A Gamble for P&G

Since the inception of the Procter and Gamble (P&G) corporation, the company has provided households alike with brands such as Gillette, and Tide. In the wake of the financial meltdown the company’s has witnessed loss of profit as well as the loss in market-share. Many factors contribute to the loss, yet the company still allows for Robert McDonald, Chairman and CEO to remain at the helm of the company after three years of little improvement.

In February, McDonald announced the company’s first cost cutting strategy, calling for a plan that would save $10 Billion dollars over the next four years, at the expense of cutting some 4000 workers and focusing on the company’s top 40 most profitable market shares. McDonald also announced that the company would be buying back stocks in hope to increase the market price. Large stockholders view McDonald’s action as either too little or too late.

In July, William Ackman, of Pershing Square Capital, who controls $1.8 Billion dollars of P&G stock issued a 75 page complaint of McDonald’s tenure at the as Chairman and CEO, criticizing his leadership, all while pressuring the P&G’s board to force the resignation of McDonald. Since Ackman’s public complaint the board has cut McDonald’s and other P&G executives salaries by 6%, in addition to cutting their performance bonuses. The actions resulted in the stock of the company 12% jump, ending this week at a 52-week high.

McDonald is not the only problem for P&G, but can anyone blame Ackman for compiling such a report about the man who is controls the future of his investment? P & G in recent years has mis-forecasted earnings three times, as well many new product launch’s have been delayed. McDonald alongside the other executives seemed to have missed the cyclical component in their forecasting. The company continued producing large number of their high-end products, causing customers to jump ship and buy the more basic items. In example of this is P&G continued mass-production of high-end tide laundry detergent products. Such products were noticeably more expensive because the detergent had a scent that was more pleasing and a better product design, but the results were the near the same as the store brand, creating customers to cutback and buy the store brand. The company’s strategies in the wake of the recession were not in touch with their customer base and the company continues to be effected by such decisions of the company.

P&G is taking a risk allowing for McDonald to continue as leader, the next few months Ackman will not be the only person closely observing the decisions of the McDonald and his team. For P&G’s sake many hope that McDonald’s financial cost strategies do pay off, but only time will tell the real truth.