"The Next Generation of Sustainable Leadership -- Making a Real Difference"

Muhtar Kent, President and Chief Executive Officer, The Coca-Cola Company
Israel Food Industries Association
Tel Aviv
June 23, 2008

Thank you, Ronnie, and good morning, everyone. It's a great honor for me to be here with you at the annual Israel Food Industries Association conference. And it's a real privilege to have Ronnie introduce me.

Last week, Ronnie received The Manufacturers' Association of Israel "Lifetime Achievement Industry Award" from President Peres, Prime Minister Olmert, and Speaker of the Knesset, Mrs. Dalia Itzik. Ronnie, please accept my belated congratulations!

I've known Ronnie for many years, and we have many things in common. Both of us have worked at Coca-Cola for most of our careers. Both of us found our first job with Coca-Cola through a newspaper advertisement. And both of us share a passion for the food and beverage industries.

It's the same passion that runs through the veins of Ronnie's great partner -- the chairman of The Central Bottling Company Group -- Muzi Wertheim. Muzi's relationship with Coca-Cola now goes back more than 40 years, from when he was the first sales director of the newly established Central Bottling Company (CBC).

CBC started as a one-production line company that produced just one brand -- Coca-Cola® -- for the Israel market. Under Muzi's leadership, it has grown into an internationally recognized company that produces a multitude of beverages across many different countries.

CBC's heritage of innovation enabled it to become one of the first Israeli food companies to earn the prestigious ISO awards for quality and environment. That commitment to quality and technological advancement is what helped us last year launch new non-preserved sparkling beverages here in Israel -- a first for the Coca-Cola system. It was a great achievement.

And together, with CBC, we are reminding consumers that our flagship brand, Coca-Cola, has never contained preservatives. Muzi and Ronnie -- thank you for all you do.

CBC's success is really a metaphor for all the great innovation and forward thinking that takes place across the Israeli food and beverage industries. We've also set up am incubator program in Israel that focuses on new ideas and technologies emerging in areas like packaging, functional ingredients and water usage. Our goal is to select the most promising technologies, test them and commercialize them.

The world's food industry needs innovation like never before. This year's conference takes place at a critically important and challenging time for the world's food industry... and at an important time for Israel as you celebrate your 60th anniversary.

The television commercial you saw at the outset was introduced during the holiday season this past year. It shows the world coming together to share a meal... and the role Coca-Cola plays in this timeless tradition. In the food and beverage industries, we all play a vital role in creating these kinds of social connections by making our products available, acceptable and affordable.

The stress we're now seeing in the global food supply chain is cause for concern and for new innovative thinking. In the past several weeks, I have traveled to China, Russia, Japan, the U.S. and Europe. Everywhere I go, few issues command more attention... or carry more weight... than concerns over food shortages and the rising cost of life's basic necessities. This subject has filled the newspapers in Israel and indeed all over the world in the last few months -- and rightly so.

Last month, we met with UN Secretary General Ban-ki Moon who said it will take $15 billion to $20 billion dollars a year in new investments and innovations in agriculture and food technologies to offset the current crisis. The growth and sustainability of the global food industry are essential to feeding the world, providing jobs and livelihoods, and protecting our natural resources and environments.

In Israel and around the world, the future health of the food and beverage industries will rest on sustainable leaders and leadership.

Today, I was asked to share some insights about "the next generation of sustainable leadership... and how it can make a real difference." Specifically, I'm going to frame my remarks around the responsibilities and demands facing the next generation of global food and beverage industry leaders. What do we expect from them? What do they expect from us?

I'm also going to talk about the need to adapt our business models to serve not only the most affluent markets through the most progressive outlets... but also the most under-served consumers in some of the most underprivileged regions of the world. Many of these consumers will be rising to the middle class in the coming decades and they will take their brand loyalties with them. Engaging this important -- and overlooked -- consumer bloc will be essential to sustaining global market leadership in the future.

Sustainable leadership will also require us to build cultures of sustainability within our companies. This will be the final area I will touch on today.

So, let's start with the responsibilities and demands facing the next generation of leaders. Tomorrow's leaders will need to be prepared to manage in an environment where the balance of global economic power is shifting dramatically.

Several new realities are emerging... and I refer to them collectively as the "New Equilibrium." They include:

• Rising oil prices
• Rising food prices
• Growing middle class consumption
• And rapid, rapid urbanization.

For the present and future leadership of the food and beverage industries, the implications of the New Equilibrium are profound.

First, most experts believe the price of oil is no longer spiking. It's simply rising as global demand increases and oil deposits become harder to access. The world is now paying about $5 billion more a day for crude oil than just five years ago.

This is fueling one of the largest transfers of wealth in history. It's now estimated that oil-rich nations have a $4 trillion-dollar cache of petrodollar investments around the world. That figure could increase rapidly in the months ahead.

Perhaps the most telling and recent example of this shifting influence is the fact that the Abu Dhabi Investment Authority is now one of the largest shareholders in Citigroup. Singapore's GIC now owns a $15 billion dollar stake in UBS.

Of course, oil booms and busts are not exactly uncommon. What is different now, however, is that we're seeing solid, gradual gains as opposed to sudden peaks and valleys.

This is also producing some unintended and far-reaching consequences, which is the second component of this shifting landscape. The surge in production of bio-fuels like ethanol is partly responsible for rising food prices around the world. So here we are with higher energy costs... and higher food costs. Now... factor in the sustained increase in demand for food and energy that's being prompted by rising living standards in emerging nations.

So, the third major shift we're seeing is the growing global middle class. In fact, by 2015, some 700 million new consumers will be ascending to the middle class. Most of them will be found in emerging nations. That's two markets the size of the United States added to the world economy in less than a decade!

These new middle class consumers strive for the same things we want out of life -- including better quality food and beverages. And like their counterparts in the developed world, most of these middle class consumers will reside in urban areas.

Urbanization is the fourth component of the New Equilibrium. For the first-time in history, the majority of the world's population is now living in urban areas. The urbanization trend is just beginning. For the next decade, 65 million people annually will migrate to urban centers. That's roughly the equivalent of adding a city the size of metro Tel Aviv to our planet every 18 days. Every 18 days, another Tel Aviv is born.

Clearly, what you see here with these four global shifts are significant challenges and opportunities that impact the sustainability of our industries -- and our planet. Cost pressures... infrastructure pressures... distribution challenges... cultural challenges... training and development challenges -- the list goes on.

For all of us, it's going to require shifts in thinking... shifts in behavior... indeed, shifts in our world view. How well our future leaders understand these new realities... accept them... and prepare for them… will determine our success in the coming years. The more we can do -- together -- as an industry to develop leadership will only strengthen the sustainability of the food and beverage businesses.

Over the past few months, I've given several speeches on college campuses and to executive education groups. Every single group asks the same question: "What leadership qualities are we looking for in today's rising managers?" More than ever, we're looking for future leaders who possess a world view.

You know this as well as I do. In recent years, Israeli companies have really begun to make their mark on the global stage -- reaching out to new overseas markets, and bringing technological innovation and management capabilities.

I mentioned CBC at the outset ... but there are many other international companies such as Fox and Castro in the clothing industry... Amdocs and Checkpoint in the high-tech sectors, and Netafim in water irrigation, to name a few. Multi-national businesses need people who can move seamlessly across borders and cultures and feel as comfortable working in Tokyo as they do in Tel Aviv.

At Coca-Cola, we're looking for people with diverse backgrounds and points of view. We make a point to find young managers who want to be stretched -- who relish the challenge of working outside their comfort zones.

I recently met with a group of high-potential young managers from our company who are part of a global leadership development program we launched last year called Catalyst. We pick managers from all over the world for special stretch assignments that benefit our business. We place them far outside their comfort zones and deep into interesting new roles. They are put into cross-functional and cross-cultural teams and given challenging assignments. One team, for instance, was sent to a Southeast Asian nation to develop a 5-year market-entry plan. Another team was sent to Eurasia to work on a water profitability model. Another team was dispatched to Africa to work on a juice supply chain business model.

True innovation, we have found, comes from this beautiful collision and commingling of cultures, ideas, beliefs and experiences. That's why in Atlanta we have over 50 different nationalities represented at our corporate center alone. It's why we have Latin Americans assigned to top level jobs in Asia... Europeans in high level positions in North America... Africans in prominent roles in Australia ...and Eurasians working in Africa.

The next generation of leadership will need to be able to recognize and harness the power of diversity. I'm convinced that one of the most important factors fueling Israel's innovation prowess is the incredible diversity found in a nation where people from over 70 countries have immigrated since 1948.

At Coca-Cola, diversity is an absolute business imperative as we conduct business in over 200 countries around the world.

One of the most fulfilling diversity programs I am personally involved in is serving as the chair of our company's Women's Leadership Council. In this role, I work with senior women executives throughout our company to identify strategies to attract and develop more women into leadership positions.

The keen insights women bring to our business are profound, to say the least. Today, women account for the majority of purchase decision makers for our beverages. Globally, women make up 70 percent of all grocery shoppers.

Israel, of course, has long been a beacon of women's leadership in business, education, government, military, science and the arts. Golda Meir -- one of the great leaders of her time -- really reflected the national psyche when she said..."We do not rejoice in victories. We rejoice when a new kind of cotton is grown and when strawberries bloom in Israel."

Today, women like Foreign Minister Tzippi Livni... Speaker of the Knesset Dalia Itzik… Galia Mor, the head of Bank Leumi... and Ofra Strauss of the Strauss-Elite Food Company... are among the most influential leaders in Israeli society.

As more and more women around the world gain economic power, we as an industry need to be there with the right shopper insights, the right mix of products, and the right marketing and merchandising strategies.

I've talked a bit about the pressures coming down on the next generation of leadership and what we expect from them. At the same time, this next generation has their own expectations about what kinds of companies and brands they want to work for.

In the U.S., for example, a survey commissioned last year by Sun Microsystems shows that almost three quarters of workers want their employers to be environmentally responsible. Another survey of young global professionals in their 20s, conducted by Robert Half International, shows that the ideal employer reflects "a down-to-earth blend of idealism and pragmatism, of concern for self and others."

As a group, these young professionals share the belief that business should benefit both the individual and the broader society. They want opportunities to stretch and grow quickly... They want progressive benefit packages... They place a huge premium on work-life balance... And they want their work to be meaningful and productive to society.

Listen to what one 26-year-old finance professional had to say: "The companies that stand out the most are those that provide for their employees and communities just as much as they provide for their customers. Nothing is more rewarding than knowing that what you do for a living positively affects the lives of those within your community, the country, or even the world."

Those sentiments were echoed by thousands of young professionals who participated in this survey.

I know from talking to my own children, that they have much higher expectations of what they want out of an employer than I certainly did when I entered the workforce 30 years ago. I also hear the same sentiments when we interview young job candidates and when I go speak on college campuses.

People want to work for companies that share their values.

Today, when we recruit new talent to The Coca-Cola Company, one of the first things we hand them is a packet of information about the numerous projects we are involved in around the world to help build sustainable communities. They learn about a number of important initiatives, from the work we're doing to reduce our water and carbon footprints to recycling efforts to green coolers and lightweight packaging innovations.

We have seen through our own experiences -- time and again -- that our business in any market is only as healthy and sustainable as the community in which we operate. Borrowing from my days of studying statistics in university -- there is a clear one-to-one regression in terms of healthy, sustainable businesses and healthy, sustainable communities.

This leads directly to the second area I wanted to touch on today -- how we adapt our business models to serve consumers in the most remote and underserved areas as well as the most sophisticated and progressive outlets in the world.

I think most of you are aware of how we do this in large format stores as we share similar strategies and models. What's less understood is how to adapt our business models to serve the under-served and the under-privileged -- those hundreds of millions of people today who will ascend to the middle class in the coming decades. These under-served consumers will play a significant role in determining our market leadership in the future.

I'm sure some of you are familiar with C.K. Prahalad's work on the "fortune at the bottom of the pyramid" -- the business case for making your products available, affordable and acceptable to the lowest-income consumers. This is an area we're very familiar with at Coca-Cola.

Our strategy has always been to be the first to gain access to a market and to grow along with that market by providing jobs and economic opportunities. When we sold our first bottle of Israeli Coke 40 years ago, per capita income was just over $1,400 US dollars. Today, per capita income is close to $26,000 US dollars, among the highest in the world.

I've seen the power of investing in under-served markets first hand. One of the most exhilarating moments in my career came right after the Berlin Wall fell. In 1989, at the age of 36, I was promoted to president of Coca-Cola's East Central European Division to spearhead the entry of Coca-Cola into the former Soviet Union and Eastern Europe.

This was a group of 23 countries where for between 45 and 70 years some 350 million people had lived literally behind a wall. Concepts like basic human rights, freedom of speech, democracy, free enterprise and land ownership were all novelties. From the Baltics to the Balkans I saw new economies emerge and entrepreneurs born.

One of my favorite entrepreneurs was a gentleman by the name of Nistor Branescu, who worked for me in Romania as a Coca-Cola truck driver. istor had "fire in the belly" and saw how much his fellow countrymen and women were yearning for our products. I encouraged him to set up his own distribution network to serve an industrial city not far from Bucharest. Nistor rented a truck and began canvassing neighborhoods, first selling to kiosks and state food stores. In his first year, he sold 300,000 cases -- about as much as a typical distributorship in a major market like New York at the time. Nistor continued to invest in the business and within two years was selling well over a million cases a year -- creating jobs and even more opportunity as he grew.

Today, I'm proud to say that Eastern European markets like Romania, thanks to entrepreneurs like Nistor, are among the most prosperous and innovative in the Coca-Cola system.

Part of our responsibility in these and every market we serve is to ensure that the communities not only grow economically, but also grow in a sustainable manner. That's why in Eastern Europe for instance, we're involved in initiatives to help preserve the Danube River watershed... and why here in Israel our water initiatives have resulted in the highest rates of water efficiency among the 200 countries we serve. Our efficient manufacturing processes in Israel carry a clear environmental message in a country -- and a planet -- where water preservation is of utmost importance. All of which benefits our business.

So far this morning, I've laid out some thoughts on attracting and developing the next generation of leaders... and adapting our business models to ensure sustainable leadership as the demographics and economics of the world continue to shift. I'd like to close with a few final words about creating a culture of sustainability within our organizations. In other words, how do we "sustain" this drive toward sustainability?

Sustainability is not a one-off project or initiative. It has to be a movement. A way of life. A way of thinking about the world.

We believe so much in this idea at The Coca-Cola Company that we introduced a concept called Living Positively just a few weeks ago. It's a way for us to think holistically and globally about all of the sustainability efforts we're working on system-wide. It includes goals and metrics and several agreed upon principles.

We've set goals for our community work... for our active, healthy living programs... for our environmental work... and for our workforce and employee engagement efforts.

Ultimately, Living Positively is about making the right decisions -- the smart decisions -- to run our business better and to satisfy the needs of our customers and consumers -- most of you here in this room.

It's about creating a culture of sustainability -- and continuing to challenge ourselves about how we can improve further and do more towards this necessary goal.

I can't think of more appropriate industries to lead the charge in the global sustainability movement than the food and beverage businesses. We provide the world with sustenance, comfort and happiness. The world needs our leadership -- and indeed expects our leadership.

Truly, there's no better business to be in than ours... and no greater responsibility to bear than leading the world down the path of sustainable growth and progress.

I wish you all the best of luck on your own journey to sustainability.

Rest assured, we at the Coca-Cola Company and throughout the Coca-Cola system are here to help you support those efforts.

Thank you again for your time and attention this morning. I wish you all an interesting and successful conference.

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