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January 31, 2005

Gillette, RIP

I don't have anything against P&G, but its acquisition of Gillette looks to me like a stunning betrayal of Gillette's history.

And this may seem frivolous in the face of such larger issues, but Gillette has a great history and a unique culture, and over time, it will get swept into the dustbin. King Gillette, an amazing larger than life character who more than 100 years ago invented the modern safety razor and what could arguably be considered the business model of the modern age (how many businesses operate on a "razor blade" replenishment model?), will fade even further into history.

Gillette had run into trouble before and managed its way out of it. Its heroic CEO Colman Mockler was profiled in Good to Great:

While it might be a stretch to compare the 11 Level 5 CEOs in our research to Lincoln, they did display the same kind of duality. Take Colman M. Mockler, CEO of Gillette from 1975 to 1991. Mockler, who faced down three takeover attempts, was a reserved and gracious man with a gentle, almost patrician manner. Despite epic battles with the raiders—he took on Ronald Perelman twice and the former Coniston Partners once—he never lost his shy, courteous style. At the height of the crisis, he maintained a calm business-as-usual demeanor, dispensing first with ongoing business before turning to the takeover.

And yet, those who mistook Mockler’s outward modesty as a sign of inner weakness found themselves beaten in the end. In one proxy battle, Mockler and other senior executives together called thousands of investors, one by one, to win their votes. Mockler simply would not give in. He chose to fight for the future greatness of Gillette even though he could have pocketed millions by flipping his stock.

Consider the consequences had Mockler capitulated. If a share-flipper had accepted the full 44% price premium offered by Perelman, and then invested those shares in the general market for ten years, he still would have come out 64% behind a shareholder who stayed with Mockler and Gillette. If Mockler had given in, none of us would likely be shaving with Sensor, Lady Sensor, or the Mach III—and hundreds of millions of people would have a more painful battle with daily stubble.

Certainly, the Wall Street Journal (subscription required) has speculated on the difficulty of aligning management and shareholder interests:

While some say Mr. Kilts, 56 years old, deserves every penny for turning Gillette around and adding billions in shareholder value, his big payday after just four years is spotlighting some longstanding issues about CEO pay in general: Are top executives sometimes motivated to do mergers, at least in part, by personal gain? And is it right for the top people to walk away with megamillions while thousands lose their jobs in post-merger downsizing? P&G and Gillette have said 6,000 jobs are likely to be cut in the combined company.

I'm not sure there's a right answer here. A substantial part of Larry Ellison's pitch to shareholders was that management was failing them by refusing to sell Peoplesoft to him. It doesn't have to be one or the other, but it does mean that there's no automatic right answer.

I think the problem was more lack of commitment than outright greed. Kilts had done this before at Nabisco, revitalizing the brand and then selling it to Phillip Morris. And he never moved his family to Gillette headquarters in Boston. Kilts had also brought a large group of managers from Nabisco over with him to Gillette. He may have known how to make Gillette's culture work, but I doubt he really saw anything special in the place.

Posted by joshuasharf at January 31, 2005 08:38 PM | TrackBack
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