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Ross Kerber and Nadia Damouni and Jessica Wohl
Thursday, May 30, 2013
From Print Edition


NEW YORK: The sudden exit of Procter & Gamble Co’s Bob McDonald as chief executive and the return of former CEO A.G. Lafley in his place has raised questions about the vigilance of one of America’s highest-profile corporate boards.


On paper at least, P&G, the maker of a myriad of household products such as Crest toothpaste and Tide detergent, has one of the strongest boards in the world with CEOs from six other companies among its 12 members, including three from companies in the Dow Jones industrial average. The CEOs include Boeing Co’s James McNerney, Hewlett-Packard Co’s Meg Whitman, American Express Co CEO Kenneth Chenault, and Macy’s Inc CEO Terry Lundgren.


P&G in its annual proxy statement to shareholders last year described the board as “highly qualified and each Director brings a diversity of skills and experiences.” It said all of the directors - who also include Archer Daniels Midland Co CEO Patricia Woertz, Frontier Communications Corp CEO Maggie Wilderotter and former Mexico President Ernesto Zedillo - qualify as possessing “extraordinary leadership qualities and are able to identify and develop leadership qualities in others.”


But some investors and corporate governance experts say that having so many powerful directors could also be a weakness because serving CEOs are under a lot of pressure in their own jobs and therefore cannot commit much time to being a director of another company.


They also suggest that major P&G investors, such as Warren Buffett’s Berkshire Hathaway Inc (which had a P&G stake of about 2 percent at the end of March), and activist hedge fund investor Bill Ackman’s Pershing Square Capital Management (with around 1 percent), would also have more at stake than the CEOs, who only have modest P&G shareholdings.


While boards in corporate America are often dominated by current and retired executives, many also have investors represented - Coca-Cola Co, for example, has Buffett’s son Howard Buffett on its board (Berkshire has a 9 percent stake).


The lack of big investors on the board is a concern, said Frank Feather, chairman of Toronto-based corporate strategy consulting company Geodevco. There should be some directors who own significant amounts of shares that were not paid for or issued to them by the company. “Directors should have skin in the game,” he said.


Added Urmi Ashar, who founded the Pittsburgh chapter of the National Association of Corporate Directors and teaches governance at Carnegie Mellon University: “The heavyweight board of P&G packed with CEOs is a definite red flag and it leaves one wondering how much time they have to dedicate to the challenges at P&G.”


Whitman, for example, has been trying to engineer a turnaround at HP, following a failed acquisition by her predecessor and amid a struggling personal computer market. Meanwhile, McNerney has faced a crisis at Boeing after overheating batteries grounded its new Dreamliner aircraft since January, with flights only now resuming.


Still, their attendance record - and that of other directors - for P&G board meetings last year was strong. And several of the CEOs, including Whitman and Lundgren, weren’t on the board when McDonald was appointed in June 2009. Also giving a CEO a reasonable period - just under four years in McDonald’s case - to produce results would be pretty standard at most major companies unless the share price was imploding.


All the board members contacted for this article either declined to comment or were not available, including McNerney, who holds the title of presiding director at P&G. The presiding director, among other things, oversees director meetings when management is not present.