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executive decision

Bob McDonald Out as CEO as P&G Rehires Lafley for Top Post

Posted by Dale Buss on May 24, 2013 12:10 PM

Procter & Gamble's board is hoping that A.G. Lafley can pull a Steve Jobs and return to the helm of the CPG giant to make vast improvements, quickly.

Lafley is abruptly coming back to the CEO post from which he retired in 2010 after 33 years, this time to replace the soon-to-depart Bob McDonald, according to a P&G press release. Yet there will be enormous pressure on Lafley from the start to demonstrate that such a move—uncharacteristic of the conservative culture at P&G—was justified.

The changing of the guard, which will see McDonald formally exit on June 30 while Lafley returns as Chairman, President and CEO "effective immediately," surprised most P&G investors and employees, especially as the bombshell dropped before the Memorial Day holiday weekend in the U.S. But perhaps it became inevitable when McDonald, after improving the company's financial and market performance for a while last fiscal year, stumbled in late April by reporting weak sales growth, following on a tumultuous year for the company and its embattled leader.

During his four years at the top, P&G had lost a step to rivals such as Unilever in terms of market share and profitability. Despite the fact that McDonald had launched the popular Tide Pods product line, a $10-billion cost-cutting program and had managed to improve P&G's position a bit during the second half of 2012, he couldn't do enough, quickly enough.

McDonald's departure no doubt will boost the standing of activist investor Bill Ackman, who holds a $1.8 billion stake in the company and immediately began pressuring McDonald to perform, and privately pressuring the board to replace McDonald.

The current CEO called his move a "retirement" in a memo to P&G employees and alluded to the turmoil around his tenure. "During the past year, much attention has been focused on me from several angles, which has been a distraction that is not in our best interests," McDonald wrote. "When we get to a point where too much attention becomes a distraction, it's time to change that dynamic."

And the 65-year-old Lafley likely will. As spelled out in his latest book, Playing to Win, Lafley's track record at P&G saw him double sales, quadruple its profits and increase its market value by more than $100 billion—in just ten years.

P&G burgeoned under the marketing legend's reign for most of the last decade, acquiring Gillette for a mammoth $53 billion acquisition, reordering its stable of brands around core areas such as beauty and grooming (Olay, Old Spice) and household care (Bounty, Swiffer, Febreze, Tide), emphasizing internal and externally sourced innovations as the most important way to keep a company meeting consumer needs and expanding. He also played up the premiumness of P&G brands.

McDonald has had to cope not only with more agile rivals but also with the explosion of mobile and digital as marketing platforms and a new value orientation (read: belt-tightening) by consumers in America and Europe, especially, as they have coped with the Great Recession and its sluggish aftermath. In that process he was pressed to improve present-day performance and hadn't made much progress in lining up a potential successor.

Will Lafley's return bring P&G to a new golden era the way that Jobs' return to Apple did, or Howard Schultz's return to Starbucks? Or will the jury be out for quite some time as it is currently on a similar turn of events at JCPenney? The embattled retailer saw CEO Myron Ullman depart in a cloud in 2011 to make room for Ron Johnson, who damaged the company before the JCPenney board recently ousted him—and convinced Ullman to return as CEO. (No surprise, Ackman also holds a big position in JCPenney and recruited Johnson.)

Presumably just getting back up to speed as he leaves his position as a partner with a private-equity firm, Lafley also wrote to P&G employees on Thursday but didn't reveal too much of what he has up his sleeve.

"I want to assure you that we will build on the business momentum behind the current growth strategies" of strengthening core developed markets, for instance, and building a strong innovation pipeline, Lafley wrote. But surely he'll have a lot more to say very soon.

Can Lafley bring back his old magic and get P&G "Playing to Win" once again? Below, read the memos sent by Lafley and McDonald to P&G employees on Thursday (as obtained by The Cincinnati Enquirer) and tell us what you think in the comments:

Bob McDonald’s letter to P&G employees

Dear P&G Friends,

Today I’m announcing my retirement from Procter & Gamble. This has been a very difficult decision for me, but I’m convinced it is what is in the best interests of the Company and you.

Replacing me will be my friend and mentor, A.G. Lafley. I’m thankful that A.G. has agreed to come back to P&G and carry on with the work we have collectively done to strengthen the Company, its business and its organization.

During the past year, much attention has been focused on me from several angles, which has been a distraction that is not in our best interests. I’ve always believed that we are a Company -- One Company -- comprised of great individuals. When we get to a point where too much attention becomes a distraction, it’s time to change that dynamic.

Most important, thank you for all you are doing to make P&G the great Company it is and always will be. I am proud of what you have accomplished, and it has been a privilege to be a part of it. During the last four years together, we’ve expanded our business into many new categories and geographies. By the end of this year, developing markets will account for 40% of our sales and 45% of volume. We’ve launched exciting innovations with many more to come. And, we’ve made significant progress on our productivity program. There are many more accomplishments, and I cannot thank you enough for all your hard work and dedication.

I love this Company and all of you. I will celebrate 33 years with P&G on June 4, and I first met A.G. the night before I interviewed. I know you will give A.G. your very best effort. We are on the way up, but there is more to do. We have an opportunity to have an excellent quarter, and there will be many more to come in the future.

My official retirement date is June 30. Please know I am always available to help you in any way I am able.

Best wishes. I have every confidence in you. I am counting on you. Thanks.

Bob

A.G Lafley’s letter to P&G employees

Dear P&Gers,

Today I am rejoining P&G. I’m looking forward to working with all of you again, to do what we do best and what matters most -- win with consumers.

I want to thank Bob McDonald for his 33 years of service to the Company, and for his leadership. I’ve known Bob his entire career, and he has real passion for doing what is right and for improving the lives of consumers around the world.

I also want to thank P&Gers for the work you’re doing to win with consumers. I want to assure you that we will build on the business momentum behind the current growth strategies:

Strengthening core developed market business.

Maintaining strong developing market momentum.

Building and leveraging a strong innovation pipeline.

Driving cost savings and productivity improvements.

I will be getting up to speed on the business in the next several weeks. In the meantime, here are a few of my core beliefs:

The consumer is boss -- at the heart of everything we do.

We create and build brands that improve consumers’ lives.

Innovation is our lifeblood.

Every P&Ger is an owner and a leader -- we are one team, with one dream, collaborating internally and competing externally.

I look forward to working with you in the days and weeks ahead.

Best,

A.G.

Comments

Limpeza pós obra Brazil says:

Like much of the work on your website

May 24, 2013 03:55 PM #

Koann United States says:

I would suggest that Mr. Lafley's memo doesn't yet show evidence that he understands the shifting landscape of human/societal values which are becoming tired of the zero sum, compete to win mentality of 20th century business, a mindset we believe belongs on the sports field or court rather than in business, an institution better focused on uplifting the whole versus the few. One certainly can't definitively say that Unilever's recent performance is solely a function of their internal focus on long term social and environmental sustainability and putting human betterment vs. compete to win values at the core of their strategy but I bet my bottom dollar there is a firm connection. This kind of organizational reengineering of a global company the size of P&G (or Unilever) doesn't happen overnight, nor is consumer trust, confidence and loyalty built in a day. Unilever saw the future a decade ago and has been slowly but steadily building organizational structures and processes for embedding a commitment to long term sustainability into the core of its corporate brand, and then out in to its product brands. Their steady forward progress, driven by smart vision, smart strategic hires, and relentless execution will continue to pay off. While for all our sakes, i hope Im wrong, my guess is P&G has a long way to go before it finds itself on the right footing to excel in the 21st century marketplace.

May 27, 2013 12:16 PM #

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