What will the next step be for Procter & Gamble?

By Simon Pitman

- Last updated on GMT

Related tags Board of directors Corporate governance

The recent announcement that an activist investor has taken a substantial stake in P&G has led to further speculation about the company’s future, including that of CEO Bob McDonald.

Board members are not satisfied with the performance of the company since McDonald took the reins at the beginning of 2010 and are seriously discussing a change of leadership, a Bloomberg report quotes people familiar with the situation as saying.

P&G executives members are talking about contacting former executive board members to see if they may be interested in taking on the job, pointing to James McNerney, chairman of the company’s leadership development committee as a major critic, the report also mentions.

The company has been delivering increasingly compromised financial results during the course of the last year. The most recent second quarter results showed that sales growth had slowed to 4 percent, giving total group sales of $21.35bn.

Net earnings take a big tumble

However, net earnings took a big tumble, falling 49 percent to $1.71bn, compared to $3.36bn in the corresponding quarter last year. For the full six months, this figure fell by 26 percent to $4.77bn.

In response to the falling profits, the company announced a restructuring program that shifts the investment focus away from the emerging markets in an effort to plug the growing gap that is appearing in its performance in developed markets.

This puts on hold one of McDonald's key priorities for the business, after steering the company into new corners of the globe in order to boost its number of customers. The renewed strategy has also bought about criticism from industry analysts and observers who believe it could put further pressure on the company’s already fragile financials.

William Ackman steps into ruffle feathers

At the end of last week activist investor William Ackman secured a significant shareholder stake in P&G through his company Pershing Square Capital, which sent share prices to a near year-long high.

Reports that his company has bought a significant stake seem to have given the company a much needed boost from investors, and also come at a time when the consumer goods giant is under pressure to improve its performance.

Ackman has established himself as an activist shareholder in the last ten years or so, targeting large companies suffering from struggling financials or ill-defined business strategies.

Shareholder activism

In the past he has invested in companies such as Beam, Target and Canadian Pacific Railway, where he has often tried to use his shareholder influence on the executive board to bring about big changes that have shaken up business strategies and given the companies in question new direction.

Industry observers and market analysts have been speculating for some time now over what the future will hold for P&G, which has included a lot of discussion about business strategy and restructuring.

Last month Cosmetics Design reported on how an analyst at Sanford C. Bernstein had stated his belief that Procter & Gamble could become a more efficient business it if were to break up into smaller business units.

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