Professional Documents
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Unilever and PG - Roger Martin
Unilever and PG - Roger Martin
- Forbes
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http://www.forbes.com/sites/stevedenning/2013/01/11/pg-now-a-dog-unilever-a-star-are-th... 10/4/2013
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ROGER MARTIN: I know both companies and both CEOs well. I have consulted to P&G leadership for the past 27 years. Paul Polman came from P&G. He and I worked intensively together on strategy at P&G in the 1990s during his formative years there as a general manager. And I also worked lots with Bob McDonald in that period and I advise him today. I have praised Paul s work at Unilever in my recent article in BusinessWeek: basically I love what he is doing there. SD: So what do you make of the current discussion of the performance of P&G and Unilever and their CEOs? ROGER MARTIN: Frankly, the current narrative in the capital markets about Paul Polman versus Bob McDonald drives me nuts. I admit I have low expectations of Wall Street analysis to begin with, but the thinking and logic here are so lame that they surprise even me. The overwhelming narrative now is that Paul is a genius and Bob is a dummy, based on the fabulous stock performance of Unilever and the terrible performance of P&G under their respective leadership. SD: So what s really going on? ROGER MARTIN: Let s look the data behind the story. You may recall we had a little problem in 2008 with a bit of a stock market meltdown. And that was preceded with a big run up in stock values. This was ubiquitous and influenced most all big companies. The S&P 500 hit its all-time high of 1561.80 on October 12, 2007 and then cratered to 43% of its high when it bottomed at 676.53 on March 9, 2009. Then it gradually worked its way up to 1472.12 as of close of trading yesterday, 94% of its all-time high and 218% of the bottom. Both P&G and Unilever experienced the same wild ride at almost the exact same times. P&G hit its all-time high of $74.40 a couple of months after the S&P on December 13, 2007 and then cratered to 59% of its high when it bottomed at $44.18 on March 1, 2009 (a week away from the S&P bottom) and then worked its way up to yesterday s closing of $69.27, which is 93% of its all-time high and 157% of the bottom. Unilever hit its all-time high of $37.95 two weeks after P&G on December 28, 2007 and then cratered to 59% of its high when it bottomed at $17.04 on March 9, 2009 (same day as the S&P bottom) and then worked its way up to yesterday s closing of $38.73, 102% of its all-time high and 227% of the bottom.
SD: How does this relate to CEO performance at the respective companies?
http://www.forbes.com/sites/stevedenning/2013/01/11/pg-now-a-dog-unilever-a-star-are-th... 10/4/2013
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ROGER MARTIN: Both Paul and Bob took over their current positions in close proximity to the bottom of the S&P and both of their stocks Paul on January 1, 2009 and Bob on July 1, 2009. I think it is fair to say that neither one of them had a thing to do with the fact that the global capital markets had tanked nor that their respective stocks were right there with it. And it is hard to argue that there would have be a whit of difference had they switched start dates. Basically, they both inherited a company near the bottom of a stock market and economic crisis and both have had 3-4 years to work on their way out of that mess. SD: What conclusions should an analyst draw? ROGER MARTIN: First, there is no escape from the expectations market for a single company. P&G and Unilever peaked with the bull market and crashed with the bear market and recovered from the trough with the market. Expectations swung wildly for everyone involved. Second, the biggest difference between the stock market performances of Paul and Bob over this boom-bust-recovery period between late 2007 and the end of 2012 is that Unilever crashed as much as the market (S&P down to 43% o f p e a k U n i l e v e r 45%) and P&G managed to crash a lot less (59% of peak). This makes Unilever s recovery from the trough (227%) much more impressive than P&G s (157%) and since P&G dropped less than the S&P, P&G looks like it lags the S&P (218%). Third, if you ask how these two men fared in restoring their stock prices to their previous glory the pre-crash high there isn t much of a story. By the end of 2012, the S&P was back to 94% of its pre-crash high. P&G, despite its terrible performance, was also at 93%. Unilever was 102%. So what does it come down to? Paul is a genius and Bob is a dummy because of those nine percentage points in the market s expectations about the future of Unilever versus P&G? Nine percentage points in stock price appreciation defines the range between genius and dummy? So if the stock price of Unilever would be $34.53 rather than $38.73, Paul would be a dummy. And if P&G would be $75.89 rather than $69.27, Bob would be a genius. SD: Are the markets saying that Paul did a better job than Bob in digging Unilever out of a deeper stock price trough? ROGER MARTIN: That s the kind of classically lame argument that often comes out of capital markets. The depth of the trough is a function of expectations, not reality. Investors put themselves into and out of troughs of their own volition. SD: So how should we evaluate the performance of the two firms and their CEOs? ROGER MARTIN: For me the most compelling argument is the following. Who was in charge of P&G when it hit its all-time high? It was A.G. Lafley, who is rightly lauded as one of the world s best CEOs of his generation. By the mid-2000s, he had turned around P&G and had it humming on literally all its cylinders. How about Unilever? Well the board was sufficiently displeased with the performance of the company and its existing management team that it found it necessary to go outside for the first time in history to appoint a CEO Paul Polman. I think that accounts more than anything else for the relatively
http://www.forbes.com/sites/stevedenning/2013/01/11/pg-now-a-dog-unilever-a-star-are-th... 10/4/2013
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modest 11-point difference in relative expectation from pre-crash peak to current for these two companies. SD: So why are capital market heavyweights now calling for Bob McDonald s ouster? ROGER MARTIN: Apparently they want to enforce the following rule on public companies: We will bid up the price of your stock to whatever in our wildest expectation fantasies we imagine that it is worth and then hold you accountable for earning a sparkling return on that value, and if you don t do it immediately we will savage you and the stock price and get somebody else to bring it back up to where it was when we started haranguing you. And we wonder why America s economy seems terminally screwed up! And read also: The Dumbest Idea In The World: Maximizing Shareholder Value Q&A With Roger Martin: Fighting The Kool-Aid Of Stock-Based Compensation How Do You Fix Bad Habits? Solving the innovation enigma Bureaucracy, anarchy and innovation amnesia ____________ Steve Denning s most recent book is: The Leader s Guide to Radical Management (Jossey-Bass, 2010). Follow Steve Denning on Twitter @stevedenning
http://www.forbes.com/sites/stevedenning/2013/01/11/pg-now-a-dog-unilever-a-star-are-th... 10/4/2013