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Mood Dimmer as A.G. Lafley Prepares to Step Aside at P&G

Outgoing chief executive officer faces criticism at annual meeting, in sharp contrast to the triumphal exit during his first turn in office.

A.G. Lafley’s final push as the comeback chief executive officer of Procter & Gamble Co. is ending with a whimper, a stark contrast to the accolades that followed him during his first exit from the post.

Lafley’s two-and-a-half year quest to restore growth to P&G has been met with mixed reviews, as evidenced by the criticisms directed at him from shareholders at the company’s annual meeting on Tuesday.

As the meeting was winding down, the affable Lafley agreed to allow one more question. It was from a shareholder who lamented that P&G’s stock price was down 19 percent this year. She asked Lafley if the same management team that “drove P&G bus into the ditch” could get the company out.

“We are accountable and the buck stops with me,” declared Lafley. “There are tangible, concrete signs of improved operating performance of some of our biggest and most important business,” he said, naming baby and fabric care in the U.S. “We are in the middle of a big transformation. It’s not going to change in a week, a month or a quarter but we think we’re about halfway through it. We are determined to deliver for you, our shareholders.”

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On Nov. 1 Lafley will assume the post of P&G’s executive chairman, as company veteran David Taylor ascends to the role of president and ceo.

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Taylor, who is currently president of global beauty, grooming and health care, inherits a company that Lafley has worked to streamline into 10 core businesses. At the end of the process, P&G will have about 65 brands. The company has said that about one-third of the brands will be higher than or near $1 billion in annual sales, and about two-thirds with around $500 million in annual sales.

But still the question persists, is the strategy bold enough to transform P&G?

“I think that Lafley’s aim at reducing P&G’s own complexity by divesting or de-emphasizing brands is a right step, but not enough,” said ConsumerEdge Research analyst Javier Escalante. He added that P&G also needs to address its centralized structure and executive recruitment strategy.

“P&G may be underestimating how inadequate its centralized organization has become versus a more fragmented and volatile consumer environment, wishing that things will come back to the way they were prior to the Great Recession,” he said. On the management front, Escalante said, “P&G is too focused on cost-cutting and headcount reduction, which undermine the company’s ability to recruit and retain talent. Another issue is the need to bring external talent at the highest executive levels as each one of P&G’s divisions or [global business units] is a large company in its own right and the bench suffers from inbreeding and group thinking.”

Even under the stewardship of Lafley, P&G’s results have yet to show growth. In the fourth quarter ended June 30, the company’s net income declined 80 percent to $521 million, or 18 cents a diluted share, compared with $2.58 billion, or 89 cents a share, in the year-ago period.

Net sales for the three months period fell 9.2 percent to $17.79 billion, compared with $19.60 billion. Organic sales grew one percent. Excluding the businesses P&G is exiting, including the beauty brands going to Coty, organic sales gained 2 percent.

By category during the quarter, beauty, hair- and personal-care sales declined 10 percent to $4.14 billion; grooming sales slid 18 percent to $1.69 billion; health-care sales fell 6 percent to $1.71 billion; fabric care and home care was down 7 percent to $5.32 billion, and baby, feminine and family care sales dropped 7 percent to $4.82 billion.