I attended a really good virtual shareholder meeting (VSM) yesterday, one of the best I’ve attended this year: Procter & Gamble’s 2020 annual meeting of shareholders. It was the first time going virtual for P&G. They usually have a big blow-out event at corporate HQ in Cincinnati, complete with product gift bags. This time around, they knew they were going virtual well ahead of printing their Proxy Statement and thus had the benefits of getting the debrief from the entire spring season of other VSM first-timers and having plenty of time to work through the behind-the-scenes coordination necessary for a meeting that would take place during the continuing COVID-19 pandemic. P&G deserves credit for incorporating many of the good practices we saw earlier this year.
I’ll skip over P&G’s disclosure about the meeting since I already covered that when I received P&G’s 2020 Proxy Statement in the mail at the end of August.
Arriving Early
I logged on a few minutes early, just to make sure I could get in smoothly. No problems using the 16-digit control number from my VIF. There was a help line listed on the login page, but for some reason not on the VSM page itself. However, the help line was listed in the Rules of Order, which was posted on the VSM page:
If you have difficulty accessing the meeting, please call 1-800-586-1548 (US) or 1-303-562-9288 (International). Technicians will be available to assist you.
Early birds were treated to ad spots for PAMPERS (“Born to be wild”), CASCADE (“We do it every night”), SECRET (“No sweat”), and other P&G products that we all know, love, and hoard during pandemics and wildfires.
The event (audio-only) started at 12:00 noon EDT with some Spanish guitar music and then announcements, including the availability of the Rules of Order and meeting Agenda, Q&A call-in number, and explanation of how they were going to handle Q&A. Then, they played the National Anthem, which I haven’t seen done at other annual meetings.
The main VSM page was what we’ve all become accustomed to seeing at a Broadridge-hosted VSM, with “Vote Here,” Q&A box, and links to the Annual Report, Proxy Statement, and Rules of Order. P&G also posted a letter to shareholders about one of the shareholder proposals that they had filed as additional soliciting materials at the end of September.
Call to Order
The meeting was called to order with an announcement that the Chairman/CEO, CFO, general counsel, VP of investor relations, directors, and representatives of the independent auditors were all in attendance. The Chairman made a point of saying that the management team was all at corporate HQ, but socially distanced and wearing masks (P&G now manufactures PPE). The polls opened at 12:09 p.m. and would close after the shareholder proposals had been presented.
Election of Director Nominees
As always, the first item of business was the election of director nominees. P&G solicited questions about each item of business as they were presented—something not all companies do, but probably should. I lobbed in a question using the question box, asking how many shares of P&G Common Stock were held by Trian Partners and affiliated persons/entities. They recited my question verbatim, but did not identify me (I had provided my name and email address with the question.) Management was ready for this one and quickly responded that Trian currently holds 10 million shares.
Of course, I verified that figure in multiple ways (not that I suspected the stated answer might be incorrect!). A Form 13F filed by Trian on August 14, 2020 said they owned 10,825,852 shares of P&G. A Form 4 filed by P&G director Nelson Peltz on August 28, 2020 disclosed that he’s the beneficial owner of 10,124,934 shares. And, the Proxy Statement had disclosed that Mr. Peltz “indirectly” held 10,821,934 shares (representing 0.436% of the outstanding) as of June 30, 2020, explaining in a footnote:
These shares are owned by certain funds and investment vehicles (the “Trian Funds”) managed by Trian Fund Management, L.P. (“Trian”), an institutional investment manager. None of such shares are held directly by Mr. Peltz. From time to time, certain of these shares are held in the ordinary course of business with other investment securities owned by the Trian Funds in co-mingled margin accounts with a prime broker, which prime broker may, from time to time, extend margin credit to certain Trian Funds, subject to applicable federal margin regulations, stock exchange rules and credit policies. Trian Fund Management GP, LLC, of which Mr. Peltz is a member, is the general partner of Trian, and therefore is in a position to determine the investment and voting decisions made by the Trian Funds. Accordingly, Mr. Peltz and Trian may be deemed to indirectly beneficially own the shares that the Trian Funds directly and beneficially own.
I asked another question about Mr. Peltz, but didn’t quite get it in before they had moved on to the next item on the agenda, so I’d have to wait and see if they would answer it during the general Q&A (they did). This question was about Mr. Peltz’s being over the board’s stated retirement age. The Proxy Statement lists Mr. Peltz as being 78 years old. It also said there is a board retirement age, but I couldn’t find it in the document, so I went to the Corporate Governance Guidelines on the P&G website, which include:
Retirement Age. Absent exceptional circumstances agreed to by a majority of the Board (excluding the affected member(s)), the Board of Directors will not nominate for re-election any Director who has reached the age of seventy-two (72) years on or prior to the date of election to which such nomination relates.
The Corporate Governance Guidelines also include a policy on director tenure that states:
Term Limits. Absent special circumstances agreed to by a majority of the Board (excluding the affected member(s)), the Board of Directors will not nominate for re-election any Director who has completed 18 years of service on or prior to the date of election to which such nomination relates.
The term limit isn’t relevant in this case as Mr. Peltz only joined the board in 2018 (after the epic proxy fight), but since most companies don’t have board tenure limits, I thought I’d call it out here. (I happen to be a fan of them.)
The explanation in the Proxy Statement for why Mr. Peltz was up for re-election despite being six years beyond the retirement date goes like this:
Mr. Peltz’s experience as CEO and Founding Partner of Trian Fund Management, L.P. continues to be highly valuable to the Board and the Company. The Board therefore determined that these were special circumstances that warranted an exception to the age limits set forth in the Corporate Governance Guidelines and voted to nominate Mr. Peltz for re-election.
The reader has to take a bit of a leap here, since having experience as the CEO and founder of Trian alone doesn’t seem like an obvious “special circumstance.” However, we all know the history here, so one doesn’t have to use much imagination to connect the dots. Having drafted this kind of disclosure before, I probably would have written that, too. Companies are actually not required by Schedule 14A or Regulation S-K to explain exceptions to board retirement policies, but companies have received feedback from proxy advisory firms and institutional shareholders who frown on exceptions and expect to see reasons given.
The question I submitted was: At what point will the board stop making a special exception for Mr. Peltz, or just get rid of the retirement age? Most companies that make exceptions do it to keep a long-time director that is going one or two years over the retirement age for “transitional” purposes, not for someone six years over. I guess the board could instead apply the term limit policy to Mr. Peltz, potentially keeping him on the board until 2036 when he will be 94. I don’t think that’s what the implication is, so we’ll just have to see for how long this goes on. I’ll stop picking on Nelson Peltz and move on.
[Update: On August 5, 2021, P&G announced that Mr. Peltz "has informed the Company that he has decided not to stand for re-election as a director at the 2021 Annual Meeting of Shareholders. He will retire from the Company’s Board of Directors when his term expires at the Company’s upcoming 2021 Annual Meeting of Shareholders," scheduled to take place (virtual-only) on October 12, 2021.]
Other Items of Business
The next items of business were the ratification of appointment of independent auditors, Say On Pay, and approval of the company’s amended and restated International Stock Ownership Plan. After that, the shareholder proposals were presented (at 12:14 p.m.):
Report on Efforts to Eliminate Deforestation, submitted and presented by Green Century Equity Fund. The company announced that three questions had been submitted on this proposal, read each question, and answered all three with one comprehensive answer.
Annual Report on Diversity, presented by As You Sow as representative of Lutra Living Trust and a group of co-filers. The company played a pre-recorded presentation given to them by As You Sow. (I'm growing to like the pre-recorded statement since it eliminates one potential opportunity for connectivity or bandwidth issues.) There were no questions on this proposal.
Dividend Increase; Preliminary Vote Results
The polls then closed at 12:32 p.m., and the company made several announcements before adjourning at 12:35:
The board approved an increase in the dividend rate, making this is 64th consecutive year of dividend increases and the 130th year of paying dividends. “Impressive” doesn’t do justice to that track record. (My old company has a current streak of 58 years of dividend increases.)
Preliminary vote results:
Director nominees: All elected with more votes “For” than “Against”
Ratification of auditor appointment: 95% support
Say On Pay: 91% support
International Stock Ownership Plan: 98% support
Deforestation Report: 67% support
Diversity Report: 37% support
Management Presentation
After the legal portion of the event ended, the company played a pre-recorded management presentation video featuring the Chairman/CEO, who first appeared on screen wearing a mask to drive home the point that they take seriously the measures recommended by immunologists to prevent the spread of COVID-19. (Great to see leaders modeling good behavior for the rest of us!) I thought this pre-recorded video presentation was very effective, and I suggest other companies think about doing this, too, for future VSMs.
Q&A Session
The Q&A session began at 12:55 p.m. The rules were that each speaker would be allowed two minutes and there would be no more than three speakers on any one subject. (The company did not solicit questions in advance of the meeting.) The VP of investor relations, who ran the Q&A, said they’d answer as many questions as they could in the time allotted (which ended up being half an hour) and then follow up with those shareholders whose questions didn’t get addressed.
They got through about 15 questions and comments during the live Q&A session. Topics ranged from single-use plastics in packaging to the experiences of South Asian and Black employees to my question about the director retirement policy. Different P&G executives fielded some of the questions at the Chairman’s request. The answers came across as sincere and not overly rehearsed. Even though the company had publicized the call-in number, only one question came in through the phone line. We were able to hear that shareholder clearly.
The company read my question verbatim, even though it included a big error: I had said that Mr. Peltz was 13 years over the retirement age when he’s really only six years over 72. He’s 13 years over the average age of the board members as a whole. The answer given by the Chairman was along the lines of what was in the Proxy Statement. He emphasized that they highly value all of their directors.
The whole event was brought to a close at 1:27 p.m. Based on what I’ve seen and heard this year, P&G’s meeting had almost everything you’d expect to see from a “blue chip” company. Technology-wise, there were some minor glitches here and there, reminding us that there’s always tech risk with VSMs, but for the most part, P&G's first VSM was “No sweat.”
Screen Shots
Here are screen shots of a few key pages from the VSM:
Login Page
Ad Spots
Main VSM Page
Introduction of Director Nominees
P&G Board of Directors
Management Presentation
Q&A Session
