Edwin L. Artzt, Chief Executive and Chairman of the Board, 1990-1995
The Procter & Gamble Company

Do the right thing

The following is Ed Artzt’s response to my question about whether he had experienced P&G’s do-the-right-thing philosophy as a young man coming up in the Company and if so, how? (Priscilla Petty’s questions and comments are italicized.)

 “As far back as I can remember, going all the way back to my first exposure to management philosophy, which always was emphasized mostly at the annual year-end meetings, I can remember Deupree and McElroy and Morgens and Harness, all saying the same thing: Underlying everything we do, every decision we make, every plan we put in place, every reaction we have to a major issue, we’re guided by this long-term traditional value which is ‘We always try to do the right thing.’ It’s the trying that I picked up as the emphasis because I can remember Deupree saying that we don’t always succeed but at least we were trying to do the right thing. There have been times in the company’s history when perhaps they haven’t followed that advice and that’s part of developing a dedication to a principle like that. You think you have some evidence in your history that when you stray from that it didn’t go so well.”

“Are you thinking of anything in particular?” I asked, and Artzt’s answer reminded me again of the old Southern families in which certain things were known but never talked about—the disgraceful things.

 “I can remember the one that was always whispered about: the situation with Unilever and Swan (bar soap). One of our employees had gotten in trouble--apparently had somehow gotten himself a job with Unilever and tried to find out what was going on and how big a threat Swan was going to become to Ivory soap. It was never really explained to us who did what, but clearly it happened and it was a great embarrassment to the Company. And it was a great example of what happens if you’re trying to do ‘Not the right thing.’ I think that those people probably felt that protecting Ivory soap was so important that it justified a little industrial espionage. That episode goes back many, many, many generations but we always used to think about that,” said Artzt.

“Did someone, some person in charge or some individual, talk about it so that you thought about it?” I asked.

 “You never talked about it. But we all learned about it.”

“How?"

 “Well, I don’t know who told me about it, and how we talked about it but it was well known. I don’t think the public, generally, or the business community or anybody else would have been greatly concerned about the fact that one competitor was trying to spy on another except that it was inconsistent with the way we wanted our people to think and act. And that’s been through reinforcement by the top management.” Artzt paused in thought, and continued.

“I think every CEO has that on his list of the things that he must constantly reinforce and live by. We always try to do the right thing. We obey the law. Another one, we don’t play fast and loose with the law; we don’t sail as close to the wind as some other businesses might. We value our reputation for integrity, both with our dealings with employees internally, with our consumers, and of course to our customers, for whom our policies are not always beloved.”

“That’s an understatement,” I said, for I’d been told many times about the past animosity, before Customer Business Development, of customer stores to P&G Sales, whom they considered arrogant and unyielding.

Artzt half-ignored me. “They respect us for our integrity,” he said. “They know we don’t tell them one thing and tell their competitors quite another and if that ever occurs then we rectify it, very emphatically. And this has been, I think, one of the things that has set the Company apart, that enables P&G (to be P&G). I always thought that one of the things that gave P&G a big part of its competitive strength was this fibre of character that improved the organization and played out. It wasn’t just that we were good about some things and we bent the rules about others, we were always trying to do the right thing. We were always trying to obey the law. We were always trying to play by the rules. Always trying to be fair when dealing with our own people and our customers and that gave us strength because we were not always dealing from a position of advantage,” said Artzt.

“What do you mean?” I asked.

 “Well, if a competitor was offering discounts that were either illegal or unfair to other accounts. You weren’t going to say, ‘I’m going to give you fifty cents but don’t tell the guy across the street because I only gave him thirty.’ Through our reputation and through our adherence to that principle and through our behavior, we could say to the customer, ‘We don’t give one guy fifty and another guy thirty and you know that.’ They do know it. That’s a strength; that’s an advantage because the customer doesn’t then think that with enough pressure--even to the point of saying ‘I’m going to discontinue half your brands’—that with enough pressure he can get you then. Because it’s constitutionally impossible to get Procter & Gamble to bend its principles. It’s a great strength. And you might have people out there on the firing line who are suffering mightily because we’re so inflexible on the principle. But it still gives them the ability to say, ‘Hey, don’t ask me to bend the rules. At Procter & Gamble, we don’t do that; you know that.’”

“So it’s a business advantage,” I commented.

 “Yes.”

“I had never thought of it as a business advantage,” I said.

 “Business advantage--competitive advantage--it gives your people strength to rely on so that it doesn’t require them to find it within themselves all the time. Part of it is the Company (principle) of ‘We don’t do that’ or of ‘We always do that.’ You can go through your whole career and never ever convince the people you’re interfacing with that you’re as honest as you make out to be. But after a while, they stop trying to make you bend the rules. This is true wherever you go, in anyplace, and in some really difficult places, like Brazil.”

“What would people try to do in Brazil? What were you thinking about?”

 “Oh I mean, I mentioned Brazil because Brazil is a late start for us. You come into a place late against the entrenched competitors and you want that particular community to accept you and take your product and they want to know what you’re going to do for them that the other guys are not doing. That’s a big burden. And consequently, we have struggled mightily in a lot of places to get going because we don’t break our rules. So you’re on a very key point. This ‘Always try to do the right thing’ is a final principle for this company off which a lot of energy flows in to innervate polices with trade, with consumers, with medical professions, with all the people we depend on to trust us, and to not just trust us, but to do business with us in an advantageous way. And so, you know, it takes a long time to build that up and it doesn’t take too long to break it down,” said Artzt. “So, enough on that, I guess.”

“No, this is key and you’re making me see some of the business advantages that I hadn’t thought of. What about when you went to China then, the Communist area?” I asked.

 “Same thing would be true in China; we don’t pay bribes. We’re willing to suffer a lot of punishment if necessary.”

“What do you mean, ‘a lot of punishment?’”

“Well, you know: business punishment. One example I always remember is for years, in Mexico, we were running out of capacity in our detergent plant and Howard Morgens, who was running the company at that time, tried numerous times to convince the Mexican government that it would be in their interest if they would grant us the right to build a second plant in Mexico in order to expand our capacity and grow our business and create jobs. He was never successful in doing it because they had insisted that the only way they were going to allow us to do that was if we would do that in partnership with Mexican business interests and they would tell us who these people were going be. Not a bribe, but still a requirement that did not fit our principle. And Howard, rather than say, ‘All right, we’ll do it’ directed our people to design ways to make our plant bigger by going straight up in the air and they made a high rise out of the thing. And they kept expanding and expanding until they reached a point where the thing was almost going to topple over. You know, it’s far and away P&G’s biggest detergent plant in the world. It was only on, if I remember correctly, about a maximum of ten acres of ground eventually. And then we had lots of other problems in Mexico where people were constantly faced with requests for under-the-table payments in order to approve certain licenses we had to have. And we never ever would agree to that. So we operated at a big disadvantage in some of the businesses we were in. Now competitors, I certainly wouldn’t want to name any, but (there were) competitors who didn’t seem to be having problems that we were. So at the same time, by persevering over a long, long period of time on this position, we eventually made it. We were able to go for capacity increase and we never had to do what they tried to get us to do, (as one example) which was to give away part of our ownership in exchange for a political favor. And we had to face that down many, many times. It doesn’t mean we wouldn’t do joint ventures. We do joint ventures with legitimate partners, just not political connections. Anyway, I just saw so many instances over the years where this is the right policy because it pays off in so many ways. It attracts the kind of people you want: people to whom that is important, it matters--people to be part of an organization that places integrity at a high level. We don’t talk about making more money. . . ."

I raised an eyebrow and laughed.

 “Sometimes we do,” laughed Artzt, “but we don’t talk about that as much as we talk about guiding principles.”

“Is that true, you don’t talk about making more money as much as you talk about guiding principles?”

 “I think that’s right. We report on the business: if our margins aren’t good enough or if our margins are down. I’m talking about when we talk to the employees about the Company. I shouldn’t have said that. We do talk about the importance of our profitability, all of it.”

“But you’re talking about in the major addresses to the employees of the company, you structure it so that what?”

 “So that everybody can be as articulate about the principles as the CEO. That’s your objective: to have everybody to be able to articulate those principles because as a promotion-from-within company, which is another important characteristic of Procter & Gamble, it’s essential for all those people who are out there interfacing with new hires, for them to look for those characteristics and traits in the people they hire. And to be able to articulate to the people they want to hire what’s unique and different about P&G that would make them happy in that kind of environment. It’s really important. It’s sort of like trying to raise your kids right so that they choose friends wisely and choose life partners wisely. It’s all part of that --it’s almost tribal in a sense. There has been a tribal aspect to P&G’s culture over the decades, which is if the elders pass it on to the succeeding generation, the underlying principles never change.”

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