Taking over from a hot-shot like A.G. Lafley is always hard. Here's what incoming CEO Robert McDonald can do to smooth out the transition
Ask pundits to cite the reigning rock star of management, and most will name A.G. Lafley. The chief executive of Procter & Gamble (PG), who turns 62 this month, has been called "Rushmorian" by leadership guru Warren G. Bennis. Lafley's 2008 book with consultant Ram Charan, The Game-Changer, is still a best-seller. And he is lionized by his peers. "A.G. is the top CEO of my generation," Amgen (AMGN) CEO Kevin Sharer told BusinessWeek in late 2007. "He's a role model for all of us."
For Chief Operating Officer Robert A. McDonald, that means big shoes to fill. Lafley is expected to pass the baton to McDonald within a matter of weeks, according to sources close to the company. McDonald will inherit the demanding job of trying to resurrect slipping sales and profits as frugal consumers switch from big brands to private-label goods.
Even more difficult, potentially, is the delicate task of succeeding a management icon. The record on such high-profile transitions is mixed, with leadership experts agreeing that few become slam-dunk successes. Consider Charles Schwab (SCHW), where successor David S. Pottruck was forced out amid market turmoil and a failed attempt to diversify beyond the discount brokerage business. Ditto for former Dell (DELL) chief Kevin B. Rollins, who took over from the computer maker's eponymous founder, only to preside over its decline and lose his job. Even General Electric (GE) CEO Jeffrey R. Immelt, now a name in his own right, has so far failed to replicate the returns generated by Jack Welch. One notable exception: IBM (IBM) chief Samuel J. Palmisano has transformed the company into a tech services powerhouse since taking over from the legendary Louis V. Gerstner Jr. in 2002.
In such high-profile successions, the departing CEO is typically cast as a visionary. Lafley, who came to the job in 2000, certainly achieved that status in the realm of innovation. His focus on design and his willingness to adopt ideas from external researchers and even rivals transformed P&G's product mix and became widely copied by managers everywhere. Just as Welch made GE famous for efficiency through proselytizing Six Sigma, Lafley has made his 172-year-old company look cutting-edge.
The Delicate Dance with Investors
McDonald, while hailed as a skilled executor, doesn't come to the job with that reputation. His first task will be to create a team that complements his strengths in operations while helping to address some of his weaknesses. Any new CEO has to do the same, but the stakes are higher for a leader following an outsize figure. "There's always a regression to the mean," says Sydney Finkelstein, a professor at Dartmouth's Tuck School of Business. "No company keeps hitting it out of the park in the way Lafley seems to have been doing for so long."
One of the most delicate tasks is handling relationships with investors who have long basked in the golden glow of the former CEO. Their confidence can sometimes pump up the company's stock beyond what the fundamentals would suggest. Just as GE shares had a "Welch premium" until Immelt took over, many analysts think P&G's stock, which is down 14% this year, would have dropped more had Lafley not been at the helm. "P&G received a premium partly because of A.G.'s uncanny ability to communicate with investors," says Sanford C. Bernstein analyst Ali Dibadj. "Bob will need to learn to channel his inner A.G. when communicating to the Street."
As if that's not tough enough, McDonald also has to tread the line between forcing change and being deferential to Lafley's legacy. Michael Watkins, who counsels CEOs on leadership transitions, says a classic mistake that many newcomers make is to move too far in either direction. "They're sitting on a knife's edge, and it's a very hard place to be." Leadership experts say new managers need to make judicious moves to carve out their own identities, without disrupting what many had regarded as a winning formula.
Finkelstein suggests McDonald could learn plenty from studying P&G's history. When Durk I. Jager took over from the popular and well-regarded John E. Pepper Jr. in 1999, he charged into the role with a blitzkrieg of disruptive changes, trying to rip apart P&G's then-insular culture and stretch its conservative planning process. Jager lasted just 17 months. Says Finkelstein: "If I was McDonald, I'd go to school on what happened before."