Procter & Gamble (P&G) has had poor financial
results as of late, and the Wall Street Journal is reporting that its CEO Robert
McDonald is under pressure from hedge fund manager William Ackman. Ackman is
convinced that Mr. McDonald is not the right person to lead P&G because of apparent
inaction in the face of a three-year run of profit declines. I have earlier argued that it is simplistic to just argue for CEO replacement when things go
poorly, and I could make the same case here: P&G has a high-quality,
high-price position in many markets, which means it will temporarily suffer when
the economy is doing poorly. In the long run it may do better by holding firm
and waiting for the recovery than by changing its position.
However, the Wall Street Journal on P&G
also documents clear mistakes that cast doubt on their current leadership.
They may need to rethink their strategy. Is Mr. McDonald the right person to do
that? Recent research by Adam Kleinbaum in Administrative Science Quarterly suggests
that we can know the answer by looking at Mr. McDonald’s career. Mr. McDonald was a Tide brand manager before becoming a laundry
business manager, then had stints in the Philippines and Japan before taking
over regional responsibilities in Northeast Asia. His last functional job before COO and CEO
was (surprise!) Fabric Care. In other words, Mr. McDonald was a laundry manager
in a company that gets a large bulk of its revenue from laundry products. I don’t
know for sure what a typical P&G managerial career looks like, but his
seems pretty typical.
Adam Kleinbaum’s point is that managers
with typical career paths get narrow interpersonal networks with limited opportunities to
connect people (broker) across different areas of the organization. This matters because
brokerage across different areas of the organization lets the manager contact
friends who have different types of information than their immediate reports
and learn about ideas and opinions that they would not otherwise have known. Such
ideas from separate parts of the information, in turn, can be assembled like
pieces of a puzzle to form new initiatives and renew the strategy. The usual tools for making new strategies, like working groups and committees, are often more political than such networks of friends and can be less frank. It is reported that they have been pure talking shops during Mr. McDonald's time.
There is a good chance that William Ackman
wants to force renewal of P&G by replacing Mr. McDonald with someone from
outside the organization. Given the size and complexity of P&G, it would
probably be difficult to find anyone who could take on that job and be
effective right away, so that would likely be a mistake. On the other hand, if
my guess about Robert McDonald’s career path is correct, he is not a likely
source of renewal for P&G either. The upside is that a large organization
such as P&G should have a large pool of the type of manager that Adam
Kleinbaum calls “organizational misfits”: people whose experiences have been so
unusual that they have much better connections across the organization than the
average P&G manager. Maybe the P&G board of directors should be looking
for a few good misfits from within its ranks?
Glazer, Emily, Ellen Byron, Dennis K.
Berman and Joann S. Lublin. 2012. P&G’s Stumbles Put CEO on Hot Seat. Wall
Street Journal, Sep 27 2012.
Kleinbaum, Adam M. 2012. Organizational
Misfits and the Origins of Brokerage in Intrafirm Networks. Administrative
Science Quarterly, 57.
Wikipedia. “Robert A. McDonald.” Accessed
Sep. 27 2012.
