We’ve talked in earlier posts about the faster turnover in the recent past of the CEOs of the consumer goods companies. Unilever, PepsiCo and Campbell Soup have all gone through short time spans of sitting CEOs recently and have named new CEOs to their posts – giving credence to the belief that there’s an all-out move to switch out CEOs at the packaged-goods companies.
Colgate-Palmolive has now become the most recent of the consumables to retire and then name a new CEO. There are a number of reasons for these organizational management changes, but, primary among them is the fact that, in the past, being CEO of a company that produced consumer staples was a fairly mundane and stable situation. Their products were sold through supermarkets with little-to-no direct contact with the customers who purchased the goods and “the companies’ billion-dollar ad budgets ensured top-line growth at a steady 5-6%” (ref. recent WSJ article). During the past five years, a number of start-ups have begun to usurp the consumables space providing products that consumers find more appealing (shampoos with special organic features, toothpaste made from natural products, etc etc) and using cheap digital advertising to lure customers. And that situation has prompted the leaders of the large consumables companies to be ever on the alert to their new competitors. According to the WSJ piece, they “now have hundreds, if not thousands, of scrappy competitors to keep tabs on.” And even though the slice of the market that has been garnered by the start-ups is small at the moment (only 2% of market share), it is anticipated that that niche market will grow to 30% of the market over the next five years. Consequently, a large part of a CEO’s job at the large consumer-products companies is to manage a portfolio shift toward rapidly-growing areas and changing dynamics. And, they are also faced with deal-making situations in which they have little experience or talent. In 2018, consumer companies spent $86 billion on mergers and acquisitions aimed at making their marketing experiences more manageable and bringing some of their competition in-house. And, in so doing, they have consistently been buying into business models that they have no experience in managing. Thus, it has frequently been the case that the large consumer companies will leave their new purchases to manage themselves, separately, “to protect the entrepreneurial spirit that made them grow quickly”‘ but mostly because the CEOs of the large companies are at a loss about how to provide the leadership necessary to shepherd their new acquisitions along. Needless to say, all of the acquisitions effort takes a large portion of the time of the CEO. For example, last year Unilever completed nine acquisition deals, but looked at 120 potential deals during the year. I’m sure that I don’t have to remind the reader about how time-consuming all of that effort is. And, if all of that weren’t enough, consumer products companies are the new targets of activists investors, who attempt to be loud voices on the boards to attempt to swing things the way they would like them. (We’ve talked in the past about the Campbell Soup Company’s experience with the activists on their board, narrowly dodging the activists’ taking charge of the board and ousting the Campbell family members who occupied seats on the board.) As a comparison of how stable the consumer goods industry once was, during the last generation of CEOs at these companies, their average tenure was 9 years, compared to the five-year average of S&P 500 CEOs.
The Chief Executive Officer is the one that we list first in our five moving parts of any business – see: ALL THE MOVING PARTS: ORGANIZATIONAL CHANGE MANAGEMENT. It appears that change and the necessity for expertise in change management has finally caught up with the “backwater”companies like those who are producers of consumables. We’ll be interested in observing how the new crop of CEOs are able to take up the slack and learn to manage in turbulent times.