from a healthy society. We benefit from educated employees, from a high quality of life in our cities, from roads and waterways . . . from all the services for which the government is the preferred provider. Still, business is the main driver of economic growth.

Thus, we cannot hold any administration in our nation’s capital solely responsible for the performance of the economy. That would be like holding me responsible for the performance of the United States Marines.

It is not my job.

My job is to make The Coca-Cola Company grow profitably, which inherently stokes the economy . . . here and everywhere else in the world we do business.

But we can and should hold government responsible for keeping the aisles clean for business, so that business can carry out its economic role while assuring that business acts without impairing the civic needs of the rest of society.

But unfortunately today, these roles of business and government have become blurred in the minds of many people, and the result is most discomforting. It is discomforting because when institutions try to broaden their scopes beyond their natural realms, they eventually run into trouble.

On the one hand, through increasing regulations, government impinges negatively on the ability of companies to effectively and efficiently meet economic needs to play the role for which companies were created.

And on the other hand, the demands, economic and otherwise, on those same companies are growing every day. Customers and consumers, employees and communities: We are asked to serve many masters, and in many different ways.

So, in the face of all these distracting and shifting currents and countercurrents, we must return to one simple but lasting truth: We work for our share-owners. That is literally what they have put us in business to do.

That may sound simplistic. But I believe that just as oftentimes the government tries to expand its role beyond the purpose for which it was created, we see companies that have forgotten the reason they exist to reward their owners with an appropriate return on their investment.

They forget because they may become complacent with success paying no mind to the fact that respect for the future is best displayed through a healthy insensitivity to the past.

Or they may wrap themselves in the company flag. They may, in the name of loyalty, prevent change from taking place, or they may assume their business must be all things to all stakeholders.

In the process, these companies totally miss their primary calling, which is to stick to the business of creating value.

I believe it would be wrong, even bordering on arrogant, for business to think it can be all things to all people.

But it also would be wrong for the government to think the same way.

I have to tell you, I find it ironic that as democracy and capitalism are spreading around the world, as one country after another has rejected the failed ideologies by which government promises all things to all people, here, in history’s most successful democratic capitalistic society, some groups of our fellow citizens have a difficult time grasping the fact that the government’s job is not to solve all of society’s ills.

But neither is it the job of business. Nevertheless, we must always be mindful of one hard fact: While a healthy company can have a positive and seemingly infinite impact on others, a sick company is a drag on the social order of things. It cannot serve customers. It cannot give to charity. And it cannot contribute anything to society.

So, again, why share-owner value? The second answer is that, if we do our jobs, we are allowed to contribute to society in very meaningful ways.

I believe it would be wrong, even bordering on arrogant, for business to think it can be all things to all people.

It puzzles me that many Americans want our government to “fix” our economy or even protect our jobs when much of the rest of the world is thrilled to have government finally playing its appropriate role. Just ask the people of the former socialist world how much they enjoyed having governments “fix” their economies and “guarantee” their jobs. I have asked some of them, and I can tell you their answers were very direct and blunt.

Our Company has invested millions of dollars in Eastern Europe since the fall of the Berlin Wall, and the people of Eastern Europe understand the effects of our investments. They will not soon forget that we came early to meet their desires and needs for jobs and management skill.

And in the process, they are becoming loyal consumers of our products, while we are building value for our Company’s share owners, which was our job all along.

I know firsthand what happens when a system in which people provide for themselves and their families is replaced by a system that promises to provide for everyone. It’s the reason I came to this country from Cuba.

That is why I feel so strongly about this subject. It is no sin for us to deliver for the people who have hired us. It is no sin for us to work for the people who have entrusted their retirement savings to us or bought stock in our companies to send their children to college.

In fact, it’s our job.

Certainly, we, as a Company, take it upon ourselves to do good deeds that directly raise the quality of life in the communities in which we do business.

But the real and lasting benefits that we create don’t come because we do good deeds, but because we do good work . . . work that is focused on our mission to create value. We must not fail to fulfill this mission. There are far too many people depending on us.

Seventy-six million shares of The Coca-Cola Company are owned or held right here in Illinois*. Today, those shares are worth some four billion dollars.

Seven public pension plans in this state, including the Illinois State Teachers Retirement System, hold stock in The Coca-Cola Company that is worth 231 million dollars. Chicago-based charitable foundations and nonprofit organizations hold in their endowments stock in The Coca-Cola Company that is worth approximately 50 million dollars.

Tens of thousands of Illinois people whose financial futures depend on the continued growth of their investment in our Company are depending on us to fulfill our mission.

In the United States, more than 8 percent of our total outstanding shares are owned by foundations and other nonprofit institutions. That’s 211 million Coca-Cola shares valued at more than 11 billion dollars.

In 1996, we will distribute more than 105 million dollars in dividends to these charities, endowments and foundations. Or, another way to look at it is that, through the appreciation in our stock price this year alone, The Coca-Cola Company has created nearly 3 billion dollars in additional wealth for nonprofit organizations across this country.

The gravity of this responsibility reminds us that we must remain focused on the core duty asked of us: creating value, over time, for the many people and institutions which own the business in which we work.

Please note that I said creating value “over time,” not overnight. Those two words are the core of the third answer to my question, “Why share-owner value?” Because focusing on creating value over the long term keeps us from acting shortsighted.

The long-term nature of our commitment keeps us disciplined to creating value for all our stakeholders on an enduring basis.

In 1996, The Coca-Cola Company has created nearly 3 billion dollars in additional wealth for nonprofit organizations across this country.

I believe our share-owners want to put their money in companies they can count on, day in and day out.

If our mission were merely to create value we could suddenly make hundreds of decisions that would deliver a staggering short-term windfall. We could gouge our customers and suppliers. We could cut salaries and benefits. We could stop behaving like good corporate citizens. We could even put our business up for sale to the highest bidder.

But that type of behavior has nothing to do with sustaining value creation over time. To be of unique value to your owners over the long haul, you must also be of unique value to your consumers, your customers, your partners and your fellow employees over the long haul.

That is why I am against a scorched earth adherence to profit at all costs.

I am against slashing today to boost the numbers tomorrow, with no regard to what happens the following day.

Certainly, harsh competitive situations can sometimes call for harsh medicine. But in the main, our share-owners look to us to deliver sustained, long-term value. We do that by building our businesses and growing them profitably.

At The Coca-Cola Company, we have built and grown for more than 110 years remaining disciplined to our mission which has brought us to remarkable places.

. . . I am against a scorched earth adherence to profit at all costs. I am against slashing today to boost the numbers tomorrow, with no regard to what happens the following day.

Not long ago, we did some research and came up with an interesting set of facts.

· A billion hours ago, human life appeared on Earth.

· A billion minutes ago, Christianity emerged.

· A billion seconds ago, the Beatles performed on The Ed Sullivan Show.

· A billion Coca-Colas ago was yesterday morning.

And the question we are asking ourselves now is: What must we do to make a billion Coca-Colas ago be this morning?

By asking ourselves that question, we discipline ourselves to that long-term view.

In his newest book entitled Business As A Calling the widely known lay theologian Michael Novak cites a thought from David Packard, of Hewlett-Packard. That thought goes as follows:

“When a group of people gets together and exists as an institution that we call a company . . . they are able to accomplish something collectively they could not accomplish separately. Together they make a contribution to society, a phrase which sounds trite but is fundamental.”

We, in business, do have a calling. We have a calling to reward the confidence of those who have hired us and to build something lasting and good in the process.

Sir John Templeton has said: “If the service is beneficial, then every useful work is a calling and a blessing for all people.”

We have a calling to reward the confidence of those who have hired us and to build something lasting and good in the process.

We should not be shy in proclaiming our calling. Nor should we ever need to apologize for having found our calling in business.

As a current country song proclaims, “You’ve got to stand for something, or you’ll fall for anything.”