Cramer: Procter & Gamble Is Indeed Insular; Here Is the Proof

 | Oct 12, 2017 | 7:10 AM EDT
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Now that Procter & Gamble (PG) claimed an oh-so-narrow victory in the big proxy fight against Nelson Peltz, I am looking forward to seeing if the company does anything differently in the way it operates, both tactically and strategically.

Why not expect some change? Almost 50% of the people who voted believed that P&G is too insular and not innovative enough about developing newer, smaller brands and nurturing them, in an accountable way, into big ones. That's Peltz push and credo in a nutshell. His defeat by an incredibly small number of voters resonates to me as more of an endorsement than a repudiation of his positions by institutions both large and small, especially given the millions that P&G spent to battle this one man.

I point that out because this group, away from PG with the exception of Estée (EL) Lauder, Clorox (CLX) and Unilever (UL) , looks terrible. The commonality of all three winners? They are headed by folks who used to work at P&G, all of them born elsewhere, with a tremendous command of multiple international markets.

Fabrizio Freda, the Naples-born CEO of Estée Lauder, started at PG in 1982 and had a 20-year career there in global snacks, health and beauty. He became CEO of Estée Lauder in 2009 and has done a remarkable job expanding the franchise and turning the company into a cosmetic powerhouse. The stock has traveled from $16 to $109 under his tutelage. His chief stamp? Innovation.

Estée Lauder develops new, exciting cosmetics faster than any small company could, because it is really a lab of innovation. Freda knows all of his international markets well and understands what the local people want, what sells, and where the markets are going like no other in the business. I believe that no one in the industry, including at Procter, would quarrel with that description.

The German-born Benno Dorer, the CEO of Clorox, came out of marketing for Procter, having worked for 24 years at the company. Dorer, the most "beloved" CEO in the country, according to the Glassdoor ratings system, took charge of Clorox in 2014 and the stock's gone from $97 to $130 during his tenure. Much of that rally came from an acceleration in organic growth from innovation and a huge push toward online advertising, something on which Procter cut back earlier this year.

His company's location in San Francisco and his emphasis on sustainability has allowed him to tap into a whole different, younger group of execs who want to work in the consumer products group but don't want to move to Cincinnati, where Procter calls home.

The Dutch businessman Paul Polman worked at Procter in a variety of jobs for 27 years before taking over at Unilever in January of 2009. The stock was at $20 at the time. Now it is at $59. I would attribute a lot of that gain to Polman's push in international markets, particularly emerging markets, taking share from P&G in doing so.

He's embracing and purchasing small local brands and then blowing them out in a big way. Example: Polman purchased Dollar Shave Club for $1.0 billion last year and kept iconic cofounder and CEO Mike Dubin at the helm. It's the first serious challenge to Gillette in that venerable brand's history. I can't see Dubin fitting in anywhere at Procter. Polman's obsession is sustainability -- the same obsession millennials and gen X-ers have.

Now, it's not like P&G's stock has done nothing during this period. You bought the stock and reinvested the dividend, you did just fine. Not as well as these companies, but fine.

These execs, who at Procter lost out to domestic candidates, are all people of the world, at home in any market. I have had the privilege to spend some time with them and I am blown away by their knowledge of the world's wants and needs in their respective categories.

Each one could have been made CEO of Procter by the current board. All were much better candidates than the disastrous long-time American insider Bob McDonald, who was anointed CEO in 2009. Dorer was still at P&G after McDonald was fired in 2013 for poor performance, particularly in the emerging markets where Unilever really took it to them.

Instead, in a completely baffling move, the board brought back A.G. Lafley, the CEO before McDonald, who after two truly pedestrian years that saw these other firms soar, gave way to the current CEO, North Carolinian David Taylor.

You see the pattern? Americans trumping foreigners when international markets were and are the key engines of growth. You see why Peltz called the place insular?

So now let's see if Taylor heeds Peltz's call of bringing in outsiders. Let's see if the board understands what that vote says. If not, the stocks of Clorox, Estée Lauder and Unilever remain the better buys, and from where I am from, that's chiefly what matters.

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