by Patricia Sellers

Photo courtesy of Avon

Liz Smith, who was on track to succeed Andrea Jung as CEO of Avon Products (AVP), is moving to a new company and a new industry. Again.

The onetime star exec at Kraft (KFT), who made an unlikely leap from food to cosmetics in 2004, is the newly named chief executive of OSI, a chain of casual-dining eateries.

“What?!!” is a question that Smith admits she’s been asked often throughout her career. She says she follows her own guideline: “Be open to opportunity.”

There’s plenty of opportunity–and risk–at OSI, which you may not have heard of but is a giant in the casual-dining category. With 2008 revenues of $4 billion, OSI operates chains such as Outback Steakhouse, Carrabba’s Italian Grill, Bonefish Grill, Roy’s, and Fleming’s Prime Steakhouse and Wine Bar. Good brands, as restaurant brands go–and as Bain Capital and Catterton Partners thought when they acquired the company for $3.2 billion in 2007. But the global recession brutalized the business, which operates across the U.S. and in 20 other countries. OSI lost $739.4 million last year, and it’s been suffering serious declines in same-store sales.

Which may be ideal for Smith, since she adores companies that are ripe for overhaul. “It’s really always been in my DNA,” she told my colleague Jessica Shambora in September, on the day she announced her departure from Avon.

Smith’s exit from Avon shocked many people, since she was crucial to the cosmetic giant’s turnaround, well-liked across the company, and widely viewed as Jung’s eventual successor. But “eventual” was looking to be too long from now. While Smith, who is No. 29 on Fortune’s Most Powerful Women in Business list, is just 46 years old and has plenty of runway ahead, she lost patience. That’s understandable since Jung, who was named Avon’s CEO at age 41 a decade ago, has no plans to retire.

So now, Smith–who began her career at Morgan Stanley (MS) and then, as a Stanford MBA student, “wanted to start the next Microsoft or H-P”–is off in yet another new direction. Geographically, this time it is Manhattan to Tampa, Florida, where OSI is based. Smith plans to commute initially and then relocate with her husband and two young sons.

And though retail isn’t entirely new to Smith–she’s on the board of Staples (SPLS)–she’ll be testing herself against her own measure of leadership. “Nothing is more important than a nimble, agile leader who is comfortable with ambiguity,” she told me a few months ago.

“We have to be comfortable figuring it out as we go along,” Smith added. Definitely, she’s living her philosophy.

by Jessica Shambora

We’re toiling away on this year’s Fortune Most Powerful Women in Business list, due out September 10. Anything can happen up to the minute we go to press, and this news today caused us to shuffle those yet-to be-unveiled rankings: Procter & Gamble’s (PG) Melanie Healey is moving up to head the company’s enormous North American business, effective October 1.

No. 37 on last year’s MPWomen list, Healey currently heads global feminine & health care, a $9 billion business that includes Tampax, Vicks and Prilosec OTC. Her new purview brings in 40% of P&G’s total revenue. That’s $32 billion in sales.

Actually, Healey, 48, was destined to be a global operator. She was born in Rio de Janeiro to a British father and a Chilean mother. She went to college in the U.S.–graduating from the University of Richmond–but began her career back in Brazil with  S.C. Johnson and then Johnson & Johnson (JNJ). She joined P&G in 1990. Over the next 11 years until she got worldwide responsibilities, she helped build the company in Brazil, Mexico and Venezuela.

Healey’s promotion follows a raft of management changes at the consumer-goods giant. In March, Susan Arnold, president of global business units and No.7 on Fortune’s 2008 Most Powerful Women list, announced she was leaving. She was a contender to succeed CEO A.G. Lafley. Soon after came the news that COO Robert McDonald would replace Lafley. That transition happened in July.

Healey’s promotion, says P&G spokesman Paul Fox, is simply part of the company’s leadership development program. (She’s swapping jobs with Steven Bishop, who held the top North America post and will now run global feminine care.) Clearly, though, Healey’s new job sets her up to be part of the next generation of P&G leadership.

Whatever the future holds for her, Healey has a claim to fame that’s practically unmatched. Last year at a late-night bridge tournament at the  Fortune Most Powerful Women Summit, she beat Warren Buffett.

by Patricia Sellers

There aren’t many hero CEOs anymore. So it’s remarkable that two of the most admired chiefs have announced their retirement within the past three weeks.

First came Anne Mulcahy, who saved Xerox (XRX) from near-bankruptcy.

Now comes the news that Procter & Gamble (PG) CEO A. G. Lafley is stepping down after reviving that consumer giant and doubling its size to $83.5 billion in less than a decade. Like Mulcahy, Lafley earned his leadership chops out of crisis, led with a quiet charisma, had a clear focus, and constantly communicated.

Not a coincidence that they both succeeded. Those are the things you need to do to be a great leader.

Even people who have followed Lafley’s career hardly remember how terrible things were in June 2000, when Lafley was plucked out of the beauty business to lead a company in crisis. He detailed the mess well in a Harvard Business Review piece this past May: “The company had announced that it would not meet its projected third-quarter earnings, and the stock price plummeted from $86 to $60 in one day…The price dropped another 11% during the week my appointment was announced. A number of factors had contributed to the mess we were in, chief among them an overly ambitious organizational transformation in which we tried to change too much too fast…But our biggest problem in the summer of 2000 was not the loss of $85 billion in market capitalization. It was a crisis of confidence.”

Lafley is too diplomatic to name his problematic predecessors, but I’ll tell you who they were because I knew them all: CEOs Ed Artzt and Durk Jager were as hard-driving as leaders come — and intimidating too. They knew how to line up followers. But inspire the troops to become leaders? They struggled to do that. And another CEO in between the Artzt and Jager regimes, John Pepper, was well-liked but not tough enough.

So P&G had lurched through leaders who just weren’t right—until Lafley surprised everyone. He understood the power of a consistent message. His mantra for nine years: “The consumer is boss.”

Diligently and methodically, he spread the word that P&G had to focus on big brands, big markets, and big customers. He said that P&G, to win with powerful discounters, must slash costs and reinvest savings in marketing and product design.

Focusing on those things, Lafley became the best organic-growth guy in the consumer-products industry. In a 2004 Fortune story about P&G’s innovation drive, I quoted him: “Organic growth is more valuable because it comes from your core competencies. Organic growth exercises your innovation muscle. It is a muscle. If you use it, it gets stronger.”

He drove innovation by reaching outside for ideas — an alien concept for promote-from-within P&G. Shamelessly, he used hokey terms to communicate: “Connect and develop” was his term for partnerships with outsiders who might  be more creative than the folks at P&G.

Here’s the key: P&G employees understood Lafley’s mission. The company’s results proved that. By driving innovation in age-old brands like Tide and Crest and Olay, P&G outperforming rivals like Unilever (UL) and Colgate-Palmolive (CL).

But even as Lafley declared that acquisitions are risky, he didn’t shy away from them completely. “When we acquire, we acquire to build the core,” he told me in 2005. He bought Wella and Clairol to expand P&G’s beauty business. And as P&G grew to be a top player in personal care, he bought Gillette for $57 billion in 2005. That acquisition added five billion-dollar brands — Gillette, Oral-B, Braun, Duracell, and Mach3 — to P&G’s stable of 16. Last year, annual sales of Gillette Fusion topped $1 billion, and today P&G claims 23 billion-dollar brands.

Lafley has been contemplating retirement for a while. As the global crisis hit and P&G’s growth around the world slowed, the board urged him to stay on. Fortune has been saying for a long while that COO Bob McDonald, a 29-year P&G veteran who is a West Point grad and U.S. Army captain, had the edge. Insiders says he played a key role in the Gillette acquisition. The other contender was Susan Arnold, a 29-year veteran who drove P&G’s high-margin beauty business to $20 billion in sales and went on to oversee all of P&G’s brands; she quit in March one day after her 55th birthday, clearing the way. (Speaking of birthdays, McDonald turns 56 on June 20, one week after Lafley celebrates turning 62.)

Now with P&G’s stock trading at $52.63, down from its high of $74.67 at the end of 2007, McDonald has his own recovery to pull off. But in terms of confidence in leadership, the new boss has nowhere near the turnaround challenge that Lafley did.