Sonnenfeld: Vote to Keep Peltz Off P&G’s Board a “Sea Change”

Trian Fund Management CEO Nelson Peltz

Proctor & Gamble shareholders narrowly voted to deny activist investor and CEO of Trian Fund Management Nelson Peltz a seat on the company’s board of directors this week, a move that could send a message to minority investors looking to force proxy contests at big corporations in the future.

“This is 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,” Jeffrey Sonnenfeld, senior associate dean for leadership studies at Yale School of Management told Chief Executive. “This gives a strong shot in the arm to fortify boards that they should fight back and not fold up like lawn chairs because somebody has a one-percent ownership in the company.”

The momentum behind the vote was fueled by smaller, individual investors who supported P&G’s vision for the future, while most institutional investors supported Peltz and his hope to shake up the organization. Peltz, however, hasn’t formally conceded defeat, and is waiting for the vote count to be certified.

“This, hopefully, will be a harbinger of more losses in these activist proxy battles,” Jeffrey Sonnenfeld

While many big investors talk a big game about fighting activists, they often follow the lead of proxy rating firms when it comes time to vote, Sonnenfeld says.

“Take a look at what institutional investors do and not what they say. [BlackRock CEO] Larry Fink was everywhere in the media these last 18 months, on three different commissions on long-term investing and making the big battle cry against activists, and then BlackRock voted with Peltz,” he says.

As far as Peltz and Trian’s role moving forward, don’t expect him to drift off silently in the wake of this close proxy vote.

“He’s not going away because he has the patience of Rumpelstiltskin,” Sonnenfeld says. “He is given to tantrums over losing and he won’t be happy about this. It’s a big affront.”

Boards of directors that are facing activist threats and the possibility of proxy battles have no bigger example than this week’s vote of how effectively communicating a company’s vision for future success can top the messages of activist investors.

“This hopefully will be a harbinger of more losses in these activist proxy battles,” Sonnenfeld says. “We’ve had a 42 percent increase just over this past year in proxy battles being settled early on, and that’s a shame. They should wage the battle and they’ll win.”