NEW YORK (Reuters) - Procter & Gamble Co (PG.N) is considering current and former executives of the world’s largest household products maker as it begins the search for candidates to succeed Chairman and Chief Executive A.G. Lafley, according to sources familiar with the situation.
P&G veterans being considered as part of the succession planning process include Fabrizio Freda, who spent two decades at the company before becoming CEO of Estee Lauder Cos Inc (EL.N); and Susan Arnold, former president of global business units who is now an operating partner at private equity firm Carlyle Group LP (CG.O).
Lafley is also closely watching the performance of some of his other direct reports for their potential to succeed him, the sources said.
These executives include Melanie Healey, group president of North America; David Taylor, group president of global home care; and Deborah Henretta, group president of global beauty care; Martin Riant, the group president of global baby care; and Giovanni Ciserani, the group president of global fabric care.
P&G declined on Thursday to comment or to make executives available for interviews.
No formal search process is currently under way, and the sources said Lafley could stay on for some time to come.
Lafley, 66, was previously P&G’s CEO from 2000 to 2009, but came out of retirement after his successor, Bob McDonald, was abruptly replaced last year amid pressure from investors who worried about its growth prospects and lagging share price.
Since taking the helm, Lafley has conducted a “deep dive” to figure out what needs fixing. He re-organized P&G into four businesses to boost efficiency. Last year, he said the fiscal 2014 year would be a transition year, with fiscal 2013 a “stepping stone.”
In a telephone interview with Reuters last week, Freda declined to say whether he had been approached by the P&G board. But he said, “I‘m very happy at Estee Lauder Cos, and that’s what I‘m doing and that’s what I am focused on and that’s what I plan to continue doing.”
A representative for Arnold declined to comment.
These new details about P&G’s succession planning process suggest that the company, whose products including Tide detergent, Gillette razors and Pampers diapers are household names, is leaning toward choosing one of its own to be the next
The sources said the appeal of hiring a former or current executive is that they would not only understand the complexities of a large multinational company with dozens of products but also understand its culture.
Gary Stibel, founder and CEO of New England Consulting Group and a former P&G executive, said the company is unlikely to select a candidate with no ties to it.
“It is totally unnecessary, because they have so much internal talent competing for that job that it will be a challenge to select one,” Stibel said.
P&G has traditionally chosen CEOs and other top executives from within its management ranks. In 2009, Lafley picked McDonald, who was the chief operating officer at the time, to take over the company.
McDonald struggled with a pullback in consumer spending in the aftermath of the financial crisis and the recession. In early 2012, he unveiled a $10 billion restructuring program, cutting thousands of jobs and taking other steps to improve operations, launch new products and expand into fast-growing emerging markets.
Investors wanted faster improvements. Activist investor William Ackman’s Pershing Square Capital Management took a $2 billion stake in P&G and began pushing for changes, saying shares were undervalued. (Ackman has since sold at least part of its stake.)
P&G shares underperformed those of rivals between the time McDonald was appointed in June 2009 and the announcement of his departure. During that time, P&G rose about 50 percent, while Colgate-Palmolive Co (CL.N), for example, was up 74 percent and Standard & Poor’s 500 .SPX index advanced 75 percent.
“Bob retired, the board called me and I felt like duty called,” Lafley said in an interview when he returned in May 2013.
Consultants and recruiters said they expect Lafley to remain in the top seat at P&G for at least another 12 to 18 months.
“It is still early. These changes don’t happen overnight. I think investors have a lot of confidence in him,” said Jason Tauber, an analyst for Neuberger Berman’s large cap disciplined growth team. Neuberger owns about 7 million P&G shares.
But as Lafley and the board consider a potential successor, they have to contend with investors increasingly eager to see what moves P&G will make to speed up growth.
Matt McCormick, a portfolio manager at Bahl & Gaynor Investment Counsel, said shedding some business and making further progress on cost-cutting would help P&G.
“Procter is doing just fine - but when you look at their other competitors who have been able to surpass P&G, the reason is they’re more nimble and they’re more adroit in adapting to shifts in consumer patterns,” said McCormick.
Bahl & Gaynor owned 4.2 million P&G shares as of September, according to Thomson Reuters data.
Editing by Paritosh Bansal and Ken Wills