Procter & Gamble Gets Behind Bob McDonald

The company has reacted to reports suggesting the board has grown impatient with its chairman, president and chief executive officer.

The hot seat just got a lot more tolerable for Procter & Gamble Co.’s Bob McDonald.

This story first appeared in the July 19, 2012 issue of WWD.  Subscribe Today.

On Wednesday, P&G’s board said it is standing by McDonald, the company’s chairman, president and chief executive officer, and his strategy to fix what ails the $82.6 billion consumer products giant.

P&G responded to what it called “erroneous media reports” with the following statement: “The board is overseeing a plan to return P&G results to levels that produce the best long-term value for shareholders; unanimously supports the plan and chief executive officer, Bob McDonald, as he leads its implementation, and is monitoring its effectiveness.”

Last week, after the Federal Trade Commission gave Bill Ackman’s hedge fund Pershing Square Capital Management clearance to take a stake in P&G, reports began to surface that P&G’s board has grown impatient with McDonald. Bloomberg reported that the board was already discussing a possible leadership change.

Asked if P&G’s statement was intended to specifically refute that report, a P&G spokesman said the key words in the response are “erroneous” and “unanimously.”

Still, Ackman’s interest in P&G won accolades from many Wall Street analysts who said P&G has been underperforming for too long.

“I hope it’s more of an impetus for change,” said Sanford C. Bernstein & Co. analyst Ali Dibadj, adding that more cuts are needed beyond the $10 billion cost-cutting plan that McDonald announced in February. “Change has to happen at P&G.”

McDonald, who succeeded A.G. Lafley in 2009, has come under an increased amount of scrutiny from analysts as P&G faces a slowdown in developed markets and market share losses. The company also has lost ground on the innovation front. In June, McDonald said P&G will tighten its focus to boost innovation and the bottom line by “targeting our 40 largest and most profitable businesses, the 20 largest and most promising innovations, and the 10 most important developing markets, where the growth potential is the highest.”

With the board on McDonald’s side, a management change seems far from imminent. McDonald might now have breathing room to make progress on his goal to wring out $10 billion in costs by fiscal 2016.

“He’s obviously under pressure. He’s a ceo who has to do better,” said Caris & Co. analyst Linda Bolton Weiser. “But once the board blesses the plan, it has to give the ceo a chance to do it.” She noted that Avon Products Inc.’s board gave Andrea Jung more than a year to execute against specific performance goals, before ousting her from the ceo post in April.

P&G has a long history of grooming ceo successors from within, and several analysts including Weiser said that should the company ultimately decide to replace McDonald, it would be hard pressed to find an internal candidate well suited for the job. Weiser reminded that Lafley, who had left P&G, was wooed back to the company as a temporary replacement for Durk Jager, who was unseated as ceo after only 18 months. Lafley stayed on as ceo for nearly a decade. In her view, former P&G executive Susan Arnold, who the company passed over as ceo in favor of McDonald, could take the reigns should P&G opt to make changes in top management.

In Weiser’s view, McDonald inherited some of P&G’s issues from the end of Lafley’s tenure. “You could argue that the fall off in innovation is because Lafley didn’t keep it going.” But Lafley, she reminded, believed strongly in the cross-pollination of innovation and technology across P&G various categories. Duracell batteries, for instance, power the Gillette Fusion Power Razor. “It shows you how strong the [cross-pollination] concept is,” said Weiser. She added that while some analysts have argued P&G should split up the company — urging it to sell off businesses like batteries and paper products — P&G’s ability to leverage technology across its various categories is a key strength. “We need Olay and Pantene to do better. Selling off Iams isn’t the answer,” said Weiser.