Thursday, May 6, 2010

A.G. Lafley chief executive of Procter & Gamble.


On July 1, A.G. Lafley woke up at 6 a.m., worked out,

showered, and headed to the office in downtown Cincinnati,

just as he had for nearly a decade. But this was the first

morning in more than 3,000 days that he was no longer the

chief executive of Procter & Gamble.

He walked through the main entrance, passed by the café in

the lobby, pressed his key card against the metal scanner, and

... nothing. Lafley felt a momentary shiver. He'd stepped down

as CEO the night before, turning the reins over to longtime P&Ger Robert "Bob"

McDonald, 56, but he still had a job as an active chairman, didn't he?

It turned out to be just a technology glitch, but once Lafley, 62, talked his way

inside, he went not to the 11th floor an openair

suite of offices he had created to

encourage more interaction among the top executive team but instead to the

second floor, into a musty, oakpaneled

office that was a vestige of the preLafley


The previous evening he had unobtrusively moved his belongings downstairs. It

was a symbolic gesture, but an important one: Lafley wanted to be sure that on

day one; McDonald could walk in and sit at the CEO's desk.

A few days later, at the Global Leadership Council meeting (a weekly session for

the top 42 execs), Lafley arrived early and chose a chair far from the one he'd sat

in for the past decade. He was now a supporting cast member, and his physical

location underscored the point: All eyes, he says, turned to McDonald as soon as

he sat down. "It felt exactly like it was intended to," he told me later. "The king is

dead. Long live the king!"

It is something strange in this era of failed leadership, abysmal succession

planning, and dueling egos: a transition atop one of the world's largest and most

successful companies that is notable for what's gone right.

Like just a handful of other companies, including PepsiCo and General Electric,

P&G has seen its ability to groom top talent as a competitive advantage as much

of one as its trademark on Tide or patent on Pampers. Although the company is

172 years old, it has had only 12 chief executives, all insiders, and among them

two family members.

Most companies that take succession seriously shroud their process in secrecy.


Some, such as GE under Jack Welch, publicize the horse race itself believing

that it will spur the candidates to work harder. Others, such as Bank of America

whose board was forced to convene an "emergency succession committee" when

CEO Ken Lewis said he was leaving, seem to deal with it only under duress.

But now that P&G's transition is complete, the company has allowed others a rare

look inside the process, unveiling everything from the topsecret

blue binder that

tracks every highlevel

prospect, to a whirlwind tour of Moscow with McDonald, to

the board's deliberations. The result is an unusual picture of a company where

leadership development and succession planning permeate not just the corner

office but the entire company.

P&G's openness is particularly surprising because the handover

comes at a

precarious time. Yes, in his near decade as CEO, Lafley transformed P&G from an

unfocused collection of famous brands into an innovation machine that got most

of its ideas not from the eggheads in R&D but

rather from the consumer.

With his relaxed demeanor, Lafley projected

an image antithetical to the charismatic

command and control CEO so in vogue in his

time. And with huge acquisitions, including

the $57 billion deal for Gillette, he gave P&G

a global reach that goes beyond most


Yet the company has fared worse than others in the massive market meltdown,

in part because of the decision, despite $4 billion in negative currency

fluctuations, to stick to its relatively high pricing while competitors cut theirs.

And Lafley had pushed hard to introduce premiumpriced

products such as highend

versions of Tide and Bounty, which worked in a boom but not so well in a

bust. In the past two years the stock has lagged behind rivals such as ColgatePalmolive,

falling 14% compared with Colgate's 6% rise.

While the timing may not be ideal, what Lafley and McDonald have going for

them is a bond that is very hard to find in corporate America. In a joint interview

they finish each other's sentences, rip each other about the military, and say

things like, "Remember that time we were together in the Egyptian delta?"

Lafley is still working at the company as executive chairman, speaking at least

weekly with McDonald, chairing the board, and offering advice. That might be

threatening to some new bosses, but not McDonald. "A.G. is a giant," he says.

"And I'm thrilled to stand on his shoulders."

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