(FORTUNE Magazine) – MANAGING/Cover Story 34 P&G REWRITES THE MARKETING RULES Peerless promoter Procter & Gamble is making ''watershed changes,'' says CEO John Smale. It is speeding decisions and getting closer to the customer. Smale's announcement that he will soon retire to be replaced by vice chairman Edwin Artzt is a stunning sign of P&G's commitment to the most radical restructuring in its 152-year history. by Brian Dumaine

38 WILL THE REAL VINCE LOMBARDI PLEASE STAND UP? Victory-obsessed Edwin Artzt revived the foreign division -- long P&G's Siberia.

MANAGING 52 NEW WAYS TO EXERCISE POWER There are five kinds of power, the experts on organization say, and chief executives have all of them at their disposal. Nowadays the best bosses mostly use just two. by Thomas A. Stewart

66 CEOs SEE CLOUT SHIFTING Tyranny is out, a FORTUNE 500/CNN Moneyline poll shows. by Thomas A. Stewart

71 HOW 21 MEN GOT GLOBAL IN 35 DAYS Executives from five nations were the first to try an intensive new program for learning about worldwide management. Did it work? The participants think so. by Jeremy Main

THE ECONOMY 83 AMERICA'S PLACE IN WORLD COMPETITION Its living standards are the highest. But productivity is growing faster elsewhere, and basic education is a disaster. by Brian O'Reilly

93 THE CAPTAINS SEE A TILTED FIELD In a poll CEOs say international competition is getting less fair. by Brian O'Reilly

CORPORATE PERFORMANCE 101 GLAXO'S GOAL: NEW WONDER CURES The U.S. patent on Zantac, the world's best-selling prescription drug, is running out. At Britain's pharmaceutical powerhouse, the heat is on the American boss. by William E. Sheeline

113 COMPANIES TO WATCH Orders are up at Fluor, the redesigned engineering and construction giant. by Nancy J. Perry

Also: Edison Brothers Stores, Banctec Inc., Rauch Industries, and Paxar Corp.

MONEY & MARKETS 121 JUNK AFTER MILKEN The falling price of deals spells trouble. And some investors really miss Mike. by Gary Hector

COMPETITION 131 JAPAN'S BIG KNACK FOR COMING BACK How do its troubled industries rebound? It helps to have patient bankers and some government-sponsored collusion. by Carla Rapoport

THE ENVIRONMENT 139 EPA SHOULD CLEAN UP ITS OWN ACT Boss William Reilly needs to unsnarl the agency that enforces the clean air law and myriad rules affecting business. by Anthony Ramirez

FORTUNE BOOK EXCERPT 145 ONE COMPANY'S CHINA DEBACLE American Motors thought building jeeps cheap was a sure thing. It didn't quite work out.

EXECUTIVE LIFE 155 MISS MANNERS ON OFFICE ETIQUETTE Wherein the doyenne of social graces proffers her advice on business comportment in general.

DEPARTMENTS 1 EDITOR'S DESK

6 INDEX

8 NEWS/TRENDS Why little investors don't trust the stock market, a 200-mph, made-in-U.S.A. car for $180,000, Zenith's optimistic TV aspirations, and more.

15 FORTUNE FORECAST Robust growth abroad will help keep the U.S. economy on track. by Robert E. Norton

19 PERSONAL INVESTING Dividends and interest matter a lot more than you think. by Robert E. Norton

Also: Compaq, and Portfolio Talk with Steven Aronoff of Scudder Capital Growth Fund.

195 FORTUNE PEOPLE , Silicon Valley's Kurtzig is back, another Dingman spinoff, and more. by Alan Deutschman

196 ON THE RISE

199 BOOKS & IDEAS Finally, an unauthorized biography of the remarkable Armand Hammer. by Irwin Ross

207 OTHER VOICES A Soviet finance man offers a cure for the S&L mess in the U.S, and a consultant sees risks when rival companies join forces to sell products.

212 LETTERS TO FORTUNE Lessons from Peter Diamandis's LBO, the dark side of airline mergers, and more.

215 KEEPING UP by Daniel Seligman

ABOVE: A Japanese mother uses P&G's Pampers to change her baby. Photo by Caroline Parsons.

COVER: Procter & Gamble's CEO-to-be Edwin Artzt, photographed at company headquarters by Louis Psihoyos -- Matrix.