No Sea Change To Be Seen In Trian-P&G Proxy Battle

It’s safe to say that the business world was intrigued by the “largest proxy fight ever” as billionaire Nelson Peltz of Trian Partners battled the management and board of consumer giant Proctor & Gamble for a board seat. I was a bit tweaked by Jeff Sonnefeld’s post for ChiefExecutive.net titled “Vote To Keep Peltz Off P&G Board A Sea Change”.

In my experience, Sonnefeld has always offered great advice to boards, but I disagree with his position that the PG vs. Peltz proxy battle represents “…a sea change—a major fork in the road signifying resolve and backbone in boards of directors to stand up and discourage activist short-termism”.

While I think the recent proxy battle was certainly an example of board support of management against outside investor influences, I’m not sure we can yet classify it as a trend, nor am I sure that it’s a wise battle cry for boards to blindingly adopt. Let me explain.

First, as a pro-business supporter my whole career, I have always pushed for an equal balance in board and investor rights. I have never forgotten in all my rhetoric that shareholders are the owners, and in the end, they should have a say on who represents them in the boardroom. The real proxy battle message sent to all boards, but particularly the P&G board, is to take note of how many of the world’s largest and savviest investors backed Peltz and Trian Partners. My view is who cares who won by a couple thousand votes… the true trend is to take notice of how many shareholders are voting for change in the boardroom during these high profile proxy battles. If there is a sea change, it’s that investors aren’t going to accept the status quo if performance lags for too long!

“I know Mr. Sonnenfeld feels that ‘the BlackRocks’ and ‘the Vanguards’ of the investment world talk a good long-term game and then vote with the shorter-term activists and/or proxy advisors all the time… but that couldn’t be further from the truth.”

I know Mr. Sonnenfeld feels that ‘the BlackRocks’ and ‘the Vanguards’ of the investment world talk a good long-term game and then vote with the shorter-term activists and/or proxy advisors all the time… but that couldn’t be further from the truth. In fact, most of the larger institutional investors voted against Peltz in the DuPont proxy contest, and, if any of the biggies had supported Trian, they probably would have won. Are there times when companies should stand up if their plan and past performance suggest they can make a difference going forward? Yes, of course! Should savvy investors let non-performing management teams stay in place when they can’t seem to get it right? I don’t even need to answer that…

On another point, I was again tweaked when Sonnenfeld referenced Peltz as a short-term activist. Of all the well-known activists, Peltz would have to be classified as the tortoise versus the hare in flipping a company position. Trian isn’t afraid to hold its position while improving the company from their board seat, lest we forget the vicious proxy battle with Heinz where Trian did secure a board seat. Did all hell break loose? Not quite—at least according to the comments of Tom Usher, former chairman of U.S. Steel and lead director of the Heinz board at the time: “He (Peltz) was always well-informed and collaborative and not given to throwing his weight around or grandstanding.”

For more support on what the right activist can bring to the table, listen to what Heinz CEO Bill Johnson, who participated in an ugly exchange with Peltz during the battle, subsequently said: “I developed the utmost respect for him.”

As a further fun fact, Johnson became a Trian Advisory Partner (a small group of former CEOs who work with the firm). My point is that Trian Partners can be aggressive, but categorizing them as short-term or flippers is certainly not their normal M.O.

Finally, there’s some evidence to suggest that the polarizing trend in board-activist relations, which Sonnefeld describes, may actually be heading in the opposite direction. In PwC’s 2016 Annual Corporate Directors Survey, 80% of corporate directors indicated “activism has compelled companies to more effectively evaluate strategy, execution and capital allocation.” Of course, no board wants activist interactions to escalate to a proxy battle, but I do believe more boards are recognizing the constructive nature of activist engagement—and at the least, the importance of thinking like an activist.

I recognize that Mr. Sonnenfeld has a good message to offer those boards and corporations who truly believe their strategy is sound and who have investor backing; such is the time to stand up and fight. But are we seeing a sea change? This experienced observer sees a lot happening, but a “too close to call” case doesn’t constitute a trend. At least not yet.