Peltz Details His Fixes For P&G -- WSJ
By Sharon Terlep and David Benoit
This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (September 7, 2017).
Activist investor Nelson Peltz on Wednesday laid out a detailed case for why Procter & Gamble Co. should give him a board seat, painting a picture of a company impenetrable to outsiders and incapable of navigating the changing consumer landscape.
In a 94-page presentation, Mr. Peltz's Trian Fund Management LP criticizes the company as having lost its position as a leader and settled for "mediocrity," urging a restructuring of its businesses, the hiring of outsiders, and branching out into smaller and local brands to attract coveted millennial shoppers.
The blueprint is the latest salvo in Mr. Peltz's attempt to win a board seat at the maker of Tide and Pampers, the largest company to ever face a proxy fight. It is Trian's response to the company's monthslong argument that Mr. Peltz brings no new ideas to the table and therefore hasn't earned a seat.
Both sides are courting investors who are set to decide at the company's Oct. 10 shareholder meeting whether to add Mr. Peltz to the board. P&G executives say the company already is bringing in outsiders, simplifying its governing structure and cutting costs to free up cash to create and market new products.
"The problem is that they have lost and are continuing to lose market share," Mr. Peltz said in an interview last week. "Once you've had a consumer and he's left you, it's very hard to bring that consumer back."
P&G has said Mr. Peltz's ideas are either ill-informed or retreads of work that is already under way. "We're already doing something and he's jumping on and saying, 'Do more of it,'" P&G Chief Executive David Taylor said in an interview last week.
Trian, which owns a $3.5 billion stake, says P&G should organize itself into just three business units, down from 10, by combining businesses, such beauty, grooming and health care. The single units would operate autonomously and have total control over sales, marketing, manufacturing and other major functions. P&G downsized to 10 business units from 16 as part of a restructuring effort carried out before Mr. Taylor took over in late 2015. The company has no plans to further reduce that number.
In a statement Wednesday, P&G said its board and management team would review Trian's presentation, but added the investor "has an outdated view of our company. The fact is P&G is a profoundly different Company than it was just a few years ago."
The company's structure is one of the thorniest points of debate between the two sides. While Trian criticizes P&G's overly-complex "matrix" structure, P&G executives say a major restructuring in the last year has created autonomous units with control over all parts of their business. They say functions still controlled by regional and corporate chiefs, such as negotiating with retailers like Wal-Mart Stores Inc. and Target Corp., are best handled at higher levels.
In its presentation, Trian calls for P&G to set a goal of having about 25 of the company's top 100 executives with significant outside experience. Trian argues that only three of P&G's top 33 executives appear to have worked outside the company.
That "insular culture," Trian argues, is one of the reasons the company hasn't launched a major brand and instead has doubled down on its biggest brands just as consumers shifted to smaller, local products. "P&G has not created a meaningful new brand since Swiffer, almost 20 years ago," according to the Trian presentation.
"To be successful at P&G it appears you have to be very savvy politically at operating in the matrix," Mr. Peltz said. "It seems to be more important than generating sales and profit."
Mr. Taylor has acknowledged that P&G has made missteps that have resulted in slow growth and slipping market share, such as missing some big trends in China and not taking online razor startups seriously enough. The streamlined P&G, he said, isn't making the same mistakes and is able to more quickly respond to changing trends and nimbler rivals. "Do we get it right all the time? No," he said. "But what we do is we listen to the consumer and get it right the next time."
Trian's decision to release the paper a day before Mr. Taylor is set to speak at an analysts' conference Thursday morning further irked P&G executives. "I find it interesting. Nelson has told me consistently, 'I'm not an activist, I'm an engaged shareholder,'" Mr. Taylor said last week. "If you're interested in improving the company, wouldn't you just meet with someone who's flown to meet you numbers of times and share your plan?"
The paper argues Mr. Peltz's presence in the boardroom would keep the pressure on management and reinvigorate innovation and talent, though it presents his presence as an ally eager to work with Mr. Taylor.
"They've got this thing so wrong," Mr. Peltz said. "I am more on their side than anybody. I'm $3.5 billion on their side."