P&G chief Bob McDonald has come under fire after activist investor William Ackman called on the board to dismiss him. B&E finds out whether McDonald deserves more time and what the larger concern really is – survival of the CEO or the very company?
Bob McDonald, CEO of the $193 billion-worth consumer goods maker Procter & Gamble (P&G) hasn’t had an easy year so far. His neatly laid-out corner office on the eleventh floor of P&G’s Cincinnati headquarters, with mid-sized containers of the company’s products placed neatly on four columns of three glass racks each, do not reflect his not-so-calm state of mind. Outside it, employees are talking though. So are investors. Walk into the boardroom and you realise why all is not well at the company. At least not when its CEO is concerned. In recent weeks, he has won blame for not leading the company down the path of prosperity.
McDonald is not worried about winning support of fellow board members. They trust him. In the past three months, they have silenced critics by claiming so twice. The bother is an investor named William Ackman who today owns 1% of P&G’s shares.
To understand where the real trouble began, we turn back the pages to the second quarter of this year. On June 20, McDonald presided over a conference organised by Deutsche Bank in Paris. The CEO predicted lower-than-expected quarterly profits in the third quarter of 2012 (Q1, FY2012-13 as per P&G’s calendar). McDonald confessed that there were deep-rooted problems in P&G’s innovation mill and the subsequent execution of its strategy. For him, the admission did not bode well. Call it chance. On the same day, when Paul Polman (CEO of P&G’s biggest rival Unilever) delivered his speech at the Rio+20 summit in Brazil, he uttered no word of worry over Unilever’s bottomline or the existing lukewarm buyer ecosystem in his 15 minute-long monologue.
That Polman would have been worried about investors ready to question him on Unilever’s financials is out of question. Despite weak consumer sentiments in US and EU (where Unilever earns 44% of its revenues), his company’s bottomlines have increased in the past three years. Between FY2009 and FY2011, it rose by 26.17% to $5.51 million. In this light, McDonald’s talk that very day – which also included his plans to restructure the company and restore order in a troubled house – can be understood to be a mere justification of why P&G’s profits have fallen by 15.55% in the same period (to $10.76 billion).
This is where William Ackman (founder and CEO of hedge fund Pershing Square Capital Management LP) walked in. An activist investor, he is known for management shakeups at retailers like Target and J.C. Penny. By the time July began, he was already sitting on a neat 1% of P&G’s stock, which his company bought for $1.8 billion. His first move post-purchase gave a sign of things to come. He forced McDonald to meet him on September 4, 2012, with a 75 page-long document of the issues that are troubling P&G. Also present were P&G board members Jim McNerney (CEO, Boeing) and Ken Chenault (CEO, AmEx). What Ackman was really trying to do was convince two key members of the P&G board through a quick chat that it was time for McDonald to leave. Investors were excited to hear of an intellectually quick Ackman arm-twisting the top management. That the company’s stock (which had remained flat for most of the past two years) unexpectedly rose to a 54 week intraday high of $70 – a 13% appreciation since trade began that day – was proof enough! But it wasn’t to be that easy for Ackman. Was he right in asking McDonald to vacate his chair?
Bob McDonald, CEO of the $193 billion-worth consumer goods maker Procter & Gamble (P&G) hasn’t had an easy year so far. His neatly laid-out corner office on the eleventh floor of P&G’s Cincinnati headquarters, with mid-sized containers of the company’s products placed neatly on four columns of three glass racks each, do not reflect his not-so-calm state of mind. Outside it, employees are talking though. So are investors. Walk into the boardroom and you realise why all is not well at the company. At least not when its CEO is concerned. In recent weeks, he has won blame for not leading the company down the path of prosperity.
McDonald is not worried about winning support of fellow board members. They trust him. In the past three months, they have silenced critics by claiming so twice. The bother is an investor named William Ackman who today owns 1% of P&G’s shares.
To understand where the real trouble began, we turn back the pages to the second quarter of this year. On June 20, McDonald presided over a conference organised by Deutsche Bank in Paris. The CEO predicted lower-than-expected quarterly profits in the third quarter of 2012 (Q1, FY2012-13 as per P&G’s calendar). McDonald confessed that there were deep-rooted problems in P&G’s innovation mill and the subsequent execution of its strategy. For him, the admission did not bode well. Call it chance. On the same day, when Paul Polman (CEO of P&G’s biggest rival Unilever) delivered his speech at the Rio+20 summit in Brazil, he uttered no word of worry over Unilever’s bottomline or the existing lukewarm buyer ecosystem in his 15 minute-long monologue.
That Polman would have been worried about investors ready to question him on Unilever’s financials is out of question. Despite weak consumer sentiments in US and EU (where Unilever earns 44% of its revenues), his company’s bottomlines have increased in the past three years. Between FY2009 and FY2011, it rose by 26.17% to $5.51 million. In this light, McDonald’s talk that very day – which also included his plans to restructure the company and restore order in a troubled house – can be understood to be a mere justification of why P&G’s profits have fallen by 15.55% in the same period (to $10.76 billion).
This is where William Ackman (founder and CEO of hedge fund Pershing Square Capital Management LP) walked in. An activist investor, he is known for management shakeups at retailers like Target and J.C. Penny. By the time July began, he was already sitting on a neat 1% of P&G’s stock, which his company bought for $1.8 billion. His first move post-purchase gave a sign of things to come. He forced McDonald to meet him on September 4, 2012, with a 75 page-long document of the issues that are troubling P&G. Also present were P&G board members Jim McNerney (CEO, Boeing) and Ken Chenault (CEO, AmEx). What Ackman was really trying to do was convince two key members of the P&G board through a quick chat that it was time for McDonald to leave. Investors were excited to hear of an intellectually quick Ackman arm-twisting the top management. That the company’s stock (which had remained flat for most of the past two years) unexpectedly rose to a 54 week intraday high of $70 – a 13% appreciation since trade began that day – was proof enough! But it wasn’t to be that easy for Ackman. Was he right in asking McDonald to vacate his chair?
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