Proxy fight concludes, but pressure remains on P&G
Procter & Gamble can’t breathe easy.
Despite fending off activist investor Nelson Peltz’s bid for a board seat, the consumer products giant will remain under intense pressure to complete its turnaround.
To ward off future challenges, P&G could still step up cost-cutting and job reductions even as CEO David Taylor pledged to stay the course.
The company will also have to avoid poor financial results that could shake investors’ confidence.
Its swooning shares that had been bid up 10% since this spring as a result of Peltz’s involvement dropped immediately upon news Peltz had come up short — signaling the market doesn’t think P&G is worth as much without Peltz.
Greater Cincinnati’s 10,000 local employees at P&G are counting on a rebound. Many of their positions were in Peltz’s crosshairs had he won a seat. The company employs 95,000 worldwide.
Several companies targeted by Peltz have cuts thousands of jobs through business unit sales or layoffs.
Taylor pledged to be “constructively dissatisfied” with P&G’s turnaround until the company returned to generating financials amid the top third of peer companies. He also promised to continue listening to Peltz as a major shareholder.
“We’re in an absolutely better place to deliver superior results,” Taylor said after the vote at P&G’s annual meeting. “If we’re doing a good job, we’ll have investor support.”
Taylor brushed aside any suggestion the company might accelerate or alter its ongoing restructuring, which is supposed to deliver $10 billion worth of cost cuts by 2021. P&G has already cut 34,000 jobs, or 26% of its employees, since 2012 through buyouts and brand sales. The company has also sold or shuttered 17 plants in North America with plans to close another outside of Toronto in 2020 or 2021.
So far, P&G says it is saving $2.9 billion each year as a result of its cost-cutting, but back-ofthe-envelope calculations suggest the company needs to generate another $1 billion in profits to push the stock price north of $100 a share.
In 2015, Peltz and his Trian Fund Management lost their bid for board seats at chemical giant DuPont but still exerted outsize influence. DuPont warded off the activist investor, then delivered disappointing financials to Wall Street and the CEO resigned.
Peltz bought even more shares, and Trian ended up working closely with the next DuPont CEO and played a role in the company’s decision to merge with rival Dow.
Peltz said the result was so close that P&G was “dancing on the head of a pin.” Even if his loss is confirmed, he said shareholders have voiced their frustration and company leaders are on notice. “Doing the best you can isn’t going to cut it,” Peltz said afterward.
In the latest of one of his famous “white papers,” Peltz advocated cutting P&G’s five global business units to three and switching to a holding company structure that would allow those divisions to operate mostly autonomously. An unspecified number of corporate jobs would have been assigned to business units, while others presumably would have been eliminated.
Peltz decried P&G’s excessive layers of management and bureaucracy and advocated a flatter organization. He also advocated the company beef up acquisitions to help grow sales.