Lafley Turns P&G Over To “Broadly And Globally Experienced” CEO McDonald

Although Procter & Gamble's newly appointed CEO and President Bob McDonald has built his career largely around household products - and primarily in Asia - he has demonstrated a keen understanding of markets the world wide and an eye for potential growth drivers in the beauty sector.

P&G announced June 9 that McDonald will succeed A.G. Lafley as chief executive of the Cincinnati, Ohio-based consumer products powerhouse, effective July 1; he also will assume the title of president, a position most recently held by Susan Arnold, who has retired.

Lafley, who is credited with P&G's unprecedented growth since he took the reins in 2000, will remain full-time chairman of P&G's board of directors.

McDonald was rumored to be frontrunner for the CEO office, having served as an integral member of Lafley's leadership team - most recently as chief operating officer, a position the company reinstated for him in 2007.

During a June 10 meeting with analysts, Lafley characterized his successor as "the most broadly and globally experienced chief executive in P&G's history."

He pointed to McDonald's nearly 30 years of experience in "brand management, market development, global business unit and global operations" at P&G.

Lafley added that McDonald met "every one of the criteria" established by P&G's board and "has expertise in virtually every part of P&G's business and operations around the world."

McDonald joined P&G in 1980 and has held a number of advertising and brand management positions in laundry care - focused at different times in the 1980s on Dawn , Cascade and Tide - mostly in Asia.

In 2001 he became president of P&G's global fabric and home-care business, which recorded "record-setting profits during his tenure," P&G says.

Nevertheless, the concentration of McDonald's experience in home care has raised some concern among investors, given that in recent years P&G has identified beauty, men's grooming and consumer healthcare as engines that will drive future growth.

P&G points out that McDonald also did stints as head of the firm's hair-care business in Asia and beauty business in Japan.

In a June 9 interview with "The Rose Sheet," P&G spokesman Paul Fox stressed that McDonald has a broad understanding of all of P&G's major branded categories, and particular savvy when it comes to beauty.

Following P&G's 1985 acquisition of Richardson Vicks, McDonald recognized the value of a then-small hair-care brand it picked up in the deal. Pantene , which at the time enjoyed limited distribution mostly in Europe, was taken to new markets in an expansion effort that McDonald helped lead, according to Fox.

"Bob recognized the potential the brand had and choreographed its launch on a global stage," Fox said, noting that Pantene today is one of the firm's most "revered" billion-dollar brands.

Furthermore, in his remarks to analysts Lafley noted that his successor "played a pivotal role in the integration of Gillette."

"Continuity With Change"

In a first, brief address to analysts as CEO-elect, McDonald described his vision for the company as "continuity with change," or a will to "strike the right balance between change that makes us better and continuity that keeps us on course."

In terms of changes, McDonald said there are "plenty" of opportunities to augment the firm's strategic businesses, particularly in laundry, beauty, grooming and consumer healthcare.

McDonald pointed out that P&G leads the $250 billion beauty and grooming market worldwide, but with only a 15 percent share. In consumer healthcare, a $240 billion segment, the firm is the No. 2 player, with only a five percent share.

"We have significant opportunity to grow share and fill in white space in all of these core and disproportionate growth businesses," he said.

He also told analysts that he will carry on the firm's mission to accelerate the pace of innovation - "particularly big, disruptive innovations," he said.

Additionally, he will work to advance the firm's twofold strategy of building out its brand and category portfolios to serve more consumers at more price points as well as drawing existing consumers into new categories (¹ (Also see "P&G To Recover Eroding Market Share With Innovation Investment" - HBW Insight, 1 Jun, 2009.), p. 3).

An ongoing effort to streamline the organization and improve productivity is in capable hands with McDonald, who has already demonstrated an ability to trim excess fat. P&G notes that as vice chair of global operations, McDonald helped establish a low-cost business model that has accelerated growth in developing markets.

"Global" CEO Eyes Emerging Markets

McDonald assumed the role of vice chairman for global operations in 2004. In fact, having lived and worked on three continents he represents the most global chief executive in P&G's history, according to Lafley.

McDonald's experience in Asian markets including the Philippines, Japan and Korea - in addition to Europe and Canada - has schooled him on the unique business needs of different cultures and made him comfortable operating in emerging markets, P&G indicated.

Under his leadership P&G will continue to focus on capturing consumers in developing markets, which represent 30 percent of the firm's business. While P&G currently reaches half of the world's 6.5 billion population, McDonald believes the company can add another 1 billion consumers over the next few years, predominantly in emerging regions.

Reiterating statistics presented by Lafley at a recent conference, McDonald observed that increasing per capita spending in China and India to the level it sees in Mexico would generate an incremental $40 billion in annual sales.

Lafley's Legacy

Despite P&G's saying for years that its CEO succession plan was in place, many in the investment community were surprised by the timing of the move in light of the economic recession and the exec's previous success in navigating the company through challenging periods.

When Lafley replaced former head Durk Jager in June of 2000, he had his work cut out for him; amid numerous earnings shortfalls, the company's stock had fallen nearly 50 percent in the six months prior to Lafley's appointment.

Upon taking charge, Lafley identified one of P&G's main problems - the firm had lost its focus on the consumer. He set out to refocus the business on products that meet consumers' day-to-day needs. Lafley became known as a hands-on leader who was said to have visited consumers' homes to observe how P&G products were being used.

Under Lafley's charge P&G whittled down product categories and placed resources behind core brands, including hair care, laundry care and diapers.

Perhaps his biggest achievement was oversight of the company's 2005 acquisition of Gillette, a $57 billion purchase that granted what traditionally had been a women's marketer a significant push into men's grooming.

The efforts paid off. Over the last decade P&G has doubled its sales and grown its billion-dollar portfolio from 10 brands to 23. The firm's stock price climbed from the low $20s in 2000 to the $70s range in late 2007.

The appointment of McDonald is in line with P&G's system of changing CEOs every 10 years and is something Lafley says he has prepared for since stepping into the role. The time is right to make the transition, despite the recession, he told analysts.

"We believe we've made the right choices for the current economic realities...we've doubled down on our strategies that are working and we're evolving the strategies that we need to change to be even more competitive and more successful in the year and decade ahead. We have a leadership team in place for the next decade and now [it is] complete with Bob as Chief Executive."

- Eileen Francis ([email protected])