Attracting and retaining employees remains a difficult task for today’s corporates. Philip Kleinfeld speaks to Bob McDonald, CEO of Procter & Gamble, about promoting from within and the challenges of globalisation.
Former CEO of Procter & Gamble AG Lafley spoke of the company's succession planning with both fondness and wit.
"If I get on a plane next week and it goes down, there'll be somebody in this seat the next morning," he told Fortune in one interview.
That kind of commitment to people might seem hard to conceptualise with the economy as it is. While unemployment in the US has fallen below the 8% political yardstick, in Europe it remains as high as 11.6%. Joblessness, particularly among the young, is one of the most pressing social issues to face Europe in over a decade.
In the years following 2008, it's been all too easy for corporates to simply drop their workforce and wait for the upswing. But that's not a model open to Procter & Gamble, which has a policy of only promoting from within and nurturing its employee base as carefully as possible.
It's a practice that Bob McDonald, CEO of Procter & Gamble, has taken seriously for a long time, having travelled through the company on the back of the initiatives created by his predecessors. It was, he claims, their prescience about the need for development and experience that paved the way for his eventual promotion to chief executive.
"When I joined the company in 1980, I thought I'd live and work in one city my whole life," he says. "But nine years later, I was sent on my first foreign assignment to Canada. That began my development to the position I'm now in."
Despite Procter & Gamble having only 35% of its business in markets outside the US, McDonald went on to spend half his career outside the country, with postings in the Philippines, Japan and Belgium. In many ways, his tale reflects the wider story of the organisation, which, after humble beginnings, became the world's largest consumer product company when it acquired Gillette seven years ago.
"Today, we're an $84bn company, adding $10bn of growth every two and a half years," McDonald says. "Growth and geographical expansion of that intensity necessarily changes the delivery of effective talent management. When you're working across a much broader palate of choices, you have to be more deliberate about leadership development."
Vision with purpose
As well as creating new markets for multinationals to sell in, globalisation has opened up potentially fruitful labour markets. That creates challenges for talent management and HR professionals, who need to understand how the local area functions culturally and how it can be developed.
"We're in the consumer goods business," says McDonald. "That means we need to know about different people, their cultures and their languages. Part of our training programme is about developing empathy for the people of the world; for example, in 1995 when I was in Japan, one of the things I did was take the purpose and values that were written in English and translate them into Japanese. Languages represent cultures and you need to understand those differences. As we grow and enter new geographies, we need the right talent to be with us."
McDonald is not arguing for some kind of corporate relativism. Having an awareness of cultural difference in the construction of leadership development need not entail the total disintegration of wider company values. Authors like Rosabeth Kanter at Harvard Business School and Jim Collins, writer of Built To Last, have been particularly clear on that point. They argue that successful business depends on the articulation of clear and genuine purpose. That doesn't mean following the vacuous, interchangeable mission statements of pedestrian corporations, but constructing ones that can be communicated clearly and then internalised by employees.
"Strength of purpose and values is one of the reasons we've been able to globalise so quickly and successfully," McDonald says. "It's important to understand which part of a national culture you are willing to accept and which part you consider a violation of your company policy. That kind of consistency is particularly important now. One of the biggest changes I can see is that young people are now joining companies based on purpose. In our case, it's about touching and improving people's lives - and that fits well with a generation that wants to make a difference."
That final point has been well publicised. Today's younger generation are increasingly nomadic in their intensions and actions. Various competing answers have been offered to explain that pattern. One group blames the creation of 'flexible' labour markets for spawning a new class of precarious, insecure workers. Others lay the finger on languorous employers whose managerialism has sucked all inspiration out of their staff. And some marginal figures look to the disintegration of the cultural values that stand behind commitment and endurance.
"Young people are looking for a place where they can develop as quickly as possible in the belief that they won't be staying," McDonald says. "Our challenge is keeping them here once we've got them - and we're doing well at that. Most of our employees expect to move about, but our retention rates are very high. Whatever the reason for declining rates happens to be, certain steps can be taken to improve things."
A scientific approach to talent management
Having a CEO like McDonald openly discussing talent management shows just how far the discipline has come over the years. At one time, the subject lacked clarity in its definition and theoretical basis. But that's all changed, with entire academic courses now dedicated to its study.
McDonald insists the company has always treated talent management as a science. Indeed, from the time it first compromised with the unions back in 1887, some kind of commitment to people practice has been evident. But things have changed. Its views on and approach to talent management are far more considered than they used to be. The company has developed a series of systemic processes, with carefully defined success measures and feedback mechanisms. That intentionality is there for all to see, with scores of previous Procter & Gamble employees now the CEOs of Fortune 500 companies.
"We have a robust pipeline of talent that we are constantly working on improving," McDonald says. "Take one good example: I'm currently working on the assignment planning for all the next level leaders in the company. That's not just for the forthcoming assignments; it's for the next two."
One of the key things to come out of recent years is the importance of CEOs' involvement in the delivery of talent management. The impact CEOs can have on corporate culture is well-documented as their actions are amplified by discussion, within and outside of an organisation.
"When people in the company tell stories about your involvement, it helps build the ethos," McDonald says. "That's why I spend so much of my personal time on leadership development. People are our most important asset and quality is what differentiates the US.
"We recently acquired a large company and I did the leadership training myself. As I was doing the programme, one of the people from the acquired company put his hand up and asked how the leaders of Procter & Gamble find the time to do the training themselves. That's when it dawned on me what the difference is. Unlike most companies, we expect our leaders to do the work and develop the organisation."
That commitment to talent management has been met with recognition across the board. Business Week, Fortune and CEO have all acknowledged the company for its work, repeatedly placing it in the top three of their development leader lists.
That credit is certainly deserved, but it's also strangely unavoidable. One of the main things driving Procter & Gamble's fascination with people practices is its policy on promotion. Because the company only elevates staff from within, it is, in a sense, forced to take talent management seriously.
"As a junior person in the company I loved the idea that my boss had to get me ready to replace him," McDonald says. "There's a certain comfort to be drawn from that kind of culture. We're constantly developing and encouraging talent. From day one we train our employees on the values, purposes and functional requirements of the company, planning the experiences they need to go through, not only to get the next job, but the next two or three jobs. We don't have the luxury or excuse of taking people from outside."
Promoting from within can help to create the kind of culture McDonald clearly values. Procter & Gamble is one of the few companies with an alumni association that meets every two years. The last event, held in Toronto, was attended by over 900 people. This kind of 'family' culture is rare and attractive, but it has drawbacks.
"Insularity is an issue when you promote only from within," McDonald says. "To counteract that, we actively seek diversity when we are hiring. We want our people to represent the consumers we sell to. That's why we look to bring people in from different countries, ethnicities and genders. We're rated the second-best company for multicultural women by the National Association of Female Executives and have a visionary award for board diversity."
Of course, promoting and developing staff would be impossible if the right people weren't there from the start. The company's hiring process seems daunting at first glace - last year alone it received a million applications for fewer than 15,000 jobs - but it works effectively.
"We try to hire the best people possible," McDonald says. "We have a rigorous screening process that includes a reasoning test and some autobiographical stuff to judge leadership and ethics."
Procter & Gamble's enduring values
At a time of economic uncertainty across the world, motivating and engaging the workforce has never been more important. The eye of the media is fixed firmly on some of the worst aspects of today's large corporates, with issues of executive pay and bad financing dominating the headlines.
Recklessly cutting spending on leadership and development would undermine one of the few aspects keeping businesses together: community, loyalty and ethics. When William Procter and James Gamble started the company in 1837 on the advice of their mutual father-in-law, these were, one presumes, the kind of enduring values they had in mind.