Household/Personal Products

Procter and Gamble

Last edited by lenazun on December 15, 2009 - 4:16pm
Company Snapshot: 

Procter & Gamble Co. is a Fortune 500, American global corporation based in Cincinnati, Ohio, that manufactures a wide range of consumer goods. As of 2007, P&G is the 25th largest US company by revenue, 18th largest by profit, and 10th in Fortune's Most Admired Companies list (as of 2007). According to the Nielsen Company, in 2007 P&G spent more on U.S. advertising than any other company; the $2.62 billion it spent is almost twice as much as General Motors, the next company on the Nielsen list.

Number of employees worldwide: 
138,000
Chief executive officer: 
Alan G. Lafley
Website: 
http://www.pg.com/
Global Fortune 500 rank: 
68
Total revenue: 
$68,222.0 Million
Corporate accountability
Labor: 

In May 2001, P&G announced further job cuts in an effort to reduce its operation costs in line with those of its main competitors. P&G now plans to cut 9,600 jobs in addition to the 15,000 redundancies announced in 1999. In effect, the company will shed a further 16% of its total worldwide workforce over the next three years. 40% of the job cuts are to occur in the US, the remaining 60% affecting its foreign operations. Announcing the fresh cuts, CEO Lafley insisted that "The simple fact is that over the past year P&G’s performance has been unacceptable."

However, in the same period Lafley’s own salary rose by 46.4%. He was paid $799,100 in fiscal year 2000 and $1.17 million in fiscal year 2001. This meteoric growth in executive pay is obviously troubling, unjustified and insulting to workers, just like the growing phenomenon of corporate boards showering generous parting gifts on failed CEOs. ‘The latest evidence: on 25 August, P&G disclosed that it gave just-ousted CEO Durk I. Jager a $9.5 million bonus--even though Jager lasted no more than 17 months at the helm and with P&G's stock down 50%, costing P&G shareholders more than $70 billion in wealth.’

Mistreating Employees

The Economist’s David S. Patterson reports after reading Alecia Swasy's 'Soap Opera: The Inside Story of P&G': "The author's investigative reporting, which included interviews with hundreds of current and former P&G employees, provides a highly unflattering portrait. P&G, she finds, "has manipulated and abused its own employees, consumers and competitors and gotten away with it for years." Nothing in Swasy's account is more chilling than her description of P&G's efforts to monitor and control its employees' lives and work habits, and her account of how it has used its economic, political and legal clout to silence critics, both inside and outside the business."

Appalling working conditions

As "free trade" laws allow corporations to move more freely across international borders, information about the impacts of corporate activities is becoming more difficult to get. A large corporation can affect people and the environment in dozens of countries simultaneously. Most of these impacts are hidden, even from the managers of the corporations involved because they buy from suppliers or brokers who, in turn, buy from others. The ultimate impacts remain hidden from the consumer and, too often, from corporate managers themselves.

Take the case of P&G, which distributes Citrus Hill orange juice. The oranges come from Florida farms and are picked largely by itinerant workers. However, P&G neither operates the farms nor buys directly from the farmers. Instead the oranges are purchased from a broker who serves as a go-between and who, unlike P&G, operates outside of public view. P&G has no direct knowledge of the environmental or worker conditions at these farms.

Yet a CBS-TV investigative report reveals that working conditions at some of the orange groves are little better than indentured servitude. Migrant workers live on the farms in abysmal conditions, without even a bare minimum of comfort or sanitation. Yet, in return for room and board they must pay their employer an amount in excess of their salaries. In a vicious circle, each worker becomes deeper in debt to the landlords, some of whom refuse to return the workers' "green cards" until the debt is paid off. The arrangement is patently illegal, as are the living and working conditions, yet local authorities appear to ignore the situation.

Environment and product safety: 

P&G ‘assaults the environment and environmentalist’ Peter Montague, PhD (Environmental Research Foundation) reported (August 1993) an appalling story about environmentalist Stephanie McGuire and her efforts to prevent P&G polluting the Fenholloway River in Florida. He claimed that, for years P&G legally dumped 50 million gallons of dioxin-contaminated water into the river each day and he accused P&G of threatening and physically abusing McAcquire, the woman who tried to stop P&G from polluting the river.

Maarten van Riemsdijk tried to identify patterns with regard to multinational’s responses to public actions against them [on the basis of various cases, including the aforementioned P&G case. He emphasised that the McGuire case was not incidental]. He found there is a fixed pattern in the reactions of multinationals. The relevance of societal developments is being denied as long as possible and problems are being ignored. Multinationals are only willing to dialogue when it’s too late. "Ignorance gets them in trouble; arrogance keeps them there." Van Riemsdijk concluded that the ‘tactic of ignoring’ stems from the multinational’s incapability to communicate at other levels than those of money and economic interests.

Anti-competitive and consumer protection: 

P&G aggressively markets its products to the public, using clever marketing strategies, including advertising. P&G is one of the world’s biggest advertisers and was the first company advertising directly to consumers on a national scale. Most of P&G’s product lines are the premium brands that cost a bit more than competitors –and much more than generics (generics are cheaper than any branded product).

‘P&G isn’t trying to compete with generics’, says an analyst. Therefore marketing is of great importance in order to tie consumers (including children) up to P&G’s brands (in other words, to forge so-called ‘product loyalty’), to capture new markets and expand market shares.

Creating demand is a big part of the game. ‘In creating demand P&G have seen major success with shopper research. The company has developed a Europe-wide Shopper Research Programme involving interviews with over 30,000 shoppers. When this is combined with other research data and retailers' shopper data, there is a powerful combination of information available to shape mutually beneficial business plans.’ Basically, giants like P&G try to hook up as many consumers worldwide with as many products as possible, through aggressive promotion of consumerism, at tremendous environmental and social costs.

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History

Candlemaker William Procter (an immigrant from England) and soapmaker James Gamble (arrived from Ireland) launched their new enterprise in Cincinnati in 1837. The company gradually grew into a multi-million dollar corporation. During the Civil War, Procter & Gamble was awarded several contracts to supply soap and candles to the Union armies. These orders kept the factory busy day and night, building the Company's reputation as soldiers returned home with their P&G products.

Once a staple of the company's product line, candles declined in popularity with the invention of the electric light bulb. P&G discontinued candle manufacturing in the 1920s. Soap is still one of P&G’s core products. P&G was the first company to advertise nationally direct to consumers (Ivory soap in the 1880s) and it literally created the concept of "soap opera" by sponsoring radio and television dramas targeting women.

P&G defined many marketing strategies we now take for granted. Marketing (still gaining importance) is definitely an important key to P&G’s success. As one critic put it: "Within a paternalistic corporate culture, P&G pioneered in brand management, in consumer surveys for marketing research, and in new product research and development. One reason for P&G's domestic success has been their reliance on a combination of consumer research, advertising, and distribution techniques."

Bad Results However, P&G has not been very successful recently. ‘Annual sales growth has been slowing over the last few years, from 5 percent in 1996 to 2.6 percent in 1999’. The company stumbled badly in 2000 missing analysts’ profit expectations and causing its famously reliable stock to plummet from $103 (£71,3) in January 2000 to $64 (£44,3) in June 2001.

In 1999, CEO Durk Jager kicked off Organization 2005 in order to forge better performance. Organization 2005 includes cutting 17,000 workers over the next three years and reorganising the company's corporate structure from four geographic business units to seven global business units based on product categories.

Culture Change ‘Organization 2005 also aims at changing P&G's culture from a conservative, slow-moving, bureaucratic behemoth to that of a modern, fast-moving, Internet-savvy organisation. P&G wants to make faster and better decisions, cut red tape, wring costs out of systems and procedures, fuel innovation, set more aggressive sales goals and nearly double its revenue. The catalyst for all this change is IT.’

In addition, P&G wants to abandon its legacy of secrecy. ‘Its new spirit of openness is most evident on the Internet. A year ago, it was a stodgy, nondescript site where no one other than investors or job seekers had any reason to go to. Today, you see a consumer-friendly portal with loads of information about P&G products.’

So far, Organization 2005 has had little to show. However, P&G stresses the company will pick the fruits of the ambitious restructuring plan in the near future. "This restructuring," former CEO Millen explained, "will ensure that P&G is well placed to address the issues facing manufacturers, retailers and wholesalers at the outset of the 21st century. Examples of these issues are the internationalisation and consolidation of retailing, consumer loyalty and retention, category management, the potential effects of the Euro currency and dramatic advances in information technology."

New Alliances One of P&G's new strategies is linking up with other companies to extract as much value from its brands as possible. Last February (2001) Coke and P&G announced a $4bn [£2,77bn] alliance. The alliance would involve the union of some 40 consumer products (including Sunny Delight, Pringles and Minute Maid) under the umbrella of a Coke-P&G joint venture. P&G was hoping Coke’s far-reaching distribution network could give the company a boost. P&G’s renowned R&D capacities were attractive to Coke. Eight months later the consumer goods behemoths called the wedding off. ‘A spokesman for Coke said: "After many months of due diligence with Procter & Gamble, we felt that we could unlock the value of our brands more effectively and profitably by retaining full control of them."'

However, P&G successfully tied up with chewing gum giant the Wrigley Company. The deal will allow P&G to cash in on the global gum, mint, and breath-freshener market. This is bigger than the toothpaste market and equal in size to the shampoo or skincare sectors. ‘We will soon be able to sweeten our mouths with Crest gum, Crest mints and Crest breath freshener’, the Guardian reports. P&G has recently announced it will sell the Jif and Crisco brands in a bid to get rid of under-performing brands. P&G and J.M. Smucker Co., which makes a wide variety of jams, jellies and other foods, is acquiring the Jif peanut butter and Crisco cooking oil brands from P&G for $1 billion in stock.

Financial information
Stock ticker symbol: 
NYSE: PG
Fiscal year: 
2006
Sources
Watchdogs and related campaigns: 
Corporate Watch
Center for Political Accountability: Procter and Gamble Reports