It is a referendum on the leadership of a $235 billion company as its stock has languished, underperforming its peers in the last decade. The outcome could affect the future course of the 180-year-old corporation, which has more than $65 billion in annual revenue and is home to familiar household brands like Tide and Pampers.
The proxy war is also a warning shot to blue-chip companies across the country that activist investors are setting their sights on ever-bigger corporate targets as they agitate for changes in strategy and structure. This year, General Motors and Tiffany & Company found themselves targeted by activists.
“No company is off limits because of its size, industry, the complexity of its business or even its stock price performance,” as activist investors control larger sums of assets, said Damien Park, a managing director at Spotlight Advisors, which advises companies and investors on activism.
Indeed, in recent years, through his investment firm Trian Fund Management, Mr. Peltz, 75, has taken significant stakes in H. J. Heinz, Mondelez International and DuPont. Sometimes, but not always, he has been given representation on the board.
This time around, Procter & Gamble is fighting Mr. Peltz’s attempt to get a seat, saying he is a late arrival to a corporate turnaround that is already underway.
Mr. Peltz, who owns a $3.5 billion stake in Procter & Gamble, has said he is not looking to oust any board members or the chief executive, David Taylor. If he wins a seat, he hopes to convince the other directors, including Kenneth Chenault, the chief executive of American Express, and Meg Whitman, the chief executive of Hewlett Packard Enterprise, that the company should be organized from its current multilevel “matrix” structure to three clear global business units to improve accountability. He also contends that a study should be conducted to understand why Procter & Gamble’s once-vaunted innovation machine appears to have stalled.
“This is different from the normal activist slate, which is seeking to replace much of the board or the C.E.O.,’’ said Charles M. Elson, director of the John L. Weinberg Center for Corporate Governance at the University of Delaware. “Here, he’s simply seeking input into the board process. He seeks a change of direction and I think he’s right. I think the company has stalled.”
In the last decade, Procter & Gamble’s total return — stock performance plus reinvested dividends — was around 77 percent. That is about half the returns for peers like Kimberly-Clark and Colgate-Palmolive.
Procter & Gamble argues that Mr. Peltz is not providing any new ideas. The company’s management, including its board and Mr. Taylor, a longtime Procter & Gamble veteran who was named chief executive nearly two years ago, has already identified the changes that need to be made and is in the midst of making them, it argues.
Furthermore, the company says its plan is yielding results, noting that it has delivered total shareholder return of 28 percent since Mr. Taylor took over, outperforming its peers.
The company also argues that Mr. Peltz lacks the criteria that it seeks for its directors, noting that it is now looking for leaders with digital and “big data/analytics” experience, skills in artificial intelligence and direct experience in household and personal categories. The board added in a statement on Friday that Mr. Peltz’s push to reorganize the company into global units was a “bad idea” that would only stall its momentum.
Still, Mr. Peltz’s arguments were striking a chord with some investors. Late last week , the California State Teachers’ Retirement System, which controls 5.6 million shares, said it was throwing its vote to Mr. Peltz. Earlier, the three largest proxy advisory firms also gave their support to him, an important victory because many institutional investors vote their shares based on the firms’ recommendations.
But a crucial piece of this battle sits with smaller so-called retail shareholders who control 40 percent of Procter & Gamble’s stock and may have emotional ties to the company.
Many of them are retirees who were given shares over the years as part of the company’s profit-sharing plan. But some stock is held by individuals who inherited it.
“Grandpa or their dad worked there and you’re not supposed to sell the P.&G. stock,” said John Lame, a former finance manager for Procter & Gamble who now runs the financial advisory firm Lenox Wealth Management in Cincinnati. Among his clients are the families of 150 current and former Procter & Gamble employees and executives.
“People have been very loyal to the stock and the company,’’ he said. “A lot of those people are going to vote with management.”
It has been the effort to reach out to this sizable retail base that has ramped up the costs of this campaign. In regulatory filings, the two sides said they had over 600 people working on the board election, and they expected to spend $60 million, combined.
But according to interviews with former executives, analysts and observers who are closely monitoring the battle, the cost, when all is said and done, will very likely be closer to $100 million. Mr. Peltz has accused P.&G. of spending $100 million to keep him off the board.
“The communications have been voluminous,” said Jim Langendonk, 66, of Slidell, La., who retired from Procter & Gamble in 2010 after working for 25 years in information technology. “I’ve gotten eight to 10 voting forms from both sides. Almost too many to count, and they just keep on coming.”
Mr. Langendonk said he intended to vote for Procter & Gamble in the proxy fight. “Typically, what guys like Peltz do is try to break up the company or load it up with a bunch of debt,” said Mr. Langendonk. “That’s my biggest concern: that he’ll ruin a really good company.”
But others wonder, what’s the harm in adding a different voice to the board?
“The restructuring at P.&G. has been going on for 20 years. That’s a long time without much to show for it,” said Mr. Lame, who estimates that the company’s underperformance relative to its category has cost his clients $200 million over the last 10 years. “Maybe you need to have one person on the board who has a different point of view.”