Procter & Gamble braces up for a board tussle with Trian

Merck

In another detail response to Trian Fund Management and Mr. Peltz, Procter & Gamble says Trian’s view of P&G is outdated.

The company is issuing a further response to reject the proposed appointment of Mr. Peltz to its board of directors.

P&G said in a detailed strategy statement that:

P&G strongly recommends that shareholders vote the BLUE Proxy Card in support of all of P&G’s highly qualified Director nominees to prevent anything from derailing the work that is delivering for all P&G shareholders. The reasons outlined in the letter include:

Under the leadership of this Board and management team, P&G has undertaken the most significant transformation in the Company’s history and is executing a winning strategy that is working.

  • The P&G Board has the skills and experience to continue successfully overseeing the execution of the plan in place.
  • Despite what Nelson Peltz of Trian seems to believe, a Board seat is not an entitlement.
  • P&G has done its homework and the overwhelming feedback is clear: Mr. Peltz is not the right Director for the P&G Board.
  • P&G has a process to regularly refresh its Board and add new Directors who can best help advance the P&G strategy.
  • Trian and Mr. Peltz are focused on an outdated view of P&G, not the P&G of today.
  • The letter outlines P&G’s significant value creation progress as well as why P&G believes Mr. Peltz is not right for the Board.

P&G’s rigorous selection criteria for adding new Directors to the P&G Board has produced a highly diverse Board specifically designed to oversee the Company’s strategy with expertise in key areas needed for P&G to continue to win. Mr. Peltz does not fit the criteria.

P&G strongly recommends that shareholders vote to support the P&G Board by voting the BLUE Proxy Card “FOR” ALL P&G highly qualified Director nominees. More information can be found by visiting //voteblue.pg.com.

The full text of the letter follows:

Dear Fellow Shareholders:

In advance of Procter & Gamble’s upcoming Annual Meeting of Shareholders on October 10, 2017, you are being asked to make an important decision regarding the future of your company:

Vote FOR a P&G Board that is overseeing a winning strategy.

Do NOT vote for Trian; Discard the white proxy card.

Your vote matters. Failure to vote your proxy or vote online means your shares will not be counted in this election. Please contact our proxy solicitors, D.F. King & Co., Inc. at (877) 361-7966 or MacKenzie Partners, Inc. at (800) 322-2885 if you have any questions at all about how to vote your card by phone or internet.

The P&G Board strongly recommends that you vote the enclosed BLUE Proxy Card today for the following reasons:

We are executing a winning strategy that is working.
Your Board has the skills and experience to continue successfully overseeing the execution of the plan in place.
Despite what Trian seems to believe, a Board seat is not an entitlement.
We have done our homework: Nelson Peltz is not the right Director for P&G.
We have a process to regularly refresh our Board and add new Directors who can best help advance the P&G strategy.
Trian and Mr. Peltz are focused on an outdated view of P&G, not the P&G of today.
Now is the time to focus on accelerating results, and prevent anything from derailing the work that is delivering for all P&G shareholders.
The Board of Directors unanimously recommends that you vote the BLUE Proxy Card to continue advancing our plan and maintaining our momentum.

EXECUTING A WINNING STRATEGY THAT IS WORKING

Our fiscal 2017 results demonstrate that the actions we have taken and the plan we have in place are working. We met or exceeded each of our fiscal 2017 objectives and delivered strong financial results.

Under the leadership of your Board and management team, we have undertaken the most significant transformation in the Company’s history. We now have a stronger, more focused portfolio of leading brands and products in ten highly attractive, daily-use categories that respond to innovation and are better positioned to win. We have implemented substantial changes to our organizational structure, with accountability for performance directly in the hands of the people closest to the market. These initiatives are already bearing fruit and have increased value for P&G shareholders.

Since the CEO transition on November 1, 2015, our team has delivered total shareholder return (“TSR”) of 28% through August 18, 2017 – well above the vast majority of peers selected by Trian throughout that same time period.i
P&G also outperformed the S&P 500, which delivered a TSR of 21% in that same timeframe.ii
Third parties have recognized that the execution of our strategy is driving strong results: iv

“Despite global macro uncertainty and muted market growth worldwide, we believe Procter’s portfolio optimization, cost productivity, and go-to-market capability investments support higher (and better quality) earnings growth; this, coupled with strong cash flow productivity, offers a solid total shareholder return opportunity.” (Jon Andersen, Analyst, William Blair, “Highlights of Meetings with Management,” 17-Aug-2017)

“In our view, PG’s management has a credible plan in place (if high-level in its articulation) to address years of underperformance and share losses, and is executing against it with a prudent sense of urgency. We are encouraged by PG’s continued emphasis on agility, its focus on improving digital competency, and its willingness to look externally to supplement and enhance internal capabilities.” (Stephen Powers, Analyst, UBS, “Procter & Gamble: Too Big (a task) to Fail,” 28-Jul-2017)

“F4Q17 results help fuel P&G’s case that it is in fact making progress on its articulated turnaround plan or stated more simply, it is not standing still. Against a backdrop of sales and earnings shortfalls and companies having to lower their top-line outlooks in response to slower category growth, P&G’s F4Q17 results stood out favorably.” (Lauren Lieberman, Analyst, Barclays, “Procter & Gamble: Not Standing Still,” 28-Jul-2017)

P&G HAS A WORLD-CLASS BOARD WITH THE EXPERIENCE AND INSIGHTS TO DELIVER GROWTH AND SHAREHOLDER VALUE

The P&G Board is made up of 11 diverse members, each of whom is independent except for our CEO, David Taylor. P&G’s outstanding Board includes:

Established Leaders Across Industries: Our Board is composed of men and women who are leaders in a variety of fields, including consumer products, retail, digital technology, innovation, healthcare, government, law, technology, and education. Together, they bring diverse perspectives on critical issues that inform how P&G competes in today’s complex global consumer environment.
Experience in Key Executive Roles: Of the 11 Board members, six are former CEOs and four are current CEOs. In addition, Ernesto Zedillo formerly served as the President of Mexico and has substantial experience in banking and global economics and politics.

Proven Track Records: Our Board has Directors with the demonstrated ability to navigate complex situations and who have led or transformed large multinational enterprises. They know how to make the difficult decisions necessary to deliver both growth and profitability and to drive strong shareholder returns.

Digital Leadership: Three Directors, Amy Chang, Scott Cook, and Meg Whitman, have demonstrated strong leadership and have successful track records of creating value in the critically important areas of digital innovation, technology and start-ups. They are assisting P&G in transforming itself for today’s consumer.

New Ideas and Perspectives: With a wide range of experiences, our Directors bring outside views that foster differentiated and innovative thinking.
WE REGULARLY REFRESH OUR BOARD TO ADD NEW VOICES

Despite what Mr. Peltz seems to believe, a Board seat is not an entitlement. We have rigorous selection criteria for Board membership, which has produced a highly diverse Board specifically designed to oversee our strategy and with expertise in key areas that we need to continue to win. We regularly review the skills and abilities to make sure that the Board is appropriately equipped to provide the necessary oversight to the Company.

Working with an experienced search firm focused on finding the right Directors for the current consumer environment, our Board starts with the base criteria set forth in our Corporate Governance Guidelines – for example, integrity and sufficient time to devote to Board work. The Board then identifies the experiences and skills that will most add value to the Company today and continuously refreshes and prioritizes that list in light of external and internal needs. Our current focus includes experience that comes from being digitally “native”; experience in driving innovation; health care experience; online, offline and “omni-channel” retail experience and innovation; international experience, particularly in large developing markets; and gender and ethnic diversity.

The Board maintains and periodically refreshes a list of potentially qualified Directors, according to the prioritized criteria. The Governance & Public Responsibility Committee leads the discussion and assessment of qualified candidates, and the current Directors take the time to get to know potential candidates before ultimately determining whether to appoint a particular candidate to our Board.

Using this process, this year, we added Amy Chang, an accomplished technology start-up leader with prior experience at top technology companies including Google, as a new, independent Director. Her skills complement and enrich our ongoing ecommerce and innovation initiatives.

In February 2015, to enhance our retail expertise and experience in leading transformations, we added Frank Blake, former Chairman and CEO of The Home Depot as an independent Director.

Cumulatively, over the last five years, we have added four new Directors to the Board.

Our Board’s level of experience is balanced: with approximately one third of Directors on the Board for 1 – 5 years; approximately one third for 6 – 10 years; and approximately one third for more than 10 years. Our Governance Guidelines have both tenure and age limits (age 72) for Board membership, ensuring that we maintain a balance of experience and new perspectives on P&G.

WE HAVE DONE OUR HOMEWORK: NELSON PELTZ IS NOT RIGHT FOR THE P&G BOARD

While we have engaged with Mr. Peltz with an open mind, we have also done our research.

We have spoken with investors, analysts, members of Boards and senior executives at companies that have been impacted by Trian.
The overwhelming feedback we received was clear. We concluded that Mr. Peltz would not be helpful to P&G’s Board and management team that are successfully executing a plan that has the Company on the right track. Adding an activist investor like Mr. Peltz risks derailing the progress we are making to deliver for all P&G shareholders.
We respect Mr. Peltz and will continue to listen to him. However, we have a careful process to identify individuals who will be additive to the needs of the Board and the Company in pursuit of its plan for balanced top- and bottom line-growth, and we have determined that Mr. Peltz does not fit the criteria.

TRIAN IS FOCUSED ON AN OUTDATED VIEW OF P&G, NOT THE P&G OF TODAY

Mr. Peltz has repeatedly criticized P&G for its performance over the past ten years, ignoring the significant transformation that our company has recently undertaken, including a strengthened portfolio, cost savings and productivity improvements, and organization redesign. These changes have created a fundamentally different P&G which is meeting or exceeding its commitments, and since November 1, 2015, has delivered improved shareholder return.

Mr. Peltz’s argument that P&G should be targeting the same organic growth targets today as it did in 2005 shows a misunderstanding of the significantly different global economic conditions and industry dynamics today as compared to 12 years ago.

In focusing on P&G’s ten year performance, Mr. Peltz and Trian are even going against what they have said was the right measurement period to use in prior campaigns – in both DuPont and Pepsi they insisted that the right period to measure performance is that of the current CEO and management team.

It is not surprising that Mr. Peltz has an outdated view of our company and industry, as he is apparently relying on advice and information from a former executive who left the Company nearly a decade ago.

Now is the time to build on our momentum and prevent anything from derailing the work that is delivering for all P&G shareholders.

VOTE THE BLUE PROXY CARD TODAY

P&G’s Board is fully engaged in driving P&G’s transformation and is committed to acting in the best interest of all of the Company’s shareholders. Your Board strongly recommends that you vote the BLUE Proxy Card:

Vote FOR ALL of P&G’s nominees
Vote FOR Proposals 2 and 3
Vote FOR 1 Year on Proposal 4
Vote AGAINST Proposals 5 through 8
You can vote by Internet, telephone or by signing and dating the BLUE Proxy Card and mailing it in the envelope provided.

We urge you NOT to vote using any white proxy card or voting instruction forms you might receive from Nelson Peltz of Trian. Please disregard and discard the white proxy card.

If you have any questions about how to vote your shares, or need additional assistance, please contact our proxy solicitors, D.F. King & Co., Inc. at (877) 361-7966 or MacKenzie Partners, Inc. at (800) 322-2885.

On behalf of your Board of Directors, we thank you for your continued support.