By Serena Ng, Joann S. Lublin and Ellen Byron
For the second time in six years, Procter & Gamble Co.
directors will replace Chief Executive A.G. Lafley with an insider
whom he groomed. This time, they need to make sure the change
sticks.
P&G said Tuesday that 35-year-veteran David Taylor will take
over as CEO on Nov. 1, with Mr. Lafley shifting to the role of
executive chairman. The Wall Street Journal had earlier reported on
the expected change.
The world's largest consumer-products company has long spawned
scores of executives who left and became successful CEOs at
companies such as Unilever PLC, Microsoft Corp. and Estée Lauder
Cos. But when it comes to its own succession, P&G has had a
checkered record. The leadership change will again test its
promote-from-within culture.
The company has gone through three CEOs in 15 years, including
two who held the job for far less than the 10 years or so that
P&G generally likes its leaders to serve. Mr. Lafley's original
predecessor, Durk Jager, was CEO for just 17 months before the
board ousted him in 2000. His next predecessor, Robert McDonald,
held the post for less than four years before retiring amid
shareholder and employee discontent in 2013.
As Mr. Lafley prepares to relinquish the job he has now held for
more than 11 years, P&G is tapping another company veteran to
revive its fortunes. Mr. Taylor is a former manufacturing plant
manager who switched to brand management and worked his way up
P&G's ranks over 35 years. The Charlotte, N.C., native has also
worked in Asia and Europe and marketed a wide range of products
from diapers to shampoos.
Widely viewed by colleagues and the investment community as a
safe pick, the 57-year-old Mr. Taylor has a record of expanding
some of P&G's core household brands and overseeing divestitures
of underperforming businesses. He made his mark expanding products
including air-freshener line Febreze, which hit $1 billion in sales
in 2011, and he led decisions to exit brands like Iams and Eukanuba
pet food, which P&G sold last year for over $3 billion. In his
current role overseeing P&G's sprawling beauty and grooming
business, Mr. Taylor presided over the company's recent $13 billion
deal to shed 43 beauty brands that made up nearly a third of the
beauty division.
Like Mr. Lafley, Mr. Taylor maneuvers easily within P&G's
insular culture, which favors calm and modest demeanors, current
and former colleagues say. "He's got the trust of the people in the
company," said Mr. McDonald, now U.S. Secretary of Veterans
Affairs. That trust "gives him the ability to be direct," Mr.
McDonald added.
To help smooth the transition, the 68-year-old Mr. Lafley will
probably remain chairman for one to two years rather than the six
months he held the role after handing Mr. McDonald the reins in
2009. Company executives, in meetings with investors and analysts,
have been trying to assure them the succession will be handled
better this time round. P&G is "very aware of its poor
transition history," said Sterne Agee CRT analyst April Scee in a
report this month.
In an interview Tuesday evening, Mr. Lafley said he will jointly
run P&G with Mr. Taylor for as long as necessary.
"This is structured and organized the way it is so that we'll
have two of us full on against the business. It's open ended and I
am going to be here long enough to have an outstanding transition,"
Mr. Lafley said. "Two heads are going to be better than one."
Under the new arrangement, Mr. Taylor will run P&G's
operations as CEO and Mr. Lafley will advise on matters such as
strategy, innovation and mergers and acquisitions. Mr. Lafley said
he will also help assess talent and will continue to coach and
mentor Mr. Taylor, whom he has worked with for more than 20
years.
Mr. Taylor faces pressure to avoid missteps that resulted in the
failure of certain predecessors, who abruptly lost support of
employees and investors. Mr. Jager overhauled P&G's
organizational structure shortly after starting the job, and the
company's stock plunged after it badly missed earnings forecasts,
which led to his ouster. Mr. McDonald, meanwhile, inherited a
cost-heavy and bloated business and tried to expand it aggressively
abroad while its U.S. operation was still reeling from the
recession. P&G's performance suffered, and pressure from
activist investor Bill Ackman helped lead to Mr. McDonald's
departure.
Mr. Taylor is taking over P&G after it has undergone an
overhaul in the last few years, eliminating thousands of jobs,
redrawing its supply chain and axing 100 brands to simplify its
business. A cost-cutting program that began in 2012 is close to
completion, giving the incoming CEO a relatively clean slate.
Still, P&G's sales growth has decelerated further in the last
two years, and its stock price has underperformed the broader
market.
Some leadership experts contend that P&G's management model
is broken as it applies to the CEO spot. The issue is whether the
company's promote-from-within culture has effectively pushed out
talented executives once they were passed over for the top job or
has groomed individuals who may be ill-equipped to handle new
challenges because they have never worked anywhere else. When
companies rely exclusively on veteran insiders for their next CEO,
"the gene pool becomes too inbred," said David Dotlich, head of
Pivot Leadership, a unit of recruiters Korn/Ferry
International.
Some P&G watchers expect that Mr. Taylor's CEO appointment
will spur the departures of other senior executives. Earlier this
month, Melanie Healey, a top P&G executive once seen as a CEO
candidate, retired from the company at age 54. She previously
oversaw P&G's North American business, which struggled to grow
consistently in the wake of the recession.
Other current P&G executives who have been considered CEO
candidates include Giovanni Ciserani, who leads P&G's fabric
and home care businesses and Martin Riant, head of the baby care
business. Patrice Louvet, a well-regarded beauty division
executive, meanwhile, could be a CEO contender the next time
P&G looks to change leaders. Mr. Ciserani turned 53 this month.
Mr. Riant is 56 while Mr. Louvet will have his 51st birthday in
September.
Mr. Louvet is a strong ally of Mr. Taylor, who is currently his
boss, according to a recruiter familiar with P&G. "He is a
keeper," the recruiter said.
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