Cincinnati Ohio and P&G’s Board Fight

On October 10th Proctor and Gamble, nicknamed P&G, is holding a shareholder meeting to elect a new board of directors.  This vote has the potential to dramatically impact Cincinnati, Ohio.

Most corporate shareholder meetings are boring affairs that rubber stamp management’s slate of candidates.  Not this one.  Nelson Peltz, a Wall Street billionaire, is spending huge sums of money asking P&G’s shareholders to vote the white ballot.  Voting white will put him on the board and give him some control.  P&G is spending equally large sums to convince shareholders to vote the blue ballot.  The blue ballot will keep Peltz off.

What is P&G?

The company is one of the three most important employers in the Cincinnati, Ohio metropolitan area.  Beyond Ohio P&G touches huge number of people.  The company produces a giant list of products found in homes around the globe.  It makes Pampers diapers, Crest toothpaste, Oral-B toothbrushes, Gillette razors, Old Spice deodorant, Tide laundry detergent, and Charmin toilet paper to name just of few of its brands.

The company was formed in 1837 as a soap and candle company by Mr. Proctor and Mr. Gamble, who were brothers-in-law.  The company enjoyed modest success until 1879 when Gamble’s son invented the company’s first blockbuster product, Ivory soap.  Ivory soap was different from all other soap because it floated, making it easy to find in a bucket of sudsy water.

P&G soaps became some of the earliest product advertisers on radio in the 1920s.  The brands sponsored dramatic shows focused on love, family and life.  Because of this early sponsorship these radio and then television shows became known as soap operas.

Moreover, the company has worked very hard to ensure its managers understand all aspects of a business.  Its programs have served as a training ground for a large number of business leaders, with at least a dozen CEO’s at other major companies all getting their start at P&G.

Who is Nelson Pelz?

Nelson Pelz is an investor that Forbes estimates is worth over US$1.5 billion.  Much of his money was made running Trian Partners.  Trian describes itself as a “highly engaged shareowner” that invests in underperforming public companies.”  Peltz has turned around companies such as Snapple.  He has pushed others, like the snack maker Mondelez, to become more profitable.

Peltz currently makes his money by investing billions in a single company and then telling the company how it should really run its business.  For example, Wendy’s, the hamburger chain, has Peltz on its board.  Peltz is proud that under his watch many of the chain’s company stores have been sold off.

What Does Each Side Propose?

Peltz believes that P&G is resting on its laurels.  It owns some of the world’s most recognized brands.  However, Peltz believes “the company is burdened by excessive costs and bureaucracy.”  His goal in general is to lower expenses and boost revenue.  Specifically, he wants to split P&G up into three completely separate units; beauty and grooming, fabric and home care, and baby and feminine care.

The company does not disagree about performance issues.  However, it feels that the poor performance is now behind the company.  It states “P&G is a profoundly different company than it was just a few years ago.”  The new CEO believes P&G is leaner because it is has shrunk from managing 170 brands in 2013 to just 65 major brands in 2017.  It feels it has already cut $10 billion in costs, and boosted profits.  P&G does not feel that having Peltz on the board, checking over company management’s shoulder all the time, will add value.

Conclusion

Peltz has a point.  Procter and Gamble has underperformed the S&P500 and Dow Jones Industrial average over both the past year and five years.

P&G also has a point.  It clearly has been working hard to restore its growth and profit margins.

What should voters do?  Peltz’s white ballot plan seems innocuous.  However, his key idea is splitting the company into three parts.  This plan appears to only have one final outcome; the breaking up of a major Cincinnati Corporation.  If P&G is split into three sections there is no particular reason why all three parts need to reside in Cincinnati.  Voting to keep Peltz off the board is a simple way to keep jobs in Southern Ohio.

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