Procter & Gamble's Board Could Use a Fresh Member

Lynette Rowe
July 17, 2017

Billionaire American investor Nelson Peltz launched a broadside Monday aimed at consumer goods conglomerate Procter & Gamble, where he is seeking a board seat and pressing for billions in cost cuts. "The board is confident that the changes being made are producing results, and expresses complete support for the company's strategy, plans, and management".

With a market capitalization of $223 billion, P&G would be the largest company to face a board seat proxy fight. At one point, the two sides almost struck a truce in May that would involve P&G laying out certain performance metrics over the next year.

The filing sets up a proxy fight in which shareholders will be asked to decide whether to add Peltz as a 12 board member, representing Trian Partners, a NY fund that owns more than $3 billion in P&G shares. The company is structured improperly as a "matrix organization" and needs help to better position itself for growth. The company is struggling to navigate changing consumer habits. Organic sales growth, a closely watched metric that excludes acquisitions or divestments as well as currency swings, has been stuck between 1% and 3% in recent years, well below prerecession levels.

Trian Fund Management LP doesn't wage proxy fights often, but when it does, it goes big. Since it started in 2005, it has only had two prior proxy fights - with H.J. Heinz Co. and DuPont Co. - and there were almost 10 years between them. "I am quite surprised and very disappointed because I think David (Taylor) and I have developed a very positive relationship", Peltz told CNBC, when asked if he was surprised that the dialogue had turned into a proxy fight. "Over a 10-year period, P&G's total return to shareholders was less than half that of its peers and has been in the bottom quartile over most recent time frames". "I like the man".

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But P&G said it was sticking with its current plan.

"We believe that P&G has an overly complex organizational structure and a slow moving and insular culture", Trian Partners said in a notice to company shareholders.

Trian, which manages $10 billion, said it had numerous discussions with P&G management and some board members over the past four months after an initial meeting attended by Peltz, co-founder Ed Garden, P&G CEO Taylor and CFO Jon Moeller on March 7. In a bid to boost profits even as sales remain stagnant, P&G has sold unprofitable brands, including 41 beauty brands to Coty Inc, and focused on core brands.However, the efforts have failed to boost the stock much beyond the level where it traded at the beginning of this year.

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