Field of Lafley successors narrows

Likely candidate, a rising star at P&G, has been fodder for gossip on Web

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The race to succeed Procter & Gamble Co. CEO A.G. Lafley has clarified in the wake of a key departure. And an executive who has been a target of chat-room gossip is one of the front-runners to replace him.

Procter & Gamble Co. consolidated oversight of its health, paper and pet products with Vice Chairs Susan E. Arnold and Bruce L. Byrnes after R. Kerry Clark left to become CEO of Cardinal Health Care.

At 58, and having recovered from a heart attack in late 2003, Mr. Byrnes isn't widely seen as a candidate to succeed Mr. Lafley, also 58. Mr. Lafley's compensation package encourages him to remain until at least 2009, and Deutsche Bank analyst William Schmitz said in a research note that he believes Mr. Lafley will remain CEO until at least then.

Ms. Arnold, 52, is a fast-rising management star who has been part of Mr. Lafley's inner circle since long before he took charge of the company in 2000. She is the highest-ranking female executive in the company's history, and is widely considered to be in the running for the top job. With Mr. Clark's departure, she added duties for health and oral-care brands such as Crest, Actonel and Prilosec to her existing beauty-care portfolio.

The duties of another top candidate, Robert A. McDonald, 53, were unchanged. He oversees back-office functions, sales teams, media and local marketing efforts, and faces a key test running operations that are expected to deliver most of the savings as well as the top-line acceleration from P&G's $57 billion acquisition of Gillette Co.

Ms. Arnold has faced a test of her own. She became a target on P&G's Yahoo Finance message board late last year from anonymous posters who see her sexual orientation as a sign of P&G's support for what critics have called a "homosexual agenda." The online discussion, which at times dominated the message board, began last October and continued into early 2006.

targeted by groups

P&G has long been targeted by conservative groups such as the American Family Association for running ads on TV shows and Internet sites that, in the AFA's words, "promote the homosexual lifestyle."

Meanwhile, there's a question about whether P&G's management should have informed its board of directors before Ms. Arnold's recent promotion of the affiliation between her domestic partner and a Cincinnati marketing-services agency-Benchmark Group-that has long done work for P&G beauty brands.

A P&G spokesman said that since the company does not see any potential conflict, there was "no reason for the board to have considered Benchmark in making its decision" to promote Ms. Arnold.

Ms. Arnold's domestic partner, Diana Salter, became CEO of Benchmark, a shop that handled design and advertising work for P&G's skin-care business, in April 1996, about a month after Ms. Arnold became VP-skin care at P&G.

Ms. Arnold disclosed the potential conflict in 1996, said Steven Jemison, P&G corporate secretary and associate general counsel. The company agreed there would be no conflict as long as Ms. Arnold and her immediate subordinates avoided making decisions regarding Benchmark's work-which they did, he said.

The affiliation was reviewed again in 1999, when Ms. Arnold took on an expanded role as president-global skin care, by P&G's legal department and Mr. Lafley, then Ms. Arnold's direct supervisor.

Durk Jager, who was president and chief operating officer at the time of Ms. Arnold's 1996 promotion and CEO when she became president-global skin care in 1999, said he was never informed of her domestic partner's relationship with Benchmark. He declined to comment further.

disclosure issue

"I'm inclined to think [it] should have been disclosed higher up the management chain," said Daryl Koehn, executive director of the Center for Business Ethics at the University of St. Thomas, Houston. "Why not disclose to the CEO and/or board what was going on? If there's really no issue, they'd pass their wand of approval over the arrangement. "

"From the very beginning, Susan Arnold has been proactive and insistent in going above and beyond all requirements and expectations to ensure there has been no conflict of interest issue related to the Benchmark agency," the P&G spokesman said. "There is no evidence of anything but the highest ethical behavior by Susan Arnold and by P&G."

Benchmark began handling marketing and design work for P&G's Oil of Olay in 1990, six years before Ms. Salter was hired. Ms. Salter remained CEO of Benchmark until December 2000, when she became chairman. She left that post in 2002, but retained a 5% ownership stake until sometime last year.

Regarding Mr. Lafley's retirement, the spokesman said the mandatory retirement age for P&G's CEO is 65. "The board of directors takes succession planning very seriously, and there are succession plans in place," he said. "Those plans are not disclosed."

While Ms. Arnold added health and oral-care brands to her portfolio in last week's shift, Mr. Byrnes added the Iams pet food brand and paper brands such as Pampers, Bounty and Charmin.
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