Bob McDonald and the VA

November/20/2014 5:21AM
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Remember when Obama started his climb to the big job? He seemed so much better than Bush. He was really good at self-promotion. Bob McDonald is on a” promote Bob McDonald” tour. It started in earnest with the 60 Minutes special on him. He succeeded. Everyone believes he can turn around the VA.

If you read my last entry, I’m s skeptic. I like to see what skins a person has tacked to the wall before I endorse him to do a big job like the VA turnaround. Here’s how Bob fared as the CEO of Proctor and Gamble.


How did McDonald do as CEO?

Not so well.

This was an article from the Wall Street Journal published after McDonald resigned under pressure and before he took the job at the VA.

He took over in July 2009, during the Great Recession, as consumers worldwide sought the penny-savings in generic brand consumer products. Profits fell 18 percent in his first quarter, and while the numbers rebounded somewhat, annual growth slowed and seemed perilously close to disappearing.

As part of a turnaround plan, McDonald cut prices and added customers, but profits lagged to the point of revolt. “P&G isn’t delivering,” said Citigroup analyst Wendy Nicholson in a conference call with McDonald in April of 2012. “There’s so many excuses,” she continued, “And I just say to myself, God, where is the mea culpa?”

McDonald took responsibility for the halting progress. “It’s my fault,” he said. But other analysts made similar remarks, according to the Wall Street Journal, shattering the country club decorum of most earnings calls.

A month later an activist hedge fund investor added his heavy shoulder to the push for reforms, buying nearly two billion dollars’ worth of P&G shares. The following year McDonald retired.

Per the Wall Street Journal, McDonald’s legacy may the the elimination of as many as one-half of P&G’s brands.

The move is a major strategy shift for a company that expanded aggressively for years. It reflects concerns among investors and top management that P&G has become too bloated to navigate an increasingly competitive market.

Chief Executive A.G. Lafley, who came out of retirement last year for a second stint at the company’s helm, said P&G will narrow its focus to 70 to 80 of its biggest brands and shed as many as 100 others whose performance has been lagging. The brands the Cincinnati-based company will keep—like Pampers diapers and Tide detergent—generate 90% of its $83 billion in annual sales and over 95% of its profit.

Procter & Gamble, maker of Tide detergent, plans to exit some 90 to 100 smaller brands, which mostly have annual sales under $100 million.

P&G didn’t say which brands it will sell or shut down, but it will be a sizable culling of products that bring in around $8 billion a year in revenue. The company owns scores of lesser-known brands including Era and Cheer laundry detergent, Clearblue pregnancy tests and Metamucil laxatives. Dozens could prove attractive to private-equity firms that specialize in orphaned brands or companies in countries like China or Brazil looking for a more global presence.

“I’m not interested in size at all,” Mr. Lafley said in an interview Friday. “I’m interested in whether we are the preferred choice of shoppers.” He said some larger brands may be culled if P&G decides it cannot do well in those segments, and pointed to the company’s recent sale of its pet-food brands, including Iams which had over $1 billion in sales.

Mr. Lafley rejoined P&G in May 2013 to replace his erstwhile successor, Bob McDonald, who presided over a string of weak results. On Friday, P&G reported results from Mr. Lafley’s first year back at the helm that were similar to those of Mr. McDonald in his last year. Sales rose 1% in the year that ended in June—or 3% excluding the impact of acquisitions, divestitures and changes in the value of currencies.

P&G’s profit for the year rose 3% to $11.6 billion. Mr. Lafley said P&G delivered on its business and financial commitments over the past year. But, he added, “We could have and should have done better.”


In his first stint as CEO, Mr. Lafley’s priority was growth. He bought up beauty brands such as Clairol and Wella and presided over the company’s $53 billion acquisition of Gillette Co. in 2005, which came with Oral-B toothbrushes and Duracell batteries. The acquisitions, along with strong growth by P&G’s legacy brands, helped the company roughly double its sales over the decade.

Since 2010, however, P&G’s annual sales have shown only single-digit growth in percentage terms, partly a result of the company’s emphasis on premium-priced household products in an environment where consumers have been cutting back on spending.

The consumer-products business is struggling with lackluster sales. After keeping pace with overall economic growth for decades, unit sales of basics like laundry detergent and toothpaste have been largely flat for the past three years in the U.S., P&G’s biggest market.

P&G’s new approach reflects the reality of the new environment. Executives pointed to weak growth rates for consumer products and said a stronger dollar took a $1.1 billion bite out of the company’s profit in the just-ended year.

To counter the broader headwinds, P&G in 2012 launched an aggressive plan to cut costs and improve productivity, but has struggled to accelerate sales. Before he left P&G, Mr. McDonald also said the company would focus its efforts on the products and markets most responsible for its sales and profit.

The company is taking that effort a big step further now by preparing to cut ties with its outlying brands. Many of the labels P&G is expected to shed are small, though it will hang on to some niche market leaders like Fixodent denture adhesives and Dreft laundry detergent for baby clothes.

“Keep buying Dreft,” Mr. Lafley said.

Of the brands P&G plans to focus resources on, 23 have sales of $1 billion to $10 billion, 14 have sales between $500 million and $1 billion, and 30 to 40 have sales of $100 million to $500 million.

Had the remaining 90 to 100 brands been excluded from P&G’s portfolio for the past few years, the company’s organic sales growth would have been a percentage point higher than what it reported, Mr. Lafley said

Sorting through P&G’s 180 or so brands is a complex task, in part due to oddities in the way the company classifies them.

Some P&G brands, like Pampers, have the same name all over the world. Others, like Always feminine-care products, are sold under the brand Whisper in Asia, but the company considers the two a single brand. P&G also considers its various dishwashing liquids like Dawn in the U.S., Fairy in the U.K. and Joy in Japan “clones” that in essence make them a single brand. But under the Gillette umbrella, the Venus, Mach3 and Fusion razor franchises are considered separate brands.

“I will be the first to say that counting brands is a very difficult thing,” Mr. Lafley said. “Even around here.”

—Dana Mattioli and Paul Ziobro contributed to this article.

Write to Serena Ng at

So why might he do better at the VA?

Simple answer, he will look good by comparison to past secretaries of the VA, but he won’t be the answer everyone is seeing as he promotes himself. He was an abject failure at P&G when he got to the top of the house. They had to depose him. So, we take a man who failed at a job in the company where he knew the business and the processes and now we put him in what may one of the most difficult jobs one could imagine.

You are seeing the best of Bob McDonald right now.

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