Robert Winship Woodruff was
born in 1889 and at the age of 33 years became the CEO of the Coca Cola
Company in 1923. According to a Harvard Business School (HBS) case study
by Lorsch, Khurana and Sanchez titled the Board of Directors at The
Coca Cola Company, it was Woodruff who began shaping the fledgling soft
drink enterprise and its franchise system into what was to become the
world’s most widely recognised brand.
The truth is that modern medicine and lifestyle changes
have ensured that a person at the age of 70 is still in a good mental
and physical state to perform the rigours of board membership.
This was considered in the revamped Companies Act 2015 where the age limit of 70 for directors of companies was removed.
Previously,
under the 1948 Companies Act, a director of a company who had reached
the age of 70 was required to be approved at every subsequent annual
general meeting to continue to serve on the board.
Like any
visionary entrepreneur, Woodruff set about his business as the new CEO
with a ruthless focus on market share growth and standardisation of the
product.
However, in order to undertake this gargantuan
task, Woodruff needed to have full control of the board. On his board
were representatives from the company’s main sugar suppliers as well as
the company’s leading advertising agency.
The HBS paper
outlined Woodruff’s leadership style: “His board meetings were brief;
he didn’t want to hear from anybody. They were there to serve his
agenda. From Woodruff’s perspective, there was no one to sweet talk
because all of the owners of large institutional chunks of Coca Cola
stock were under Woodruff’s thumb. Woodruff not only controlled the
board of Coca Cola, but in effect he really controlled the boards of the
institutions that controlled the Coca Cola stock.”
In
1955, at the age of 66, Woodruff retired as CEO but created the powerful
finance committee of the board, which he chaired. As chairman, he
controlled the budget of the company and held a veto over all decisions
of the company’s CEOs. The chief financial officers of the company were
required to report directly to him, rather than the CEO, and he would
approve any expenses above $5,000.
He eventually retired from the finance committee in 1981 and
retired from the board in 1984 at the age of 95, when the company was in
the safe pair of hands of Roberto Goizueta, who by this time was the
chairman and CEO. One of Goizueta’s first tasks was to create a maximum
retirement age of 71 for directors of the Coca Cola board, which he
described to someone as looking very close to a geriatric ward.
According to the HBS paper, Goizueta felt that “Directors over 71 had to
retire not just to save embarrassment on Wall Street, but because of
the very real threat of legal liability in the event the company’s
directors were shown to be incapable of hearing and understanding the
matters they were voting on.”
Now the truth is that
modern medicine and lifestyle changes have ensured that a person at the
age of 70 is still in a good mental and physical state to perform the
rigours of board membership.
This was considered in the
revamped Companies Act 2015 where the age limit of 70 for directors of
companies was removed. Previously, under the 1948 Companies Act, a
director of a company who had reached the age of 70 was required to be
approved at every subsequent annual general meeting to continue to serve
on the board.
The Capital Markets Authority in the
same year 2015, issued the Code of Corporate Governance Practices for
Issuers of Securities to the Public (the Code), which was quite a
thorough update of governance laws for Kenya.
In what
was a clear example of the left hand not knowing what the right hand was
doing, the Code maintained the age limit for directors of issuers, by
recommending an age limit of 70 years for board members, which limit had
been removed in the Companies Act 2015. However, according to the Code,
shareholders at an annual general meeting may vote to retain a board
member who has attained the age of 70. The recommendation in the Code is
more loosely worded than the old Companies Act which required
re-election at every AGM by special notice, following attainment of 70
years.
The loose wording of the Code can be interpreted
to mean that once shareholders approve of the director’s continued
service after the age of 70, he or she does not need to keep coming back
every year for subsequent approval. And the director can serve and
serve and serve, just like Woodruff, to the grand old age of 94.
But
before you panic, there are checks and balances that boards of listed
companies put in place to ensure this doesn’t happen. Defined terms for
directors which provide for a set number of years ensures that the
director’s capacity to serve again can be interrogated when that term
ends.
In addition, maximum number of terms is a
standard board protocol. The difficult part though, is when the said
director is a key shareholder such that director terms of service do not
apply to them. At that point, all Woodruff-esque bets are off!
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