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Finally, value impresarios actively engage with their in- vestors to understand how they view the company and its businesses. For example, one of the first things that new CEO A.G. Lafley did when he took over Procter & Gamble in June 2000 was to hold a series of one-on-one meetings with key investors and analysts to see how they saw the company’s prospects. And United Technologies (15), the only multibusiness conglomerate on our sustainable val- ue-creators list, has an award-winning investor-relations team that has established a strong reputation for candor, transparency, and responsiveness to the needs of market analysts and portfolio managers.15

Becoming a value impresario isn’t easy. Managing the complexity requires explicit focus, at the corporate level, on choosing the right metrics, targets, and incentives. And a value impresario’s credibility in the capital markets is all about management’s track record—its ability to de- liver consistently over time.

Put another way, a company has to “win the right” to be- come a value impresario and then continuously manage

of their contribution to the company’s TSR. Not only did a business unit’s operational TSR become a critical metric for benchmarking its performance against competitors, but also,and even more important,it became one of two key cri- teria (the other being growth in EPS) used to set executive compensation throughout the senior management ranks.

The new TSR metrics forced P&G’s business-unit heads and brand managers to be careful stewards of the cash that they were employing and more disciplined and tough- minded about which growth initiatives they would propose. And, at the corporate level, the metrics helped senior man- agement more accurately assess the value of the compa- ny’s broad portfolio of initiatives.

The new discipline about value creation helped the com- pany aggressively transform its approach to innovation by simultaneously increasing the number of new product ideas and more than doubling the yield of its R&D and new- product development pipeline. It has also led the company to divest many traditional brands that, although still profit- able, did not meet the company’s more aggressive financial goals. At the same time, P&G has moved aggressively into new sectors with higher potential to generate TSR, such as

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the ongoing shiin emphasis among the drivers of TSR. Those companies that succeed, however, oen enjoy a premium in the capital markets.

Deciding which pathway is most appropriate for any par- ticular company will depend on a number of factors: the TSR aspirations of its senior team, the company’s starting point in the capital markets, and the future potential of its businesses. In the concluding section, we describe a process for determining a company’s TSR sustainability profile and therefore its best strategy for sustainable val- ue creation.

15. See Managing for Value: How the World’s Top Diversified Companies Produce Superior Shareholder Returns, BCG report, December 2006.

beauty care, through both organic growth and acquisi- tions—for example, the 2001 acquisition of Clairol from Bristol-Myers Squibb, the 2003 purchase of the German hair-care company Wella, and, most prominently, the 2005 acquisition of Gillette, which made P&G the largest con- sumer-goods company in the world.

Since 2001, Procter & Gamble’s EBITDA margin has been rising steadily, gaining a full six percentage points from its 2001 low. And the combination of steadily improving mar- gins, more commercially successful innovation, and game- changing acquisitions has allowed the company’s sales growth to explode compared with our global consumer- goods sample. So far, P&G has met its goal of remaining in the top third of its peer group. And between Lafley’s ap- pointment as CEO (he recently stepped down but contin- ues as the company’s chairman) and the end of 2008, the company’s market capitalization roughly doubled to $187.5 billion, making P&G one of the five most valuable companies in the United States and among the ten most valuable in the world, as well as the third largest, by market capitalization, in this year’s Value Creators database.


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