Drawing on the wisdom of Peter Drucker, A.G. Lafley led Procter & Gamble out of a death spiral by focusing on key customers and core brands
A.G. Lafley took the reins at Procter & Gamble (PG) during a crisis in June 2000. John Pepper, the chairman of the board, called up Lafley, who was then running P&G's beauty care division from San Francisco, and told Lafley to get on the company plane that night as he was to be named CEO the next morning. Durk Jager, Lafley's predecessor as CEO, was being ousted after 17 months for missing a series of earnings projections and failing to revive the company's competitiveness in key markets.
It was not an auspicious start for Lafley. P&G stock dropped $7, from $28.50, during the first week of his tenure. By the end of 2000 the company had lost $85 billion in market capitalization vs. the prior year. Lafley quickly realized that P&G's intense inward focus on plant and operations was why the company was in crisis, and that he had to get his team focused on the consumer or it would never get out of its death spiral.
Lafley transformed P&G into a company focused on key customers and core brands. He heralded a new era of collaboration: "Connect and Develop" was a major initiative to help drive the innovation stream and in 2008, for the first time in the company's history, more than 50% of the new products P&G brought to market included at least one component from an external partner.
Lots of Turnover at First
Lafley's first priority when he took over, however, was sorting out his team, whose capabilities he initially misjudged. Lafley told me: "I came in during the middle of the night in June of 2000 in sort of emergency circumstances. I actually was thinking on that long flight back from San Francisco that we had a pretty good team…with talent and a lot of experience and that it would come together. But in the first hundred days, guys that looked pretty good as colleagues didn't look like they were going to have the right mindset to take on the tough calls and choices and to take their game to the next level as a collaborative team." In the next two years more than half of P&G's top 30 executives left the company to make room for new leadership from below.
With regard to his own role as CEO, Lafley has a very clear, teachable point of view, and it is the template he used to select Bob McDonald as his successor. Having known A.G. since the 1980s when he was the executive assigned to the University of Michigan business school for heading up P&G MBA recruiting, I have seen him grow, learn, and develop other leaders. Most recently I spent time with him as he is a major figure in my book Judgment: How Winning Leaders Make Great Calls (with Warren Bennis). Lafley is an avid learner, and he acknowledges the wisdom of Peter Drucker, who wrote that "the CEO is the link between the inside that is the organization and the outside of society, economy, technology, markets, and customers. Inside there are only costs. Results are only on the outside."
Indeed, Drucker's teaching helped guide Lafley's actions and thus his legacy as CEO. Some examples of how Drucker's teaching influenced Lafley:
1. Defining the Meaningful Outside
According to Lafley, "P&G's purpose is to touch and improve more consumers' lives with more P&G brands and products every day. Of all our stakeholders, both outside and inside, the primary one is the consumer."
2. Deciding What Business You Are In
Lafley transformed P&G's portfolio to become more tightly focused on core areas: laundry products, baby diapers, feminine care, and hair care. In addition, he made hard decisions to exit businesses, including most of the food and beverage ones. Among the weak household and beauty brands that were sold: Crisco, Jif, Folgers, Comet, and Noxzema.
3. Balancing Present and Future
Drucker framed the issue by stating: "The CEO decides on the balance between present activities, and investment in an unknown, unknowable, and highly uncertain future.…It is a judgment rather than [a decision] based on facts." Lafley includes in this category the long- and short-term issues in developing his leadership pipeline. This means giving leaders a variety of positions to help them grow, not just to run today's organization.
McDonald, Lafley's successor, is just one example of the leadership talent nurtured at P&G during the Lafley era. Lafley personally revamped the specifications for leadership talent at all levels of the company, put in a rigorous succession planning process, and created powerful developmental experiences for leaders. He teaches regularly at the senior levels of the company, having leaders work on real P&G challenges—not case studies—with real deliverables.
In a world where blue chip companies including Hewlett-Packard (HPQ), 3M (MMM), Boeing (BA), IBM (IBM), and Merck (MRK) have had broken leadership pipelines requiring outside CEO hiring, Lafley had multiple candidates in the pipeline, because he made it his priority and gave it his time and energy.
4. Shaping Values and Standards
Drucker's view is that "CEOs set the values, the standards, the ethics of an organization. They either lead or they mislead." Lafley leads as the role model of the values and also as the head teacher at P&G.
5. Setting a Global Standard for Sustainability
The final aspect of the Lafley legacy is as a global citizen. He is well on his way to being the platinum standard for sustainability. His publicly stated objectives are: 1. To develop and market at least $50 billion in cumulative sales of sustainable innovation products. 2. To deliver a 20% reduction (per unit of production) in carbon dioxide emissions, energy consumption, water usage, and disposed waste from P&G plants, leading to a total reduction over the decade of at least 50%. 4. Enable 300 million children to live, learn, and thrive, and deliver 3 billion liters of clear water through P&G's Children's Safe Drinking Water program.
He aims to engage all 138,000 employees in more than 40 countries in his sustainability effort. Lafley believes that transformative change at P&G must include outside perspective and partnerships. A good example of this is how BusinessWeek and six MBA schools formed partnerships with Lafley and P&G to come up with innovative ideas for engaging his 138,000 employees on sustainability. Many of the ideas that came out of the B-school project, such as creating a sustainability dashboard for leaders throughout P&G, ways of reducing water usage within P&G, as well as global educational and action programs for all employees, are being implemented by Lafley and his team.
It was one more manifestation of a transformed P&G, open to ideas from outside, action-oriented, and collaborative, tackling important problems for consumers and the world. Although his accomplishments are great—a more focused portfolio, having successfully integrated the $80 billion Gillette acquisition, and building a leadership pipeline that produced his successor—his achievements in sustainability may be his most important legacy.