CINCINNATI - For the second time in as many weeks, a prominent shareholder advisory group has sided against Procter & Gamble Co. in its proxy fight with Nelson Peltz.
Maryland-based Institutional Shareholder Services is urging P&G stock holders to vote white and add Peltz to the P&G board.
“Trian presents a compelling case that a limited degree of boardroom change would be beneficial,” said the ISS report. “The addition of one well-qualified nominee, who holds a large economic stake, appears likely to have benefits that outweigh the potential risks.”
ISS is the more influential of two proxy advisors that were lobbied by P&G and Peltz’s Trian Fund Management L.P. to support their positions in what’s likely to be the most expensive proxy contest in history. Glass Lewis issued its endorsement of Peltz last week.
P&G claims Peltz will derail a turnaround that has begun after five years of restructuring in which P&G sold 100 brands and shed 30,000 employees so it could increase investment on big brands with the best growth potential. Peltz has argued that P&G is losing market share to smaller and more nimble consumer brands, thanks to an "insular" corporate culture that stifles innovation.
ISS criticized P&G’s board for not looking outside the company when A.G. Lafley ended his first round as CEO in 2009. The selection of Bob McDonald “proved to be a mistake” that P&G only reversed after activist shareholder Bill Ackman demanded it in 2012.
“Though the eventual decision to appoint (David) Taylor in late 2015 appears to have been a good one,” ISS argued, “the board’s handling of CEO succession during the better part of a decade left a lot to be desired, and subjected the company, and shareholders, to years of underperformance.”
ISS also faults Peltz for advocating for a restructuring that “potentially primes the company for a split.” Peltz argues P&G could grow faster if it divided the company into three autonomous business units with presidents that clearly control its sales, production, research and strategy decisions. P&G has argued that would be a first step to a breakup of the company, which could be disastrous for Cincinnati.
Here’s ISS’ stance on that: “Though the dissident has indicated that it is ‘not advocating for the break-up of the company,’ the word ‘ever’ is conspicuously absent from that statement … Shareholders must therefore assess whether Peltz is essentially a wolf in sheep's clothing.”
The endorsement of Peltz by two proxy advisors was expected because they tend to be friendlier to dissident shareholders, said Josh Black, editor in chief for Activist Insight, a monthly magazine that tracks proxy contests. But they are highly influential for institutional shareholders, including pension and index funds that represent more than 20 percent of P&G’s shareholder base.
Regardless of who wins the fight, Black said neither radical nor rapid changes are likely at P&G.
If Peltz wins, Black said, “the battle will just move inside the boardroom. What Peltz says about it is to some extent true. He will be just one voice.”
And if P&G wins, Peltz won’t go away – and neither will his ideas.
“Things like separating the individual units, pushing accountability down the chain, that will resonate with analysts for a while,” Black said. “Peltz has now put it out there. That is going to hang over the situation and if results don’t improve, they’re going to ask, ‘Is it worth going back to this?’
P&G is planning a webcast on Tuesday Oct. 3 in which shareholders can ask questions of CEO David Taylor, Chief Financial Officer Jon Moeller and Meg Whitman, a P&G board member. Those who want to ask questions are asked to email them before 8 a.m. Tuesday to pginvestor.im@pg.com.
