Peltz looks to turn the Tide at Procter & Gamble
Consumer giant says activist’s campaign for board seat is driven by outdated views
Procter & Gamble has not worked out how to cater to consumer demand for smaller brands, fosters an insular corporate culture and is structured so that no one is held accountable — according to the activist investor seeking a seat on the consumer giant’s board this week.
As the largest proxy fight ever seen in the US nears a shareholder vote on Tuesday at P&G’s annual meeting in Cincinnati, Ohio, Nelson Peltz is making his final pitch.
Mr Peltz, fighting only the third proxy battle of his career, told the Financial Times that the company needed to regain its sense of urgency to take back the market share it has lost as its sales growth has continued to lag behind rivals.
P&G “have been losing market share for 10 years”, Mr Peltz said. “I’ve spent half my life in consumer [industries], and it’s easy to get a consumer to try your product. They’ll either like it or they won’t. But it’s really hard to get a consumer who’s been using your product and has chosen to go somewhere else to get them to come back.”
P&G contests Mr Peltz’s assertion, pointing to market share gains over the period for the Dawn, Febreze, Pampers and Tide brands.
But in Mr Peltz’s assessment, the company needs to find new, smaller brands to market to a younger audience, whether through its own research and development or through acquisitions; hire more outside executives to bring in fresh perspectives; and slim down, eliminating its “matrix” corporate structure.
The 75-year-old has won the support of the most influential independent proxy advisers, ISS and Glass Lewis, and P&G investors including Yacktman Asset Management and Calstrs have stated they will vote for him and his investment firm, Trian Partners. While he denies it, he is clearly feeling confident.
The company, which has fought Mr Peltz tooth and nail — taking aim at his record on previous boards he has served on — says chief executive David Taylor is already implementing changes that are addressing the issues, and that adding Mr Peltz would only disrupt the board.
Mr Taylor said he thinks Trian’s information on P&G is “outdated and informed by somebody that left the company many years ago” and that Mr Peltz “hasn’t asked a lot of questions about our strategy”.
The group’s former CEO, AG Lafley, has also weighed in, calling Mr Peltz a “short-term speculator” and one of the last people he would call for insight into digital strategy. He called Mr Peltz’s proposal to change P&G’s organisational structure “a big step backwards” that would result in more costs and bureaucracy.
Mr Peltz has sunk almost a quarter of his fund into P&G, buying a $3.5bn stake in February in the company, which has a market value of $232bn. P&G has brands including Tide detergent, Pampers nappies and Gillette razors, but has not launched a successful product in nearly 20 years, Mr Peltz says.
“They tell us everything is going great now,” said Mr Peltz, who expressed surprise that the company was fighting his bid so fervently. “But during David’s tenure, cumulative sales growth has been 3 per cent. Their peers have grown 6 per cent and the market has grown 7 per cent. They’ll also tell you the stock has gone up 24 per cent since he became CEO in November of 2015. But what they’re not telling you is that the year before, the stock was down 31 per cent versus peers, and David was running half the company at that time.”
Mr Peltz sits among the senior statesman of activist investing, having taken on companies including Wendy’s, Mondelez, Heinz, DuPont, GE and BNY Mellon. He founded Trian Partners in 2005 and now manages around $13bn in assets. His record in proxy fights is split — he failed at DuPont but won at Heinz — but he is seen as one of the less aggressive activists, who often seeks board seats as a way to wield influence.
He has stressed that Trian is not advocating a break-up, a cut to R&D spending or Mr Taylor’s exit.
Mr Peltz says the company has been restricted by its complex “matrix” structure, with 10 separate global business units and another six “selling and market operations” divisions.
Under the current structure, “if you’re the CEO and you notice that your detergent sales are weak in Germany, you walk down the hall and you talk to the president who’s in charge of the GBU who’s in charge of detergent, and you say what’s happening in Germany?” he said.
“And he says: ‘Look, you know, we’re doing a great job marketing in Germany, the sales people in the SMO, they’re apparently not doing their job.’ So you walk down the hall and go to the president of that SMO . . . and he or she says: ‘We’re doing a great job, but media, wow, are they messing up.’ So then you go to media, and media says: ‘This message is resonating all over the place, but distribution — the trucks aren’t getting to the warehouses on time,’” he added. “So you can be walking up and down that hall and there is nobody responsible, there is nobody accountable.”
He envisions a slimmed down corporate office overseeing three global business units — family care, beauty and healthcare, and home care — with built-in sales and marketing functions.
“Now what happens is you have some man or some woman who is running a GBU who is totally accountable,” he said.
Another overarching issue, he says, is that nearly all of the company’s executives have been promoted from within, limiting external voices or experience.
Clayt Daley, the former CFO of P&G from 1998 until 2009 who is working with Mr Peltz on his campaign, told the FT that those who work for the company think the system works well, because it is the only one they know.
“I wish every person in the company before they made it to the president level would have to spend two years in private equity, and find out what shareholder mentality is all about,” Mr Daley said. “And that’s what’s missing there.”