Meet the New Boss, Same as the Old Boss: P&G Goes Back to the Future in Replacing CEO

However distinguished and successful a former executive has been, it never inspires confidence when a leading global corporation decides that the best person to embrace the company future is...someone who retired from running that company five years earlier.

Aside from what it says about the CEO selection process then and, more to the point, what it says about managerial development within the company now, the move by iconic consumer goods behemoth Procter and Gamble (P&G) to replace its embattled current CEO with his predecessor speaks volumes about the challenges the company faces - and probably hints at the reasons why the very recently departed CEO never had a chance.

It is always difficult to replace a beloved and respected leader after a period of great success. The 'big shoes to fill' banalities often mask a genuine unease within any organization about the process of change. A long serving boss has generally created a lot of opportunity for underlings. Their success was tied to him or her. When that person leaves, everyone in the enterprise feels threatened. And especially when the new boss attempts to make changes in what has been perceived to be a smooth-running, optimally functional machine like P&G, the resistance is going to be that much tougher.

As if a significant leadership change weren't wrenching to begin with, Bob McDonald took over the company just prior to the financial crisis and recession. Establishing one's leadership is hard enough in a large, proud, successful institution. Doing so while trying to stave off financial and operational disaster is that much more difficult. In addition, P&G 'enjoys' the support of a large cadre of managers and retirees, many of whom own significant quantities of the company's stock. They saw their retirement nest eggs diminished during the crisis and then only slowly make headway during the subsequent aftershocks. And on top of that, global competition combined with a lessening of consumers' ability willingness to pay a premium for name brands made the recovery that much harder. Retirees and the company's other shareholders expect relentless growth yesterday, today and forever. They are not the least bit interested in excuses, however rational.

Mr. McDonald also took over P&G at a time when American corporations were being particularly introverted in their strategic and innovative positioning. Which is a polite way of saying they have become risk averse. They dont like to invest unless the return is guaranteed. Which, as a general rule in business, is not a common occurrence. The result was that attempts to introduce new products ran into resistance from consumers whose incomes and wealth were evaporating at the same time the company's overlords were questioning every investment that might have diminished their stake.

This is not to say that Mr. McDonald was perfect and simply the victim of bad luck. He made mistakes. His predecessor-cum-successor AG Lafley will have some running room based on goodwill earned in his prior engagement. But the fact that P&G could find its future leader only by looking backwards says a lot about the company's culture and expectations. And it doesnt inspire confidence. JL

Barney Jopson and Gary Silverman report in the Financial Times:

P&G’s sales growth and profitability began to flag, prompting dissatisfaction among some investors, analysts and current and former employees.

Procter & Gamble’s embattled chief executive Bob McDonald is stepping down and will be replaced by predecessor A.G. Lafley after a period of weak performance that disappointed investors.
P&G, the world’s biggest consumer goods maker by sales, announced late on Thursday that Mr McDonald would “retire” at the end of June after nearly four years in the role.
The return of Mr Lafley, 65, who was chief executive from 2000 to 2009, caught Wall Street by surprise. It came less than a year after activist investor Bill Ackman took a stake in P&G and began agitating for change.
Mr Lafley took over P&G at a time of crisis and helped spearhead a turnround marked by its $57bn acquisition of Gillette in 2005 and an increased focus on emerging markets. Jim McNerney, P&G’s lead director and head of Boeing, said in a statement: “AG’s record and his depth of experience at P&G make him uniquely qualified to lead the company forward at this important time.”

Mr Lafley, who has carved out a reputation as a management guru in retirement, was known at P&G for his focus on consumers – embodied in its often repeated mantra “the consumer is boss”.
The company has been beset by problems in its beauty business. Mr Lafley had led P&G’s expansion into the sector through the acquisition of Gillette as well as Wella, the shampoo maker, in 2003.

McDonald bows out after investor criticism

In the year or so that Bob McDonald was under intense pressure from critics, he never entirely accepted the premise of their complaints about Procter & Gamble’s listless performance.
P&G would not comment on what prompted its chief executive’s “personal decision” to retire on Thursday, and it continued to insist that the company was making “steady progress” in improving sales and profitability.
Dissenters, however, say the world’s largest consumer goods maker by sales has lost its way . 

Jim Stengel, P&G’s global marketing officer under Mr Lafley, said: “AG has always been a champion of innovation, of marketing, of building brands consumers love.”
Javier Escalante, an analyst at Consumer Edge Research, said morale at P&G was as low today as it was when Mr Lafley took over from Durk Jager in 2000. “So he knows how to appeal to the culture and the better part of Procter’s pride and drive,” he said.
P&G shares edged up 0.4 per cent to $78.98 in after-hours trading following the news.
The share price was stagnant in 2010, 2011 and the first half of 2012, but a recent rally means it is about 50 per cent above its level when Mr McDonald became chief executive.
Mr McNerney said: “The board expects AG to further improve results, implement the current productivity plan, and facilitate an ongoing succession process.”
Critics of Mr McDonald said that under his leadership P&G had been too slow to adjust to the growth of the middle classes in emerging markets and the post-crisis penny-pinching of Americans and Europeans.
Mr Ackman said this month: “We think this is one of the great businesses of the world, underearning relative to its intrinsic earning power.”