Don’t look now, but Procter & Gamble is selling condoms. The squeaky clean purveyor of Tide, Ivory, and Crest is in the prophylactic trade by virtue of a recent acquisition. P&G doesn’t like to talk about it—in fact, its announcement of the deal didn’t even mention the line of latex contraceptives it acquired—but it’s a sign of new times inside downtown’s Twin Towers.
For years, Wall Street has been clamoring for change at Cincinnati’s No. 1 Corporate Citizen. Change has finally arrived, thanks to the biggest restructuring in decades at P&G, with a new round set to begin July 1. It’s a top-to-bottom reorganization that will de-emphasize the corporate headquarters and shift decision-making responsibility to newly anointed leaders who oversee growing markets in Asia and Europe.
The big question in Cincinnati is what impact all of these moves will have on a town that owes so much of its wealth and leadership to the company that started making soap and candles here 182 years ago.
Procter & Gamble’s changes go much further than its acquisition of L., the natural condom and tampon maker it bought in February. Top brass has made that clear whenever they speak publicly about the company’s future. “We’re transforming P&G’s organizational culture,” second-in-command Jon Moeller told Wall Streeters that same month.
The reason? Cincinnati’s global Fortune 50 corporation has been under stress, under attack even, in recent years. There was the highly publicized and expensive boardroom battle with hedge fund impresario Nelson Peltz, who, after investing millions in the company, demanded a seat on the board. After a high-stakes fight to persuade shareholders to vote their way, P&G acquiesced and nominated the New York financier to its board of directors, which he joined in March 2018. He’d been pushing for change, issuing a white paper filled with criticisms that struck home here in the Queen City. P&G needs radical transformation, he argued. It suffers from a “suffocating bureaucracy” and “weak corporate governance.”
Leadership, he said, must address “P&G’s insular culture.” The company should be reorganized in a way that promotes “faster decisions and responsiveness to local preferences.” And by “local” Peltz didn’t mean our city, but rather the 180-plus local economies in which P&G does business around the world.
The uproar stirred unease in Cincinnati. Would P&G be split up? Would the smaller, broken-up companies relocate to places that might put up good money to attract new corporate headquarters? Would parts be shipped overseas near emerging markets?
CEO David Taylor relates an anecdote of a conversation he had during the Peltz boardroom fight. Someone asked if he would consider moving out of Cincinnati if money could be saved or financial incentives were offered by a competing city. “I said, ‘No, why would I want to do that?’” he recalls. “This city’s been good to P&G. The company is very invested in this city, and we believe that together we make it better for both of us.”
Peltz was the most visible, headline-grabbing sign of Wall Street’s impatience with Procter & Gamble. The company’s sales growth lagged many of its competitors for years, and its revenue grew anemically, if at all. That’s not what investors like to see from a company known for being a steady growth machine and a solid stock market bet.
As far back as 2012, its feeble sales growth drew the attention of another Wall Street corporate raider, William Ackman. He invested $2 billion in the company, making him one of its largest shareholders, and pushed the company to cuts costs and sell brands in order to jump-start profits and shareholder returns. His pressure on management ultimately led to the early retirement of Chairman and CEO Bob McDonald in 2013.
It wasn’t like P&G was losing money or that its stock was plummeting. In the year of McDonald’s departure, the company earned $11 billion in profits and sold $84 billion worth of diapers, toothpaste, laundry detergent, and other products. But for a darling of the Dow Jones Industrial Index and a widely held blue chip stock, it simply wasn’t generating enough growth, the juice that Wall Street feeds on. As a result, its share price got stuck in neutral for years.
“If you would remove P&G, you’re not just removing a business, you’re removing the lifeblood of many, many parts of our community,” says Jill Meyer, president and CEO of the Cincinnati USA Regional Chamber.
When McDonald bowed out, he was replaced temporarily by A.G. Lafley, who had already come to the rescue for the company back in 2000. But even Lafley couldn’t revive the lethargic giant; P&G shares continued a lackluster performance, and the board named Taylor as CEO in 2015. A 35-year P&G veteran, he had worked his way up through the ranks—as company leaders tend to do—from a factory in his home state of North Carolina to brand manager to general manager, vice president, president, then group president, with lengthy postings in Asia and Europe and broad experience making and selling brands such as Pampers, Pantene, Tide, and Gillette.
With a permanent chief executive in place, the clamoring for better results intensified. One longtime Wall Street P&G observer, Ali Dibadj of investment firm Sanford Bernstein, published an open letter titled “Dear David Taylor, congratulations on becoming CEO…now what?” He followed that up with a 90-page deep dive on the company that concluded Procter & Gamble would be better off if it were broken up into three or four different companies. Surely a home care company led by its Tide brand, a health care company led by Crest, and a beauty care business led by Pantene would set free the profits waiting to be unleashed. They’d be leaner and more nimble than one big monolith that was too enormous to walk and chew gum at the same time. “We encourage the board/management to look at the business more broadly, untethered from history, and consider a breakup to unlock value for shareholders,” Dibadj wrote.
One does not simply untether P&G from history in this town, of course. Our stories have been intertwined since the day an English candlemaker named William Procter and an Irish soapmaker named James Gamble, who had made their ways separately to early 19th century Cincinnati, united their operations and launched a candle and soap venture called, naturally, Procter & Gamble.
The rest is, literally, history. The two-man venture grew into one of the world’s most respected companies, employing tens of thousands of Cincinnatians; creating wealthy shareholders; attracting smart, ambitious people to town; developing brands that became household names; supporting all kinds of causes; and providing leadership for innumerable civic organizations. “We would not have Cincinnati as we know it without the Procter & Gamble of old and without the Procter & Gamble of today,” says Jill Meyer, president and CEO of the Cincinnati USA Regional Chamber.
Given what P&G and its people have meant to this region over the years, it’s no wonder that breakup talk caused quakes throughout town. What would Cincinnati be like without the company that had sustained so many families here and supported so many local endeavors? “If you would remove P&G, you’re not just removing a business, you’re removing the lifeblood of many, many parts of our community,” says Meyer. The drumbeat to break up or overhaul the company caused corporate Cincinnati to do a reality check and then get busy. “We were very concerned about the impact on the business landscape and on our people—families, communities, businesses—in a world without Procter & Gamble,” she says.
The chamber coordinated a campaign to support the company’s position on the boardroom battle, which at the time was to keep corporate raider Peltz off its board. The effort’s centerpiece was a letter signed by 55 business and community leaders titled “We Stand With P&G.” “In the face of a threat to the company’s future, one that could profoundly affect our community,” the letter began, “we want to make one thing clear: We stand with P&G.”
It was perhaps the most straight-forward, unabashed public display of corporate affection in memory. It’s no wonder: There are lots of reasons to fear losing the old soap company.
One could start with the United Way of Greater Cincinnati, which raises about $50 million every year to support more than 100 community service organizations. James Norris Gamble (son of the cofounder) pushed to create the Community Chest, the forerunner of United Way. William Cooper Procter (grandson of the cofounder) chaired the first fund-raising drive here in 1927.
The annual campaign relies heavily on contributions from P&Gers and leadership from its managers. CEOs have led United Way campaigns, including Lafley, who, following the financial crash of 2008, chaired a challenging fund drive in 2009.
“When you look at signature events, signature proposals, signature initiatives, P&G needs to be, and is, at the forefront of just about every one of them,” says Brian Hodgett, P&G’s director of government and community relations in Ohio.
P&G’s long commitment to United Way and its causes is evident from an anecdote retired CEO John Pepper tells about getting an assignment from his brand manager shortly after Pepper, then 25, arrived in 1963. “He said, ‘I’ve got a project for you, John.’ I was thinking it would be a competitive analysis or new marketing program. He said, ‘I want you to go out and raise money for the United Way. We’re behind, so I want you to go now.’” And Pepper went door to door on Eastern Avenue, soliciting contributions. He didn’t raise much, but he learned a lesson about the company’s commitment to the community.
Pepper himself has been a one-man dynamo in Greater Cincinnati during his years as CEO and since his retirement 15 years ago. Among many other contributions, he’s donated millions to the National Underground Railroad Freedom Center and provided time and leadership to make the project, built after the 2001 riots, successful. Ed Rigaud, then a P&G vice president, was the Freedom Center’s first president.
The Christ Hospital owes its founding in 1888 to a group led by James Norris Gamble, who was appalled at poverty levels across the city. The Greater Cincinnati Foundation administers the P&G Fund, which supports a large number of philanthropic causes. The Smale Commission on Infrastructure created a method for supporting local roads and bridges and was chaired by John Smale, P&G’s CEO from 1981 to 1990. Cincinnati’s popular riverfront park was named after Smale and his wife Phyllis, who invested in its creation.
The renaissance in Over-the-Rhine owes to the push of P&G leaders to make the urban core a hipper place to live and work. The company invested $25 million in seed money to launch 3CDC, the nonprofit developer that’s led OTR’s rebirth. Only P&G executives have chaired 3CDC’s board since its inception—Lafley led from its founding in 2003 until 2010, and Jeffrey Schomburger, P&G’s global sales officer, is the current chair.
Cincinnati’s startup hub, Cintrifuse, was funded by P&G and advanced by McDonald, who served as its board chair after his retirement. He also led the Cultural Facilities Task Force in 2014, which came up with ways to repair and restore Union Terminal and Music Hall. “When you look at signature events, signature proposals, signature initiatives, P&G needs to be, and is, at the forefront of just about every one of them,” says Brian Hodgett, P&G’s director of government and community relations in Ohio.
The list goes on to include P&G employees who serve on innumerable boards, commissions, councils, and task forces; coach soccer and baseball teams; lead church councils and scout troops; and serve on school boards. “The biggest contribution to the community we’ve made by far is not financial support, which is significant, but volunteer support,” says Pepper. It’s part of the corporate culture, says Hodgett. “We have an internal expectation among our senior and mid-level managers and all the way down to our new hires that you’re going to be involved in something in the community,” he says. “It’s the world headquarters, so we have a sense of pride in this community and an obligation to give back.”
Taylor himself, leader of the $66 billion global enterprise, serves on the board of Cincinnati’s Freestore Foodbank and recently chaired an advisory committee examining a possible capital campaign for the charity. Moeller, P&G’s chief financial officer, chairs the Cincinnati Art Museum board, and the Covington resident also served on that city’s board of ethics.
Then, of course, there’s the sheer wealth that P&G jobs have brought to this community. The pay is good, as are the benefits. Chief among the perks is a retirement plan heavily weighted in company stock. The concept dates to 1886, when workers at its Ivorydale factory in St. Bernard walked off the job 14 times, according to a company biography. Young William Cooper Procter, who cut his teeth working in the factory, created a profit-sharing plan and persuaded the company’s elders to put it into practice. It’s evolved over the years, allowing employees with years of service to retire with a substantial nest egg of P&G stock and receive, if they choose, a healthy dividend check in the mail every quarter.
In true Cincinnati fashion, the stock is often treated as a family heirloom, not to be sold but passed on to succeeding generations, multiplying its value and providing a sense of financial security.
P&G has long been a global company, but its fortunes are increasingly linked to growing markets in faraway countries where the prospects for selling diapers and detergent are promising. P&G’s struggles to grow have been partly related to challenging economic conditions around the globe, which have worsened since the 2008 recession—before then, the company didn’t operate in any countries it classified as being in crisis, but today it’s in 15 such countries, including Venezuela, where the economy essentially collapsed earlier this year. It must trade in hundreds of currencies, some of which are notoriously volatile.
Selling a few diapers and a packet of detergent at a wooden street stall on a dirt road in Nigeria is entirely different from selling a 100-ounce jug of Tide Plus Febreze Freshness at the Hyde Park Kroger. It demands an intimate knowledge of those buyers—their incomes, preferences, and habits. It calls for different packaging and product sizes. Getting products from the factory to the marketplace can involve negotiating unpaved roads, military checkpoints, and mind-boggling traffic.
Managing those conditions on the ground across six continents, combined with years of investors’ angst, led to what Taylor calls “the most important organizational change we’ve made in the last 20 years,” a reboot that P&G execs promise will be “disruptive.” “We won’t win with our old ways of operating,” Moeller told a crowd of investment analysts gathered at the Twin Towers in November 2018 to hear the latest from the top.
At that meeting, Taylor and Moeller laid out a plan to “dematrix” the company. Six new leadership positions have been created, with each anointed as “Co-CEO,” a title that’s never been used before at P&G. They will report to Taylor, who retains his role as chairman and CEO. There will be a co-CEO for the fabric and home care category, which includes Tide, Downy, Cascade, and Swiffer; for baby and feminine care products, such as Pampers, Tampax, and Always; for the family care lineup, including Bounty, Charmin, and Puffs; for the beauty category, whose top sellers include Head & Shoulders, Olay, and Pantene; for its health care portfolio, led by Vicks, Prilosec, and Crest; and for the grooming lineup, mainly Gillette.
Employee roles and the chain of command are changing significantly. Up to 5,000 people, some of them in Cincinnati-based sales and logistics positions, will get new bosses as the organization chart gets redrawn. “We are significantly reducing the level of corporate resources, moving 60 percent of our corporate roles to the business units and markets,” Taylor says. “We will retain a core set of corporate resources [legal, government relations, accounting, payroll, and human resources] needed to sustain the ongoing health, viability, and sustainability of the corporation.”
“It isn’t about job cuts, it’s about growth. It’s about how you position P&G in a very competitive market and how you enable a very talented workforce to perform at higher levels and unleash the human potential that exists in our company,” says David Taylor, P&G’s Chairman and CEO.
The result will be six semi-autonomous channels within P&G, not that much different from what the “break it up” Wall Street types wanted—but still under one corporate umbrella. And many of the co-CEOs will remain based outside of Cincinnati. Alexandra Keith will lead the beauty care business from Geneva, Switzerland. The multibillion-dollar baby and feminine care business, led by Fama Francisco, will also be based in Geneva. The fabric and home care business will be divided between Geneva and Cincinnati, run by Shailesh Jejurikar. The health care business under Steven Bishop will remain based in Mason. The family care business will stay in Cincinnati, led by Mary Lynn Ferguson-McHugh. Gary Coombe leads the grooming business from Boston.
These new co-CEOs will have the authority to determine what they need to make their businesses grow, including staffing, investments, and strategy. “Each has the latitude to decide how they staff to win in their categories,” Taylor says. For P&G, renowned for its bureaucratic decision-making, it’s a radical shift in granting that kind of authority to the people on the ground charged with growing sales.
The top-down redesign comes after years of slimming down. P&G’s total employment now hovers around 95,000, down from 138,000 in 2007. In Cincinnati, that’s meant about 4,000 fewer people at the headquarters, the research centers, and other local facilities. “We’ve significantly disrupted P&G over the last several years,” Moeller told investors in November.
With that much disruption already and more on the way, how does it all shake out for the headquarters city? If leadership is going to “dematrix” the company, what does that mean for us right here in River City? Aren’t we The Matrix?
Taylor says the reorganization is not about job cuts or relocating people from Cincinnati. “I don’t see a mass move out of Cincinnati or into any place,” he says. “It’s the work they do and who they report to” that will change. Cost-cutting and downsizing are not the goals, but rather finding ways to generate more sales and profits around the world. “It isn’t about job cuts, it’s about growth. It’s about how you position P&G in a very competitive market and how you enable a very talented workforce to perform at higher levels and unleash the human potential that exists in our company.”
In true P&G fashion, the reorganization was actually tested before its implementation, which takes effect on July 1, the start of its 2020 fiscal year. The U.S. market was the pilot project for the other developed markets around the world such as Europe and Japan. Salespeople were aligned with product categories such as beauty care and health care, and general managers were authorized to work directly with P&G’s retail customers, including Kroger, a change from past practices.
It worked. In the last half of calendar 2018, the company’s U.S. sales grew by 3 percent, a substantial increase from the same period in the previous three years, when growth averaged only 1 percent, says Taylor. For a company P&G’s size, an additional 2 percent in sales amounts to hundreds of millions of dollars—lots more revenue than is likely to result from the purchase of a small tampon and condom maker. Wall Street responded in kind. Over the course of six months, P&G’s stock value jumped more than 25 percent, soaring to over $100 a share.
The major restructuring and Wall Street’s positive response calmed fears of a breakup. But that awful question still lingers: Would P&G ever leave Cincinnati? Certainly, big companies with long histories have moved out of their hometowns before. Boeing shocked Seattle by moving its headquarters to Chicago in 2001. Carl Lindner Jr. moved Chiquita to Cincinnati in 1987, and after his death the company left for Charlotte in 2012. (It has since relocated again.)
Taylor is clear that the marriage of P&G and Cincinnati benefits both parties. “We want to make a difference and be a company that people value and feel we are creating a better community in which we operate,” he says. “As a result of that, it’s a better place to live. That’s a long-seated belief. I want our company to be a proactive supporter of community in Cincinnati, because we believe P&G people have something to contribute. This is our home.”