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Case:A Change at the Top at Procter & Gamble: An Indication of
How Much the CEO Matters?

A. G. Lafley joined Procter & Gamble (P&G) in 1977 as
brand assistant for Joy dishwashing liquid. From this
beginning, he worked his way through the firm’s laun-
dry division, becoming highly visible due to a number
of successes including the launching of liquid Tide. A
string of continuing accomplishments throughout the
firm resulted in Lafley’s appointment as P&G’s CEO in
June 2000, a post he held until retiring in mid-2009.
Bob McDonald, who joined P&G in 1980, was Lafley’s
handpicked successor. McDonald took the top position
at P&G in July 2009, but resigned under pressure in May
2013. Lafley, revered by many, was asked to come out of
retirement and return to P&G as president, CEO, and
chair of the board of directors. Lafley said that when

contacted to return to P&G, he agreed immediately to do
so, committing to remain “as long as needed to improve
the company’s performance.” However, speculation is
that Lafley likely would not remain beyond three years.

What went wrong for McDonald, a long-time P&G
employee who seemed to know the firm well and who
received Lafley’s support? Not surprisingly, a number
of possibilities have been mentioned in response to this
question. Some concluded that, under McDonald’s leadership, P&G suffered from “poor execution globally,” an
outcome created in part by P&G’s seemingly ineffective
responses to aggressive competition in emerging mar-
kets. Other apparent problems were a failure to control
the firm’s costs and employees’ loss of confidence in McDonald’s leadership. Still others argued that McDonald
did not fully understand the effects on U.S. consumers of
the recession in place when he took over, and that, during
that time period, P&G “was selling BMWs when cash-
tight consumers were looking for Kias.” The net result
of these types of problems included P&G “losing a step
to rivals like Unilever.” In turn, this caused investors to
become frustrated by “P&G’s inability to consistently
keep up with its rivals’ sales growth and share price gains.”

But why bring Lafley back? In a few words, because
of his previous success. Among other achievements
during his first stint as P&G’s main strategic leader
were building up the firm’s beauty business, acquiring
Gillette, expanding the firm’s presence in emerging
markets, and launching hit products such as Swiffer and
Febreze. An overall measure of P&G’s success during
Lafley’s initial tenure as CEO is the fact that the firm’s
shares increased 63 percent in value while the S&P fell
37 percent in value. Thus, multiple stakeholders, includ-
ing investors and employees, may believe that Lafley can
return the firm to the “glory days” it experienced from
2000 to 2009.

Product innovations are a core concern and an area
receiving a significant amount of attention. Analysts
suggest that P&G needs to move beyond incremental
innovations, seeking to again create entirely new product categories as it did with Swiffer and Febreze. This
will be challenging, at least in the short run, given recent
declines in allocations to the firm’s research and development programs. These reductions have resulted in a product pipeline focused mainly on “reformulating
rather than inventing.” Additionally, efforts are underway
to continue McDonald’s strong, recent commitments to
reduce the firm’s “bloated” cost structure and reenergize
the competitive actions it will take in global markets.

Restructuring P&G’s multiple brands and products
into four sectors, each of which will be headed by a president, is a major change Lafley is initiating. Currently,
the firm has two global business divisions—beauty and
grooming and household care. Final decisions about
the precise compositions of the four sectors were not
announced by mid-2013. Speculation, though, was
that each sector would be formed “to reflect synergies
between various businesses.” For example, one expectation was that paper-based products such as “Bounty
paper towels, Charmin toilet paper, Pampers diapers
and Always feminine care products” would be combined
to form a sector. Moreover, Lafley’s replacement was
expected to be selected from among the four presidents
who would be chosen to lead the new sectors.

Question:
How Is it a good practice to rehire a former CEO who has retired? Please explain the potential advantages and disadvantages of doing so.

No need reference. 2 paragraphs is enough

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