Here’s a company with a charismatic founder & explosive growth but embroiled in supply-chain disruption, expensive litigation, moral panic & family feuds. Sound familiar? This is no WeWork or Waystar Royco but The Coca-Cola Company, a hundred years ago, circa 1915-1925
Asa Candler Sr bought the original formula to Coca-Cola from John Pemberton, a pharmacist. Asa Candler was a consummate salesman and marketing genius, introducing now common ideas such as vouchers & window signs as well as the iconic Coke bottle in 1915.
Under Asa Candler’s leadership, Coca-Cola grew at a 28% CAGR for 27 years from 20,000 gallons of Coke syrup produced in 1891 to 19,000,000 gallons in 1919. With just $50,000 in paid-up capital, the Coca-Cola Company, for example, paid $2 million in dividends in 1913.
Had it gone, in modern parlance, “direct-to-consumer”, the Coca-Cola Company would have grown even bigger. In an act of supreme magnanimity or folly, Asa Candler signed over the bottling rights for the entire United States for the princely sum of $1 dollar.
For all its success in the early 20th century, Coca-Cola faced fundamental threats to its business viability. Firstly, sugar supply shortages, followed by rationing, during the First World War. Secondly, ongoing disputes with bottlers and imitators. Third, litigation defending against charges by the Federal Trade Commission for unfair competition. To cap it all off, Dr Wiley, the Head of US Bureau of Chemistry, sought to remove caffeine from Coca-Cola in The United States vs. Forty Barrels and Twenty Kegs of Coca-Cola.
Tiring of the incessant attacks against Coca-Cola and having developed other interests such as philanthropy, real estate, banking, and politics (eventually serving as Mayor of Atlanta), Asa Candler passed all but seven of his Coca-Cola shares to his children one Christmas morning in 1917.
But not all in this saga of succession turned out to be smooth sailing. Asa Candler’s two eldest sons Charles Howard Candler (“Howard”) & Asa Candler Jr (“Buddie”) had a deep rivalry since childhood. Other Candler siblings resented Howard’s control of the company as President. Asa Candler’s nephew, Samuel Candler Dobbs, the key advertising man at Coca-Cola, felt neglected. As a result of this internecine squabbling, a family board member, likely Buddie, blocked two attempts by consortiums to buy the Coca-Cola Company outright, swearing to oppose the proposals “to the bitter end”.
Eventually, all the shares of The Coca-Cola Company were put under trust with the Candlers’ own bank, the Central Bank and Trust Corporation. Against these shares, “certificates of beneficial ownership” were issued to the hitherto shareholders, with voting rights controlled by one or two family members. The resulting separation of ownership & control served several purposes.
First, Bainbridge Colby and Ed Brown, the organizers of one of the two blocked proposals to purchase Coca-Cola, had threatened to sue. In the end, $1 million dollars’ worth of beneficial ownership certificates, approximately 4% of the Company, were granted to Colby & Brown in settlement. The trust structure allowed this compensation to outsiders, without diluting the then still closely-held family control over the company.
Second, it facilitated decision-making towards a future sale. While all the Candler siblings were, in principle, in favour of and would profit immensely from sale, personal feuds and rivalries had often impeded board decision-making. Via the voting trust, Sam Dobbs, was now empowered to negotiate with potential buyers on behalf of his cousins, the Candler siblings. None of the siblings alone could veto an offer to purchase the Company. In this, Sam Dobb’s role was crucial, being a trusted Candler man with a proven record of contributions to the Company, but at the same time, one step removed from petty sibling rivalries.
Third, it preserved Company leadership in dealing with immediate crises. Faced with a 30% spike in the cost of sugar due to the First World War, the Company was forced to negotiate with both bottlers and the Federal U.S. government. The former still enjoyed perpetual contracts at fixed prices, while the latter sought to pass a special 10 percent tax on soft drinks. Sam Dobbs, as chief negotiator, was able to impose a special “war-time surcharge”, thereby passing on cost increases to bottlers.
Finally, in 1919, all the shares in The Coca-Cola Company would be successfully sold to a consortium of bankers, who also offered shares to the public. The original Georgia-incorporated company was reincorporated in Delaware. Howard was replaced as Company President by Sam Dobbs.
But, the two main bankers, Earnest Woodruff & Eugene Stetson, maintained the “voting trust” structure. Shares in the new company would be put under trust with Woodruff’s bank The Trust Company of Georgia.
This voting trust enabled Dobbs, Woodruff & Stetson to maintain control of the company, despite public ownership of approximately 20% of the common stock.
It also gave the appearance that the Candler family were still in charge, possibly mitigating agitations for the Candler family to retake control. After all, over half of the shares offered to the public were bought by Atlantans, who deeply respected the former mayor, Asa Candler Sr’s, philanthropy & conservative Christian values in their city & state.
In reality, the two outsiders, Woodruff & Stetson, could always outvote the single Candler representative in the voting trust. Sam Dobbs was replaced as company president just one year later in 1920, by Howard Candler. The reinstated Howard Candler was, in turn, replaced by Earnest Woodruff’s son, Bob Woodruff, three years later in 1923.
Bob Woodruff, went on to lead The Coca-Cola Company for over 60 years, growing it into an international behemoth. Over the following decades, The Trust Company of Georgia would evolve over the 20th century into Suntrust Banks Inc. (“the Coca-Cola Bank”) and play a central role in facilitating trusts and other wealth planning devices for the benefit of Coca-Cola shareholders.
Throughout the succession saga of the Coca-Cola Company, the flexibility of the “voting trust” was essential. Other legal devices familiar to us modern readers, were simply not viable at the time.
Dual-class or non-voting stock were not popular and subject to much criticism. The New York Stock Exchange then simply refused to list new issues of non-voting common stock, only allowing the practice in 1980. Even today, this practice remains controversial. Only last year in 2023 did the Malaysian Government allow the listing of dual-class shares on Bursa Malaysia.
Similarly, companies were not allowed to hold shares in other companies, ruling out the concept of holding companies. Only in the 1920s were the incorporation statutes in the US amended to allow for holding companies.
If you are a business owner today, the “voting trust” may still prove useful, as a particularly tax-efficient alternative method of separating ownership from control. Thus, the tumultuous saga of the Coca-Cola Company’s transition from closely held family enterprise to international public company, offers lessons in succession planning.
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