October 26, 2017

P&G Proxy Fight: ESOP’s Proportionate Voting Plays a Key Role

In this note, Carl Hagberg – independent tabulator & editor of “Shareholder Service Optimizer” – writes plenty on the Procter & Gamble proxy fight. Here’s an interesting excerpt:

AN ACE IN THE HOLE FOR P&G – OR RATHER, A BIG WILD-CARD IN THE DECK – APPEARS TO BE THE EMPLOYEE OWNERSHIP PLAN VOTING, which reportedly comprises 7 ½% of the outstanding shares, and where the Plan Trustee appears to have voted the entire position “proportionately.” This surely gave management a huge edge in what is, apparently, a dead heat – even after the big boost.

As close observers of proxy fights, the OPTIMIZER has repeatedly pointed out the “wild-card aspect” of proportional voting, and why, as a result – and also because one cannot cite a sensible rationale for having it, other than to give management an added edge most times – we hate it and feel it should be abandoned: In this case, as is normally the case, it seems to have worked to skew the vote very much in P&G’s favor. But before you look to have proportional voting in your own employee plans, please remember the Walt Disney election a few years back, when the small number of employee owners who bothered to vote, voted against Michael Eisner – and where proportional voting took him down.

We would not be at all surprised to see Peltz challenge the propriety of the Plan Trustee voting proportionately in such a close election – even though they may have had the right to do so. One could argue, of course, that the non-voters were, ipso facto, “indifferent” – but that, in our opinion, is a very different thing than having a significant number of them being automatically recorded as voting for the management slate by a Plan Trustee – especially in an election where the overall vote seems close to a 50:50 split. A very bad governance provision say we.

Broc Romanek