P&G's Pepper steps down

Thursday, September 10, 1998

The Cincinnati Enquirer

Durk Jager, left, and John Pepper outside of P&G's headquarters downtown.

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John Pepper, who in his three-plus years as chief executive of Procter & Gamble Co. introduced revolutionary products and led unprecedented growth, said Wednesday he will retire as CEO in January as the company embarks on a dramatic reorganization.

Mr. Pepper, who became CEO in July 1995, will be succeeded by his second-in-command, Durk Jager, president and chief operating officer.

Mr. Jager, a Procter veteran of 28 years, has run the day-to-day business since 1995. He is 55.

"I don't have any specific plans," Mr. Pepper said. "My focus, other than family and certainly things in the community, has been on this company my whole life.

"It has never been more intense than in the past 12 months. The next 12 months are going to be very much about making this transition as brilliant a success as I can contribute to."

Title: Chairman and chief executive.

Born: Pottsville, Pa.

Resides: Wyoming.

Age: 60.

Married: Francie Garber.

Children: John, David, Douglas, Susan.

Education: Yale University, BA, 1960. Honorary doctorates at Mount St. Joseph College, St. Petersburg University (Russia) and Xavier University.

Career highlights: Joined P&G Sept. 25, 1963, as a staff assistant. Became an assistant brand manager a year later and brand manager in 1966. He moved into copy and promotions, and became an advertising manager in 1972. In 1974, he became general manager of P&G Italia, and in 1977, international division manager. He moved through a series of VP positions in the United States and abroad before becoming president of U.S. business in 1986. In 1990, he was named president of international business before being named chairman and CEO in 1995.

Compensation for year ended June 30, 1998: $1.25 million in salary, and almost $2 million in bonus and incentive awards to be granted in the form of retirement restricted stock and other long-term compensation.

Mr. Pepper's resignation will mark the beginning of Organization 2005, a companywide restructuring that will streamline and simplify Procter's operations so it can act more nimbly in the world market. "It's been clear to me and the board for, oh, several years -- really I was quite sure of it when we started -- that Durk was going to be a great CEO of this company," Mr. Pepper said.

Mr. Pepper will remain chairman of the board until September 1999. The chief operating officer position will be abolished. He said P&G could not realize its growth goals -- including reaching $70 billion in revenues by 2005 -- without implementing the restructuring plan.

He also said he and the board of directors had for years thought Mr. Jager would one day be CEO of the global corporation.

The move comes three years after Procter created its first-ever COO position for Mr. Jager when he and Mr. Pepper together succeeded former CEO Edwin Artzt. But Mr. Pepper, 60, said Organization 2005 requires one leader.

Mr. Pepper's resignation will end the shortest CEO tenure in P&G's history, but not the least active.

Under Mr. Pepper's supervision, Procter introduced innovative products such as the fat substitute olestra and Febreze; sold off marginal lines such as Duncan Hines and Fisher Nuts; and watched its stock market value extend beyond $100 billion from $49.3 billion in 1995, the year Mr. Pepper became CEO.

The Pennsylvania-born executive has spent every year of his professional career at P&G, since 1963. His first brand as an up-and-coming executive: Cascade.

In his time in Cincinnati, Mr. Pepper has become deeply involved in the community, which responded to the news of his resignation with praise and admiration.

Business leaders who know the executive personally have called his decision selfless and characteristic.

His wife, Francie, said a young P&G worker who left a message on her answering machine Wednesday was almost too choked up to talk. "It's vintage John Pepper," said James Zimmerman, chief executive officer of Federated Department Stores Inc.

"To put the company and its priorities and opportunities ahead of his own situation."

Analysts said the transition did not worry them -- in fact, none questioned Mr. Pepper and Mr. Jager about it during a morning conference call.

"What's going on there is no different than what's going on in any multinational companies," said analyst Marvin Roffman, president of Roffman Miller Associates.

"Reorganization is a constant with all major corporations." Shares in Procter dropped almost $8 Wednesday, to $71.87 1/2, on news that first-quarter earnings fell short of plan because of economic upheaval in Russia and Asia.

Mr. Pepper is stepping aside so Procter can implement Organization 2005, a five-pronged program that aims to improve corporate growth, speed and product innovation.

This in part will be accomplished by focusing global strategy on brands rather than on geographic regions, bringing management closer to each of its markets and changing the corporate culture. Mr. Pepper said that in time, the difference could be measured in billions of dollars in sales.

The plan calls for establishing seven global business units, eight marketing regions, a comprehensive accounting, payroll, benefits and technology unit, and setting up a revised system for rewarding corporate goal achievements, which will involve some "cultural" changes. Mr. Pepper and Mr. Jager said the Organization 2005 program should take three to five years to implement, but benefits from the program will be realized as early as the next calendar year as brand expansion accelerates and cultural changes are introduced. "This is an evolution," said Mr. Jager. "At a certain point of time, you have to make a decision whether you want to run this business really on a global basis. Once you make the decision, you kind of go over a cliff. You have to do a lot of things."

The restructuring makes sense, said Joseph Pichler, chief executive of Kroger Co., one of Procter's largest customers.

He said earlier structural changes at P&G have reduced costs for both parties.

"What Procter is embarking on is a significant structural change," he said.

Mr. Pepper said he isn't yet sure what he will do after retiring from the board in a year, but he will stay tied to P&G for some time. In keeping with tradition, he will become chairman of the executive committee of the board, succeeding Mr. Artzt.

"I was very, very lucky to find this company," Mr. Pepper said. "You're lucky in the parents you have, and you're lucky in who you meet to marry and then what profession you enter. It's just serendipity that brought me to this company, but it's an institution whose values and whose people I admire to the depths of my soul."

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