Saturday, June 17, 2000

'Nice guy' Pepper begins to right P&G ship

Shake-up may vindicate chairman's management style

By Cliff Peale
The Cincinnati Enquirer

        When John Pepper retired as Procter & Gamble Co. chairman last year, the rap against him was that he was too nice.

John E. Pepper
        Too nice to slash P&G's huge bureaucracy. Too nice to pursue new strategies and let go of old sentiment.

        Now the Cincinnati company desperately needs its resident nice guy again.

        “People need direction. They need hope. They need to feel they're valued. That's been historic at this place,” Mr. Pepper told the Enquirer Friday, in his first major interview since the company stunned Wall Street and em ployees with a top management shake-up June 8.

        After a second straight quarter of disappointing results, Mr. Pepper was lured out of retirement to replace Durk Jager as chairman of the board. A.G. Lafley, a 23-year P&G veteran, took over as president and chief executive officer.

        Mr. Lafley will do the hard day-to-day work. But Mr. Pepper, 61, was called back to fill perhaps P&G's most pressing need: restoring the credibility of a company that has shown solid profits on which people have depended for more than 150 years.

        For that, he must regain the trust of employees, shareholders and analysts. Eight days into the job, Mr. Pepper is confident he will prevail.

        “The re-energizing of the company, just within the last week, is palpable,” he said.

        He'll stay “as long as this proves to be the right thing to do.”

Born: Aug. 2, 1938 in Pottsville, Pa.
Education: B.A. from Yale University, 1960. He has three honorary doctorates.
Military service: U.S. Navy, 1960-63.
Joined P&G: Sept. 25, 1963, as a staff assistant in advertising.
Milestones: Became a general manager of P&G Italia in 1974, a vice president in 1978, an executive vice president and director in 1984, president in 1986, and chairman and chief executive in 1995.
Other affiliations: Member of the board of directors at Xerox Corp., Motorola Inc. and Boston Scientific Corp.
        “What I want,” he said, “is to be an integral part of the team that's going to re-affirm that we're the pre-eminent consumer goods company in the world.”

Major restructuring
        Mr. Pepper's record, and interviews with former company chairmen and analysts, paint a picture of a man with deep affection for the traditional P&G values of consistency and strength. Mr. Pepper was known for supporting an inbred corporate culture that discourages mavericks and encourages promoting from within.

        But last summer, he also helped Mr. Jager engineer a restructuring known as Organization 2005. By June of this year, the restructuring had helped push the company's stock price to less than half of its all-time high in January of $117.

        The reorganization called for closing 10 plants and eliminating 15,000 jobs worldwide in six years.

        It also called for “stretch” forecasting, which encouraged managers to reach for higher revenues than they might obtain under the more conservative forecasts that had distinguished Procter.

        That eventually got P&G into trouble. When the company spent more on new products trying to meet stretch goals, the results were lower-than-expected earnings and a plummeting stock price this year.

        Mr. Pepper was comfortable with the restructuring plan when he retired last year, said Nathaniel Jones, a federal appeals court judge in Cincinnati and a friend of Mr. Pepper.

        “He felt the company would be in good hands and that he could leave and do a lot more,” Mr. Jones said. “There was a plan in place that he helped to shape.”

        Mr. Pepper acknowledged Friday that P&G will pay the price for two quarters of missed Wall Street expectations. But with record sales, profits and volume for the fiscal year ending June 30, P&G also is in solid shape for the long term, he said.

        “This is not a company that, at least financially, is in shambles,” he said.

Nice doesn't mean weak
        When Mr. Pepper retired as chief executive in January 1999 and as chairman in September, some interpreted it as a sign that the board of directors was impatient with his consensus-gathering style. The board, these analysts said, preferred Mr. Jager's bolder personality to make the hard choices P&G needed to make.

        For example, too many of P&G's core brands, including Ivory soap and Pampers diapers, had been underperforming. Mr. Pepper had not been aggressive enough in speeding research cycles and bringing new products to market, said Burt Flickinger, a former P&Ger who is managing director of Reach Marketing in Westport, Conn.

        “Pepper's really looked at as both a leader and a father figure, but he tolerated a lot of weak performance,” Mr. Flickinger said.

        Mr. Jager, in contrast, was a gruff, demanding executive put on board to ride herd on that same culture.

        “The board thought he (Mr. Pepper) had been too nice for too long, and they needed Durk to come in and be a battlefield general,” said Pete Sorrentino, director of equity research at Bartlett & Co., a Cincinnati investment firm.

        But if P&G's board considered Mr. Pepper too gentle, it has been proven wrong, said Gary Stibel, who left P&G in 1977 and runs the New England Consulting Group in Westport, Conn.

        “The board may have believed that Pepper's consensus style had slowed P&G down,” he said. “It slowed their losses down, and it slowed down unnecessary risk.”

        Some P&G insiders insist that Mr. Pepper's nice-guy image is romanticized by those who don't know the company's inner workings.

        “That's just Wall Street chatter,” said Edwin Artzt, Mr. Pepper's predecessor as chairman. “If you're nice, people think you're too nice. If you're tough, people think you're too tough. John can be tough. Gentle's probably not the right word. He's more considerate than some people.”

"I love this company'
        Mr. Artzt was known for invigorating P&G's international operations. His predecessor, John Smale, was famed for persuading the American Dental Association to endorse Crest toothpaste. Mr. Pepper became known for years of plugging away and refining P&G's memo-writing process.

        Mr. Smale said Mr. Pepper deserves credit for “Pan-Europeanization” in the 1980s that integrated separate P&G units in each country into one operating division.

        “John Pepper took credit for nothing and may have done more than most,” Mr. Stibel said.

        He is truly beloved among P&G employees, who see him as a protector of the company's values and traditions. When a group of P&G employees formed a band to play at employee functions in the mid-1980s, they called it “Mr. Pepper's Band.”

        “If he were running the company with these results, I don't know if people would still call him beloved,” Mr. Artzt said. “But John's just a hell of a good guy ... What you see is who he is.”

        “People know I really know this business, and I love this company,” Mr. Pepper said. “And people know I really respect them.”

        Straight out of Yale University and three years in the Navy, John Pepper started at P&G in 1963 as a staff assistant in the advertising division. Later, he joined the bar soap division and worked his way up the corporate ranks.

        Mr. Pepper was named president of the U.S. business in 1986. In 1990, after being passed over for chief executive, he started a five-year stint running P&G's international business.

        The Wyoming resident reportedly turned down other job opportunities to remain at P&G, waiting for his chance to run the company. He led P&G's push into new markets including Russia and China, and he is credited with putting together several key acquisitions.

        But when he became chairman and chief executive on Mr. Artzt's retirement in 1995, Mr. Jager simultaneously moved into a new chief operating officer position, clearly setting the line of succession.

        In what many analysts called an uneasy mix, Mr. Jager ran the day-to-day business while Mr. Pepper concentrated on acquisitions and other strategic matters.

        But Mr. Pepper retained his softer side, becoming the primary keeper of what one former P&Ger called “the nurturing P&G culture.”

        Some P&G veterans think Mr. Pepper's style has been vindicated by Mr. Jager's abrupt departure.

        “I think secretly, Pepper's probably saying, "See?'” said Charles Decker, a former brand manager who wrote a 1998 book about the company's culture. “I think he's delighted to be back.”

        Signs of Mr. Pepper's softer personality have shown at P&G. He is a disciple of Stephen Covey's “Seven Steps” program, which Mr. Artzt and Mr. Jager reportedly spurned.

        “John has been forward-thinking in being willing to try new things, not just in product innovation but in techniques of management,” Mr. Smale said.

        In 1994, when the United Way was coming off a national fund-raising scandal and many local companies were downsizing, he chaired the annual pledge drive and raised $44.3 million.

        And he has gotten P&G aggressively involved in various community projects. For example, the company has contributed about $6 million to the National Underground Railroad Freedom Center on Cincinnati's riverfront, and Mr. Pepper and his wife, Francie, have added $3 million more.

        He used his connections to recruit nationally known personalities to the Underground Railroad effort.

        “John Pepper is a solid businessman with a proven record,” said Vernon Jordan, the well-known Washington lawyer, who is part of the Freedom Center effort. “He's tenacious, and he's worked hard enough that he's gotten other companies involved.”

- 'Nice guy' Pepper begins to right P&G ship
   P&G president takes spotlight at reunion
   P&G revival hinges on goals
   Pepper narrows his focus at P&G

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