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Rinse and Repeat: What’s Behind the Encore Succession at P&G

Procter & Gamble’s announcement that A.G. Lafley, who ran the 175-year-old Cincinnati consumer products company from 2000 to 2009, would replace CEO Bob McDonald, set business pundits and cable channel talking heads into overdrive. Wasn’t Lafley partially responsible for the current state of affairs at P&G? What about the board of directors? Is Lafley’s recall a knee jerk reaction or master stroke of pragmatism?

What would force Bob McDonald, the West Point alum, Army Ranger, and hand picked successor of A.G. Lafley to resign? When McDonald took over as CEO in July 2009, P&G’s annual revenue was $75 billion. He predicted the company would ratchet up the revenue stream to $102 billion by 2013. Unfortunately P&G generated a mere $85 billion of revenue in 2013. In 2010 Procter and Gamble was perched at #22 on the Fortune 500, today it rests at #28.

Why would Procter & Gamble’s board of directors choose to bring in former CEO Lafley instead of an internal candidate from the company’s cadre of executives? Didn’t P&G enjoy a well deserved reputation as an incubator of C-Suite talent? Weren’t companies of comparable size and scope able to manage succession planning? Consider Jim Skinner’s path to the corner office at McDonald’s. After CEO James R. Cantalupo died of a heart attack (April 2004), McDonald’s board met the same day, choosing his replacement Charles Bell. Six months later, Bell resigned after being diagnosed with cancer (November 2004). Upon Bell’s resignation, Jim Skinner became CEO (November 2004). That’s three chief executives in eight months. If McDonald’s can do it, why not Procter & Gamble?

Asking a chief executive to return for an encore may be the best way for a board to guide a company through periods of crisis. Certain chief executives like Steve Jobs at Apple or Howard Schultz at Starbucks enjoyed success upon their return; other CEOs, like Michael Dell, did not fare as well. These chief executives illustrate the potential payoffs and pitfalls of this encore strategy.

Thomas J. Saporito, Chairman & CEO of RHR International LLP sees Lafley’s return as “probably the smartest and most prudent decision the P&G Board could have made. In Lafley’s case, the board has acted pragmatically. Procter & Gamble is under stress and the board needed someone with a proven track record, able to implement strategies and tactics that will result in success.”

These thoughts are echoed by Prof. Jeffrey Sonnenfeld of Yale’s School of Management. Sonnenfeld, author of “The Hero’s Farewell: What Happens When CEOs Retire,” likens returning chief executives to former generals Patton, MacArthur and Montgomery. All were mothballed, answered the call to duty, and earned even greater achievements their second time around.

Sonnenfeld says returning chief executives, like Lafley, “know the ground, know the key constituents, and know the operations.” If market conditions aren’t radically different than during their previous tenure, former chief executives are likelier than anyone to understand the company’s challenges and how to respond.

Not only will Lafley be expected to boost the company’s performance, he’ll be managing P&G’s succession process as well. An ongoing realignment of P&G’s management is providing insight as to who occupies the pipeline of executives from which Lafley’s successor will be chosen. Among the names mentioned are Melanie Healey (group president of North America), David Taylor (group president of global home care), Martin Riant (group president of global baby care), Giovanni Ciserani (group president of global fabric care), and Deborah Henretta (group president of global beauty care). The elevation of these executives was already underway under MacDonald.

Of all the decisions confronting Lafley in his return engagement, management succession appears to be the one upon which his tenure will be judged. In helping choose a successor who satisfies not only shareholders but stakeholders; Lafley, in the eyes of Saporito, “will have earned his reward many times over.”





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