When Leaders go Wrong – the Case of P&G
indar kumar is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Yes, I am talking about Robert McDonald, the C.E.O of Procter and Gamble (NYSE: PG). And noo, I am not ONLY talking about him; I am also referring to the company he leads – P&G. Evidently P&G, once the market leader in fast moving consumer goods, is now facing huge losses and stiff competition. Much of this difficulty has been attributed to Mr. Robert McDonald.
P&G – All is not well
P&G has had a significant dip in its share price in the last quarter, thanks to loss of market share to its competitors. According to Nielsen data there is a problem of “innovation” in the company, which means that its products are not competitive enough. For example P&G was slothful in following competitors like Church & Dwight and Henkel with new single-serving laundry packaging. It is also evident that the company is lagging behind rivals like Unilever (NYSE: UN) and Reckitt Benckiser. Unilever had growth of 11.5% and EPS had gone up 6% in the first half of the year; meanwhile, growth at P&G was down 1% and earnings per share were just $0.82.
P&G has lost its home advantage. The company is losing its majority of market share due to slow economic growth and cheaper products offered by rivals. The company’s “Go Global” policy hasn’t turned out to be a great success, and to regain its premium position a lot of thinking has to go in terms of strategy planning.
Mr. Robert McDonald.
When this Gentleman assumed office from his predecessor, the economic conditions weren’t as stable and the company was “all over the place,” as they say. So before we point fingers these issues have to be kept in mind. That said, according to the Wall Street journal, P&G’s hedge fund manager William Ackman presented a report recently which expressed 75 pages full of complaints about the CEO’s management, poor results, falling investor confidence and lower employee morale. Many insiders are of the view that the CEO should be stripped of his job.
McDonald, according to many, has got his strategies wrong. Profits have declined for three straight years; it has lost its market share in oral care in China and beauty products in US, which was once a stronghold of the company. The CEO has allegedly also failed in his promises of cutting prices and lowering costs, and this has hurt the company financially. P&G has also been facing supply chain issues and product shortages, hurting brand images of products like Glide razors, Old Spice body wash and Olay skin creams. All these problems should have been clearly dealt with, and one may argue that it is the CEO’s fault that these issues haven’t been fixed in time.
P&G's stock has underperformed both its peer group and the market. Year-to-date it is essentially flat, compared with gains of 12.8% in the S&P 500 and 9.5% in a peer group that includes Unilever, Johnson and Johnson and Colgate-Palmolive. One key question is will shareholders realize the full advantage of P&G's cost diminution efforts? If the economy continues to remain weak and shoppers stay price sensitive, branded product companies like P&G may be forced to adjust their business model to compete more on price. Investments in innovation and advertising may be less productive and therefore may have to be scaled back. Stocks will suffer and investors will be distanced.
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