Susan Arnold Exits a Top P&G Post, Narrowing the Race for Succession

Susan Arnold Exits a Top P&G Post, Narrowing the Race for Succession

The succession race at Procter & Gamble Co. narrowed with Monday's exit of Susan Arnold, clearing the way for rival Robert McDonald to emerge as the front-runner to lead the world's biggest consumer-products company when Chief Executive A.G. Lafley retires.

Ms. Arnold, who turned 55 years old Sunday, said she was stepping down as president of P&G's global business units after a nearly three-decade career at the Cincinnati-based company. Ms. Arnold had known for some time that she was unlikely to succeed Mr. Lafley, but the CEO persuaded her to remain in senior management for a while, said a person familiar with the situation.

Over the past year, speculation about who will succeed Mr. Lafley has heated up, as the 61-year-old CEO nears P&G's normal retirement age of 65 and almost a decade in his post. Since at least 2006, Ms. Arnold and Mr. McDonald, the two most powerful executives at P&G after Mr. Lafley, had been in a horse race to become the next CEO, people close to the matter said.

Mr. McDonald, P&G's chief operating officer, has played a more visible role lately at investor conferences, giving Wall Street the impression he had the edge for the top job. But the global economic downturn could yet throw a curveball at P&G's succession planning.

Mr. Lafley recently has brushed aside notions that he might step down anytime soon. When asked about his retirement at an analyst conference in December, he told the crowd, "The rumors of my passing are greatly exaggerated," adding, "We're going to stay together, and we have a lot left to do."

The recession is proving particularly difficult as P&G's premium-priced staples, which range from the Olay line of skin-care products to Pampers diapers, face mounting competition from private-label products and other less-expensive brands. Investors, who have traditionally regarded P&G as a safe, defensive stock to own during difficult economic times, have sent its shares down nearly 30% this year to a 52-week low of $43.93 in intraday trading Monday. The stock later recouped some of its losses to finish 4 p.m. composite trading on the New York Stock Exchange at $44.18, down $1.53, or 3.4%.

Given the tough backdrop, P&G's board might ask Mr. Lafley to stay on until he turns 65, according to a person familiar with the situation. If he does, the 55-year-old Mr. McDonald would be 59 by that time, and P&G might regard him as too old to take the reins, given its history of preferring CEOs to serve about a decade.

Another possible scenario: given the volatility of current business conditions, Mr. McDonald could make a mistake that would prompt the board to look to one of P&G's several young vice chairmen and presidents, this person said.

Sanford C. Bernstein analyst Ali Dibadj suggested those contenders could include Edward Shirley, vice chairman of global beauty and grooming, Robert Steele, vice chairman for global health and well being, and Dimitri Panayotopoulos, vice chairman for global household care.

P&G declined to be specific about its succession plans. "A.G. is very focused on his role as chairman and CEO," a company spokesman said of Mr. Lafley, noting the company has "a deep bench" of leadership talent. "We have a rigorous approach to the CEO succession process to ensure a seamless transition."

Neither Ms. Arnold nor Mr. McDonald was available to comment.

Like Ms. Arnold, Mr. McDonald has spent his entire corporate career at P&G. He graduated from the U.S. Military Academy at West Point and joined P&G after serving five years as a U.S. Army captain. He rose up the ranks at P&G by working for its core businesses: fabric and home-care brands.

As P&G became more global in its outlook, Mr. McDonald was one of the first rising young stars it sent to prove himself in a foreign market. He spent the 1990s in Asia, overlapping with Mr. Lafley's leadership there. While known for his modesty and intense self-discipline, Mr. McDonald can also lay claim to a motivational leadership style and a penchant for story telling.

Over the past several months it appeared that Ms. Arnold had been looking outside P&G to heighten her professional profile. In 2008, she joined the board of McDonald's Corp., following her appointment as a Walt Disney Co. director the year before.

"There was a most clear push of momentum to Bob McDonald that the company was trying to signal to the Street," said Sanford Bernstein's Mr. Dibadj. "Even at the analyst day [in December], Susan Arnold took a step back and did a sustainability presentation," he said. Mr. McDonald, by contrast, gave a broad overview of the company's plans to expand and cut costs.

P&G didn't name a successor to Ms. Arnold. The executives who had reported to her now will report to Mr. Lafley, "reducing a layer of management as part of the company's ongoing simplification effort," P&G said. It said Ms. Arnold will relinquish her role as president immediately but continue with the company on special assignment until September. "It has long been her intention to step down upon her 55th birthday," the company said.

As published in the Wall Street Journal by Ellen Byron and Joann S. Lublin—Anjali Cordeiro contributed to this article.