Procter & Gamble is one of the most ambitious consumer goods companies in the world. Joanne Harris reports on how head of legal Andrew McCarthy keeps ahead of the game
Next time you go to the supermarket, consider the products you are buying. How many are made by Procter & Gamble? The chances are that many of them will be. Procter & Gamble started up in Cincinnati, Ohio, in 1837 selling soap and candles. These days it is a global organisation that turned over $43.4bn (£23.19bn) last year. The company’s products include Ariel, Fairy Liquid, Pantene shampoo, Tampax, pet food and Pringles crisps, as well as pharmaceuticals and bulk chemicals.
In his office in Procter & Gamble’s Weybridge corporate headquarters, UK general counsel Andrew McCarthy gestures to two large bags of dog food and says: “I’m sadly in love with some of our products – but all Procter people end up like that.”
The mood in Weybridge is positive, with a buzz of activity around the modern atrium. McCarthy admits that the marketplace the company is working in is tough, and that pressure on pricing and costs is high, but he clearly relishes the challenges facing himself and his small team – both in a legal and a business capacity.
The UK arm of Procter & Gamble opened in Newcastle-upon-Tyne in 1930 and for a long time was focused on local laundry and cleaning products. The acquisitions of brands such as Tampax and Richardson-Vicks in the past two decades expanded significantly the size of the company and the range of products that it sells.
Yet its legal capacity in this country remains small. McCarthy heads a team of five – three solicitors, a chartered secretary and a paralegal working towards a law degree. Together they carry out 95 per cent of Procter & Gamble’s UK legal work, outsourcing the rest to three main advisers. CMS Cameron McKenna and Simmons & Simmons have, says McCarthy, a longstanding relationship with Procter & Gamble and handle primarily corporate, antitrust and restructuring work.
Olswang was initially instructed for media-related enquiries but has more recently undertaken some property work for the company.
“They understand our business,” McCarthy says, adding that he has not carried out a beauty parade in the 18 months he has been UK general counsel (McCarthy has actually been with Procter & Gamble for 18 years, having joined from City firm Pothecary & Barrett, where he was a partner). With an external legal spend of less than £200,000 last year, he sees no point in expending the resources of his department or its external counsel on pitching for work.
The Procter & Gamble legal department is, like the rest of the company, very much business-focused. Each lawyer is allied closely with the business sector they advise, to the extent of joining in team-bonding exercises. McCarthy is also a member of the ‘lead team’ – the UK’s senior management – and is therefore partly responsible for setting business strategies and goals.
McCarthy reports to Sharon Abrams, the company’s deputy general counsel for Western Europe, who is based in Geneva. Another five lawyers, each running a different business sector, also work out of Geneva, and ‘interact’ with the UK. Procter & Gamble’s headquarters, as well as its chief legal officer James Johnson, are still based in Cincinnati.
The company’s principal aim is continued growth, with a target of between 7 and 10 per cent each year. However, frequent acquisitions do not form a major part of the plan, despite a recent agreement with hair care business Wella.
“We made some very successful acquisitions,” explains McCarthy. “Making good business acquisitions at the right time is part of the strategy, but it’s not the [whole] strategy. The biggest part of the strategy is growing this business organically.”
The emphasis on organic growth means that McCarthy and his team spend more time advising the various elements of the business on issues such as regulation than corporate activities such as restructuring. Procter & Gamble is subject to US company regulations, but in the UK the constant stream of European legislation poses daily questions.
The EU Cosmetics Directive, for instance, was amended last year to tighten labelling requirements, and McCarthy himself has been deeply involved with developing new guidelines for laundry and cleaning products. A surprising amount of work goes into determining the information on labels of products manufactured by Procter & Gamble and its competitors.
Among the 5,500 employees in the UK are scientific experts who work with trade organisations to implement the new legislation as it comes through from Europe. The company is also concerned with lobbying where necessary. McCarthy’s team is responsible for keeping the business sectors of the company up to date with regulation as it concerns the UK.
The legal department is heavily involved with Procter & Gamble’s advertising and sponsorship deals. Few can have failed to notice the nation’s favourite tennis player Tim Henman grinning down from billboards recently promoting Ariel. The legal work, including clearing the advertising copy and drawing up contracts, was all done in-house by members of McCarthy’s team.
Outsourcing a range of back office functions to IBM, HP and Jones Lang LaSalle were also major pieces of recent work, with
the UK legal department looking after the local requirements for the global operation.
But the most important aspect of Procter & Gamble’s work is producing better products for customers. Staff in every part of the company are required to keep in touch with the consumer’s needs, which as McCarthy points out means different things at different levels of the organisation. “But for me it means that at least once every six months I’ll go and spend an hour or so shopping with a shopper,” he says. “Last Friday there was a lady who volunteered to go round her local store and do her normal shop with me, without her knowing who I was and what I was. At the end of it I told her who I was, because I thought she’d be interested to know, especially as she’d made some interesting decisions that I’d asked about.”
He is quick to acknowledge that management shopping with customers could be trivialised, but adds: “You succeed in this company if you really do understand who’s buying and using the products. We might give great business advice, we might be great lawyers, but if we’re useless at understanding the people who buy and use our products then we’re not going to add shareholder value.”
The company is not listed on the London Stock Exchange, but in New York share prices have risen from $43.25 (£23.11) last August to nearly $55 (£29.39) at the time of going to press. Shareholder dividends of $0.25 (£0.13) per share in April this year were the highest Procter & Gamble has paid out since June 2002. Together with the steady rise in turnover over the past three years, it seems prospects for the company are good.
Head of legal for the UK
Procter & Gamble UK
|Organisation||Proctor & Gamble UK|
|Head of legal for the UK||Andrew McCarthy|
|Reporting to||Deputy general counsel for Western Europe Sharon Abrams|
|Main law firms||CMS Cameron McKenna, Olswang and Simmons & Simmons|