Thursday, May 6, 2010


A rocky start

The two first met 29 years ago at a beer garden in Cincinnati,

when Lafley, a 33yearold

brand manager for Dawn and

former Navy officer, was asked to help recruit a hotshot Army

Ranger named Bob McDonald. The two men hit it off, but

midway through their meal McDonald became annoyed when

he noticed a bunch of P&Gers getting rowdy at the other end

of the room. It was the values of the company that had

attracted him to the place, but he was getting a distinct fratboy


"I almost left that dinner," says McDonald. "I was outraged." (This is a guy who

fired his own platoon sergeant for faking a parachute jump.) But Lafley,

legendary even then for his ability to inspire, convinced McDonald that those folks

were not representative of P&G.

It helps that grooming talent is in Lafley's DNA his

father, Alan Lafley, was an

HR executive at GE who specialized in succession (and a man who Lafley says

Jack Welch once told him was the "only honest son of a bitch at corporate"). But

his motivations go deeper.

"I'm an accidental CEO," Lafley says. With no warning, Lafley received a call from


John Pepper on June 6, 2000, telling him that CEO Durk Jager had been

ousted and asking him to step in. "My transition was arguably the poorest in the

history of this company," he says.

Although Lafley adapted and thrived, on his office wall he kept a screen shot of

himself during his first CNBC interview, staring wideeyed

into the abyss, as a

reminder of just how tough it was. He didn't want anyone else to ever have to go

through that chaos.

Top secret talent rankings

McDonald was sitting in the office of Moheet Nagrath, P&G's global human

resources officer, which or those who enjoys office Kremlinology is directly next

to that of the CEO.

They were looking at a blue binder that would probably be worth millions on the

open market. Called the Talent Portfolio, it contains the names of P&G's upandcoming

leaders; compared against one another over the past six years in both

financial performance and the ability to lead and help others do the same.

"Today I could show you the next generation of successors to current leaders, the

generation after that, and the generation after that," says Nagrath. Those at the


side of one particular page are the people who have consistently

outperformed. The people at the lower right are considered "at risk."

Most of those who reach general manager status 120 of P&G's 135,000

employees are part of this leadership bible. Although the process that culminates

in the blue binder has been decades in the making way back in 1947, CEO

Richard "Red" Deupree said, "If you leave us our buildings and our brands but

take away our people, the company will fail", the system in its current format

dates from 2001. That's when Lafley, less than two years into his tenure, began

to look forward and asked the question, "Are we hiring the right people?"

Today all executives who become general managers are evaluated every six

months with what is called a GM Performance Scorecard. It is a twopage

document, with one page of relevant financial measures and a second, equally

important, assessing leadership and teambuilding

abilities. All managers are

reviewed not only by their bosses but also by lateral managers who have worked

with them, as well as their own direct reports. All this sharing isn't for everyone.

Lafley also focused on succession at the CEO level. Every February one entire

board meeting is devoted to reviewing the highlevel

executives, with the goal of

coming up with at least three potential candidates for each of the top 35 to 40


In the early part of the decade the list of Lafley's potential replacements was

eight to 10 people, but it was whittled down as time went on. Upandcomers


regularly asked to make presentations to the board, and directors also take an

annual trip abroad, hosted by top candidates.

Lafley and the board, along with Bill Conaty, the longtime head of HR at GE,

whom Lafley hired as a consultant in 2008, also developed a 10point

list of

qualities that a new CEO needed to possess.

Among them: integrity, character, and values, which Lafley felt had to be beyond

perfect to merit consideration. Another list covered the kinds of skills that would

be needed in the next decade.

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