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
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.