P&G’s battle of the boardroom now in hands of shareholders

A costly months-long battle over the direction of one of the US’s biggest companies will culminate on Tuesday with a shareholder vote at Procter & Gamble (P&G) headquarters.

The fight pits the maker of Gillette razors and Olay soap against activist investor Nelson Peltz, a billionaire hedge fund chief who has pitched himself as the outsider needed to reignite P&G, the largest company yet to face a proxy battle.

The grizzled veteran of highprofile boardroom brawls accuses the company of operating with excessive cost, being weak on innovation and missing the boat on key shifts in consumer behaviour.

Peltz, whose firm Trian Partners holds 1.5% of P&G shares, attributes declining market share in key businesses to P&G’s “slow-moving and insular culture”. His campaign has been fortified by support from respected proxy advisory services, including Glass Lewis, which said a new voice might help reinvigorate a giant that appears to suffer from a “degree of complacency”.

P&G counters that Peltz’s campaign is based on an outdated perspective on the company and ignores key appointments of outsiders as well as progress since its decision in 2014 to divest itself of underperforming products in order to target giant brands loved by consumers.

Company executives also say Peltz’s campaign seems to be motivated mostly by short-term gain to the potential detriment of long-term performance.

“We strongly recommend you give us the opportunity to finish this transformation,” CEO David Taylor said on an October 3 investor conference call.

Whoever wins, the battle has been costly.

P&G has estimated that it will spend $35m to try to keep Peltz off the board, while Trian has said it expects to spend $25m, according to securities filings.

P&G has reported revenue declines for the past three years, pointing to the drag from the strong dollar, which has caused it to underperform against European rivals Unilever and L’Oreal in some key benchmarks.

But macro conditions were improving for P&G due to the declining dollar, said CFRA Research analyst Joe Agnese, who praised some of Peltz’s ideas but also saw benefit in giving management more time.

“The environment is improving for them with or without him. And that’s why I think it’s not a big negative if he’s not voted onto the board,” Agnese said. “But I do see that having a diverse board with different ideas is a positive also.”

Taylor, who joined P&G in 1980, assumed the top spot in November 2015, replacing AG Lafley, who was brought back to the company out of retirement in 2013. He took over from Bob McDonald, another long-time P&G executive, whose selection in 2009 was a mistake, board members now concede.

Among his charges, Peltz has hit P&G for misreading US shaving, where Gillette has lost market share to upstart digital companies such as Dollar Shave Club, which was acquired by Unilever in 2016. In China, P&G was slow to perceive a shift among consumers to “trading up” to premium nappies.

Part of the problem, according to Peltz, is that P&G is to slavish towards big brands at a time when they are in decline and small and local brands are ascendant. “Consumers used to trust big brands,” Trian said in an investor presentation. “Many millennials now distrust big brands and seek out purposeled brands.”

P&G has acknowledged some missteps, conceding that it did not perceive the shift in China. But it has unveiled its own direct-to-consumer shaving programme under Gillette. The company pushed back on Peltz’s attacks on big brands, saying that the best-known names dominate smallerformat markets in urban areas, a key growth venue.

Better-known names were also more likely to appear on the first page of major e-commerce sites, Taylor said.

Taylor rejected the depiction of P&G as weak on innovation, saying launches of major new incontinence and detergent products performed better in consumer surveys as subbrands under “Always” and “Downy”, rather than as new product launches.

Taylor said much of Pelz’s thinking appeared to be framed by his experience with firms like PepsiCo and Heinz.

EXECUTIVES SAY PELTZ’S CAMPAIGN SEEMS TO BE MOTIVATED MOSTLY BY SHORT-TERM GAIN