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In a stunning and seemingly swift move, Procter & Gamble Co. has brought back A.G. Lafley as chairman, president and chief executive officer, ousting his successor, Bob McDonald, effective immediately.
Lafley’s return after four years marks the second time he was wooed back to P&G to replace a struggling ceo. In 2000, he returned 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.
This time around, several on Wall Street wondered if the soon-to-be 66-year-old Lafley is indeed a temporary fix, suggesting P&G may seek out a permanent — and younger — replacement.
Also, in the past analysts have suggested McDonald inherited issues from the end of Lafley’s tenure — most notably a falloff in innovation.
Lafley’s return to the top post marks the end of several years of growing pressure on McDonald. His loudest critic, activist investor William Ackman of Pershing Square Capital Management, emerged in 2012. Ackman, whose fund controls 27.9 million shares of P&G, or 1 percent of the company, hit TV airwaves last year and publicly called for a leadership change.
McDonald was in the hot seat. But P&G’s board stated that it continued to support McDonald, who joined the company in 1980 and assumed the ceo post in July 2009.
Asked by WWD last fall about the impact naysayers like Ackman had had, McDonald said, “We have a laserlike focus on our plan to improve innovation and productivity of the company, on creating a culture that has both and a proven business model. As a result, people don’t get distracted by that and neither do I.”
But financial observers say, despite the board’s public statement of support, the writing was already on the wall, as reports surfaced that the board was starting to look elsewhere. Ackman himself declared on CNBC’s “Squawk Box” in October, “We were received very seriously by the board and had a great meeting with the lead director Ken Chenault and Bob McDonald [P&G’s chairman, president and ceo]….I think the board wants to give him a little bit more time to see if he can make some more progress.”
Ackman wasn’t feeling diplomatic, saying, “P&G is one of the great companies. It’s been a growth company for 175 years. It’s frankly stumbled in the last several years under the current ceo’s leadership.”
Despite the noise created by Ackman, McDonald charged ahead with what he called the “40-20-10 plan” designed to improve innovation and productivity. The plan is designed to focus on P&G’s 40 largest businesses, top 20 innovations and 10 most important developing markets. He also shifted the company’s focus to fewer, bigger ideas.
At the same time, McDonald, a former Army captain, worked on a plan to wring out $10 billion in costs by 2016. The company’s renewed focus on innovation and cost-cutting comes after a chorus of criticism from Wall Street analysts that the consumer products giant was losing ground to its rivals across a number of key categories, including beauty.
Throughout his tenure, the company continued to grapple with how to fix the beauty business. “Procter has spent more [than its competitors], and grown less,” said Stifel Nicolaus analyst Mark Astrachan.
Across all its categories, the company spends more than $2 billion on research and development and more than $350 million on consumer research.
Under McDonald, the beauty business has undergone sweeping changes. Over the next two years, the company plans to relocate certain beauty-care categories from the company’s Cincinnati headquarters to Singapore. The move, which will affect 30 to 40 people, is designed to keep P&G’s eyes trained on a region that’s quickly emerging as a groundswell of innovation for beauty and grooming.
Together, beauty and grooming account for 34 percent of the $84 billion company’s revenues, or $28.66 billion.
McDonald told analysts last fall, “We’ve been working to strengthen the organization and the business now for some time. We’re starting to see progress….We’ve launched a number of new innovations, and the innovation program looks even stronger in the future. We have more of what we call bigger change innovations coming in the future, and we’re [pleased] about that.” He added, “I expect the performance of the beauty organization to improve quarter-to-quarter and sequentially. And we’re going to continue to invest in it both in terms of innovation and in terms of marketing.”
In after-hours trading, P&G’s shares inched up 0.5 percent to $79.10 after slipping during the day by 0.15 percent to $78.70.