Good morning, ladies and gentlemen. Welcome to the P&G Annual Shareholders Meeting. Would you please take a moment and turn off all cell phones while the meeting is in session? Thank you. In order to handle our business expeditiously and provide time for shareholder questions, we've established a few simple rules about the conduct of the meeting. Each of you should have a copy of the agenda. On the left-hand side of the agenda booklet are the guidelines for the conduct of the meeting. We ask that you cooperate in following these guidelines. We look forward to taking your questions during our question and answer period at the end of the meeting. Also, please be aware that the presentation today will contain references to some non-GAAP financial measures. The required reconciliations to GAAP numbers can be found on the company's website at www.pginvestor.com.
The remarks and responses here today may also contain statements about our future business prospects. For a discussion of factors that could cause the company's actual results to differ materially from these forward-looking statements, please see the company's most recent 10-K, 10-Q, and 8-K reports, which are also available on the company's website. David.
Good morning, everyone. Good morning, ladies and gentlemen. It's a pleasure to be here. I'm David Taylor, Chairman of the Board, President, and Chief Executive Officer of Procter & Gamble. I'd like to welcome everyone to P&G's 2017 Annual Meeting of Shareholders. The meeting is now called to order. Notice of this meeting was sent to each shareholder of record, and a quorum is present in person or by proxy. We'll start with introductions. Here with me on stage are Jon Moeller, our Vice Chair and Chief Financial Officer, and Debbie Majoras, our Chief Legal Officer and Secretary. Seated to my right are members of the board of directors. If you just stand en masse here. We're also honored to have with us today three former chairmen and chief executive officers that I just want to recognize. Mr. Ed Artzt. Notice his wife is with him.
Thank you for being here as well. Mr. John Pepper. Mr. A.G. Lafley. Thank you all for being here. Cathy Engelbert and Jeff Potts of Deloitte & Touche are present in the event of questions that are more appropriately answered by auditors, so welcome as well. We also have William Marsh, Doug Czarnecki, and Henry Warnken of IVS Associates, Incorporated, will serve as the inspectors of election for this meeting and will supervise the voting. All ballots and proxies collected in this meeting will be given to the inspectors of election. Now, the first item of business is the election of directors. All directors elected at this meeting will hold office for a one-year term until the 2018 Annual Meeting of Shareholders and until successors are elected. I now declare the polls are open.
Will those wishing to vote at this time, please raise your hand, and an usher will give you a set of ballots. Please raise your hand, and we'll have ushers come down. The yellow ballot is for the election of directors, and the white ballot is for the remaining board and shareholder proposals. If you've already voted your proxy, there's no need to vote now unless you want to change your vote. While this is going on, I'm going to ask Deborah Majoras to place in nomination the director nominees who've been duly nominated.
Thank you, David. The board of directors, acting upon the recommendation of the Governance and Public Responsibility Committee, has nominated the following 11 individuals for election as directors to hold office until the annual meeting in 2018 and until their successors are elected: Frank Blake, Angela Braly, Amy Chang, Ken Chenault, Scott Cook, Terry Lundgren, Jim McNerney, David Taylor, Meg Whitman, Pat Woertz, Ernesto Zedillo. The board unanimously recommends that you vote for the election of these company nominees based on their respective experiences, qualifications, and skills. On May 18th, 2017, certain investment funds affiliated with Trian Fund Management, L.P. provided advance notice required under the regulations of the company and submitted notice of a proposal to nominate Nelson Peltz to the board. Trian's director nominee is Nelson Peltz.
Mr. Peltz, would you or a member of your team like to make a statement? If so, please use the microphone right behind you, and as we agreed, you have up to six minutes to make a statement.
Thank you, David. I don't need six minutes. First of all, I want to thank all the shareholders who are here today. I want to thank you for your amazing support. I also want to thank Clay Daley. Clay's a very brave man. You know, he served this company for a long time. He's been attacked by some, but Clay showed amazing courage in his efforts for most of the retirees who supported him. This morning, the proxy solicitors told me that this proxy contest is extremely close, and it may or may not be decided today. I want you to know, win or lose, the shareholders have spoken. Either way, today's vote is a vote for bold change. The board owes it to the shareholders to really study the issues, the issues of structure and the issues of culture. Culture.
Culture's got to be open to outsiders, people, ideas, and perspectives. Structure, which is empowerment and accountability. P&G has some really terrific people, but we believe they're struggling under a suffocating bureaucracy. Trian today has about $3.5 billion invested in P&G. P&G has a great potential to be that wonderful company it once was, but it can only happen if this board adopts an ownership mentality, which, if elected, I will represent. Thank you all very much.
Thank you, Mr. Peltz. The board does not endorse Trian's nomination of Mr. Peltz and recommends you vote for the company's nominees. At this time, the nominations are closed. We will now collect the ballots for item one. If you're finished with your ballot for items two through eight, you may also hand in as well. If not, you can hold onto those ballots, and we will collect them later. For item one, we'll have the ushers come and collect them. We'll take a short pause as they do that. Anybody else that has a ballot, just raise your hand if you want to turn it in. We'll have ushers check. We want to make sure we get all the. There we go. Another one over here, please. We'll take a minute. We're still getting some ballots.
We also have people downstairs in an auditorium. Be patient with us. We want to make sure everybody that has a ballot has a chance to turn it in. We've got three different rooms full of folks right now. They're calling to make sure the other two rooms, the ushers have had a chance to collect all the ballots. Another one over here, please. Just raise your hand if you have one, please. Yes, go ahead. We'll get ushers down. Thank you. We're just waiting for the other two rooms. I've been informed that the ballots have now been collected for item one in all three rooms for the election of directors. At this time, the polls are closed with respect to item one. We will now proceed with the rest of the meeting.
The next item of business is to ratify the appointment of Deloitte & Touche as the independent registered public accounting firm. This proposal appears on page 62 of the proxy statement. Although the board of directors is not required to submit this matter to the shareholders, we believe it's important that you have a say in the appointment of the independent public accounting firm. The board recommends a vote for this resolution. Next, we have a board proposal for an advisory vote on executive compensation, otherwise known as say on pay. The proposal appears on page 63 of the proxy statement. The board recommends a vote for this resolution. Next, we have the board proposal for an advisory vote on the frequency of the vote on executive compensation, otherwise known as the say on frequency. This proposal appears on page 64 of the proxy statement.
The board recommends a vote for every one year for this resolution. That concludes the board proposals. Now we move to the shareholder proposals. We had four shareholder proposals submitted this year. The first one was submitted by the Holy Land Principles, which recently informed us that they have withdrawn their proposal. As a result, we will take no action on item five. The next proposal was submitted by the NorthStar Asset Management Funded Pension Plan, and requests that the company provide a report on the application of the company's non-discrimination policies in states that have pro-discrimination laws. Is their representative here today to present this proposal?
Mr. Chairman, Christine Janzsen.
Very good. Good morning. If you prefer, you can save time by introducing the proposal by simply referring to the text as printed on page 67 in the proxy statement. Your statement will be limited to three minutes. Please go ahead.
Thank you. Good morning. My name is Christine Janzsen, NorthStar Asset Management, a socially responsible investment firm based in Boston, and the beneficial owner of 57,688 shares of P&G common stock. I am here to present resolution number six. In recent years, so-called religious freedom bills have been introduced or passed in parts of the United States. These bills actively discriminate against LGBT employees of our company, putting the employees, as well as their partners and children, at risk of violence and discrimination. We believe that there is real risk to the company if we fail to consider whether our cherished LGBT employees will survive state-encouraged discrimination. Our company has a long, proud history of supporting LGBT rights, including taking public stances on discriminatory legislation. In 2004, P&G stood up against the discriminatory Cincinnati city ordinance Article 12, which prohibited our company from protecting LGBT employees from discrimination.
In 2014, our company publicly supported equal marriage rights. In 2015, P&G signed onto the amicus brief that urged the Supreme Court to strike down state bans on same-sex marriage. Now, in 2017, equal marriage is a reality, but our company's work as an influential ally of the LGBT community and our LGBT employees is not over. State-sponsored legislation, like North Carolina's House Bill 2, pose a genuine threat should those bills spread further across our nation. Despite all this, our company has yet to take a public stance on these state-sponsored discriminatory laws. While our company's policies protecting employees from discrimination are robust, we fear that discriminatory legislation will harm employees' abilities to bring their best selves to work. How would your work performance suffer if you feared for the safety of your children? What if announcing your marriage meant that you would be kicked out of your housing?
How can you focus on your work if you've been denied access to needed healthcare services or even the simple access to use a public restroom? How will we, as a company, handle customers' refusal to purchase P&G products because a store employee has a perceived sexual orientation or gender identity? We know that P&G understands the importance of employee morale and employee retention. We need a plan to protect employees and remedy employee harassment before our company puts itself, its employees, and shareholder value at risk. We urge you to vote for proxy item number 6.
Thank you. Thank you. As further detailed on page 68 of the proxy statement, P&G's commitment to diversity and inclusion is unwavering. P&G's global non-discrimination policy that's outlined in our worldwide business conduct manual explicitly prohibits discrimination based on employee sexual orientation, gender identity, or gender expression. For four consecutive years, P&G has received a perfect score of 100 on the Human Rights Campaign's Corporate Equality Index, which each year earns P&G the distinction of best places to work for LGBT equality. While the company fully supports diversity and non-discrimination, we believe the report would not be a productive use of the company's resources. The request is framed so broadly that it would be virtually impossible for the company to fulfill it. The board of directors recommends a vote against this proposal.
The next proposal was submitted by the Heartland Initiative. It requests that the company provide a report on the company's approach to mitigating the heightened ethical and business risk associated with procurement and other activities in conflict-affected areas, including situations of occupation. Is their representative here today to present this proposal?
Mr. Chairman, Bart Campolo.
Good morning, Bart. If you prefer, you may save time in introducing this proposal by simply referring to the text on page 69 of the proxy statement. Your statement will be limited to three minutes. Please.
Thank you. Good morning. I am here on behalf of Heartland Initiative, which helps American companies identify and respond to reputational, financial, and legal risks associated with doing business in conflict-affected areas. As Procter & Gamble shareholders, we at Heartland take great pride in our company's corporate social responsibility practices. In particular, we are proud of P&G's leadership in developing conflict diamond policies in the Democratic Republic of Congo, which have proven effective in mitigating the human suffering caused by that country's long civil war. Given this track record, we feel confident in asking P&G to lead the way once more, this time by looking beyond the DRC to make sure P&G sets the highest standards when it comes to respecting and protecting human rights around the world.
To this end, we request that Procter & Gamble assess and report to shareholders on the ethical and practical risks of our country's approach to procurement, investment, and other business activities that might be undertaken in conflict-affected areas. It should be noted that this request aligns with our company's existing support for the UN Guiding Principles on Business and Human Rights, which specifically calls for advanced due diligence in conflict-affected areas. In particular, we propose that this report should assess whether additional policies are needed in order to avoid P&G directly or indirectly aiding or acquiescing to violations of international humanitarian law in conflict-affected areas, and especially those committed by occupying powers.
We want to make sure Procter & Gamble has nothing to do with such violations, which commonly include forcibly uprooting people from their homes, appropriating or destroying private property in cases not justified by military necessity, and extracting minerals and other non-renewable resources, which enrich occupying powers at the expense of occupied populations. Make no mistake, we at Heartland are not making any specific policy recommendations or highlighting the risks associated with any particular conflict-affected area. On the contrary, as shareholders in an increasingly unstable global environment, we simply believe it is prudent to make every reasonable effort to ensure that any and all business conducted by P&G demonstrates our absolute respect for human rights and international humanitarian law.
Procter & Gamble's conflict diamond policy in the Democratic Republic of Congo is a very good thing, but the time has come for P&G to dig deeper by fully assessing our company's policies and practices in all conflict-affected areas, and then reporting back to shareholders on if and how those policies can be improved. Thank you for your consideration in this important matter.
Thank you very much. As further detailed on page 70 of the proxy statement, P&G is committed to conducting responsible operations everywhere we do business around the world. We've implemented a number of publicly available global policies that define the behavior we expect from our organization, employees, suppliers, and address how we mitigate ethical and business risk everywhere, including conflict-affected areas. A report on the company's approach to mitigating ethical and business risk associated with procurement and other activities associated with conflict-affected areas, as requested by this proposal, would be duplicative of existing global policies and would not provide meaningful value to shareholders. Therefore, the board of directors recommends a vote against this proposal.
Now, the final proposal was submitted by Trian and requests that the company repeal each provision or amendment of the regulations of the company that were adopted by the board of directors of the company and not by the company shareholders subsequent to April 8th, 2016, and prior to the approval of this resolution. The company notes that during this stated time, no such provisions or amendments have been adopted. Trian's proposal may be found on page 71 of your proxy statement. The board's response to Trian's proposal has been included in the company's proxy statement. The board recommends a vote against this proposal. This completes the review of the board and shareholder proposals. We will now collect the ballots for items two through eight.
If you would please hold up any remaining ballots so that the ushers may collect them now in this room and in the other two rooms that we're collecting. We'll pause for a few minutes and let all three rooms collect their ballots. The ushers will come down the aisle. Please raise your hand high so they can find them. Again, raise your hand high in all three rooms. We want to make sure we collect all the ballots, items two through eight. Okay. Still checking. Bear with us. We're still collecting ballots in the other two rooms. Very good. The polls are now closed with respect to items two through eight. They've got all the ballots now. Thank you all for participating in both ballots. Very good. The next item on the agenda is the report on the business. 2017 marks P&G's 180th year.
Throughout our history, we have evolved to win. We're willing to change just about anything except our core purpose, values, and principles: to win with consumers and deliver leading shareholder value. P&G is in the middle of a comprehensive transformation journey, which is yielding positive results for shareholders. A few years ago, the P&G board and management recognized the need to transform and position P&G to meet the significant changes in the consumer, retail, and marketing environment. There were five big factors that affected us. First, as a U.S.-domiciled company, P&G was differentially affected by negative foreign exchange versus our European and Japanese competitors. Second, traditional retail channels were being disrupted by e-commerce. Third, as consumers spent more time online, we needed to learn new ways to reach consumers in the market through digital tools. Technology advances were enabling rapid innovation cycles.
Finally, China, our second-largest market, was undergoing a massive change to premium products, threatening our mid-tier strategy that had worked very well for many years. To address these forces, P&G embarked on what is undeniably one of the biggest business transformations in our history. The changes we've made are broad-based and they're delivering results. I'd like to briefly take you through those results and the key elements of the transformation journey we are on. In fiscal 2017, the company met or exceeded our objectives despite slowing market growth and volatile currency and commodity environments around the world. We accelerated organic sales by more than a percentage point in a market that decelerated by more than a percentage point. We achieved 2% organic sales growth equal to our original target for fiscal 2017.
We entered the year targeting mid-single digits core earnings per share growth. We exceeded this objective by delivering a 7% increase in core earnings per share, an 11% increase on a constant currency basis. We increased margins while continuing to make investments in our brands to support sustainable long-term growth. We generated $12.8 billion of operating cash flow with adjusted free cash flow productivity of 94%. This enabled us to build on our track record of returning cash to you, our shareholders. In total, P&G returned nearly $22 billion of value through dividends, share exchanges, and share repurchase. We increased the dividend by 3%, paying $7.2 billion, marking the 61st consecutive annual increase in the 127th year P&G has paid a dividend.
Over the past 10 years, P&G has delivered more than $135 billion of capital to shareholders in the form of dividends and share repurchase, amongst the best in our industry and amongst the elite in all industries. We're making good progress across markets, increasing the percentage of our top markets holding or growing share from about 10% two years ago to more than 50% today. We're seeing the same progress with brands on a global basis, about 50% two years ago to nearly 70% today. Our results in China also show the progress we're making. In 2016, China's sales declined by 5%. We ended 2017 up 1%, and the estimate for the current year is to grow mid-single digits. Across the 7 categories in which we compete in China, only 1 grew in 2016, 5 last fiscal. We expect all 7 to grow this year.
Here's a look at some of the innovations in market or coming to market that are helping to drive China's growth. Please. Very good. Exciting. Thank you. It's exciting. P&G is on the right track. We met or exceeded our top line, bottom line, and cash objectives during the last fiscal year. We delivered 28% total shareholder return during the past two years, well above P&G's peers during that same timeframe, and above both S&P indices. Looking forward, we define success as growing ahead of the market on top line to increase market share, and simultaneously increase margins to deliver leadership levels of total shareholder return. I'd like to now take a few moments to describe the transformation that underpins the results. Today, we are a profoundly different, much stronger, and more profitable company than just a few years ago.
The changes we have made are broad-based, they are delivering results. We undertook our most significant portfolio restructuring ever. We reduced the number of brands from 170 to 65. Number of categories from 16 to 10, building shareholder value every step of the way. The new portfolio is focused on daily use household and personal care categories that leverage P&G's core strengths, where products solve problems, and performance drives the purchase choice. The stronger portfolio is enabling us to accelerate our innovation engine. We've built a number of meaningful new businesses, such as Tide PODS, Pampers Swaddlers and Pants, Downy Unstopables, Always Discreet and Radiant, Oral-B Power, and many others. By any measure, P&G is the industry leader in innovation. Now, the IRI Research company defines the most successful non-food product launches every year in a report it calls its New Product Pacesetters report.
P&G brands held five of the top 10, and seven of the top 25 innovations in the most recent report. Since the first report was published in 1995, P&G has had 170 products make the top 25 list, more than our next six largest competitors combined. P&G is innovating to create new brands and product forms that lead category growth. Always Discreet is the new entry into the adult incontinence category, and is accelerating category growth by 50%. In the eight countries where we've launched, we've reached market shares in the range of 10%-20% already. Discreet is $200 million in sales, and it grew almost 40% last year. Downy Scent Beads, an example of P&G creating an entirely new category, in-wash scent boosters. P&G Scent Beads business is already greater than $500 million in sales, and grew almost 30% last year.
Tide PODS is the leader in unit dose detergents. Household penetration grew 40% of unit dose detergents. In the U.S., unit dose products account for 18% of category sales, with P&G holding 80% share of that segment. Worldwide sales for Tide PODS, Ariel PODS, and Gain Flings are more than $1.5 billion. The global market for the pants form in the diaper category is growing 15%. P&G is now the global leader with 28% share, up five share points versus a year ago. P&G innovation drives brand leadership. In the U.S., many of our brands hold leading market share positions, often ahead of the next branded competitor by two, three, four, or even five times. These big brands are number one because they perform better, and they're trusted by consumers. P&G's largest brands are the fastest-growing.
Nearly half of P&G's top 25 brands grew organic sales by more than 4%, with four of those brands growing 10% or more last year. For example, Tide is the largest laundry detergent brand in the U.S., and it's grown market share and sales plus 5% last year and the year before. Head & Shoulders is the largest shampoo brand in the world, and it's grown plus 5% each year for the past decade. Innovation has allowed us to build a strong e-commerce business with companies like Amazon, Alibaba, Tencent, and our omni-channel retailers. Our $3 billion e-commerce business is the largest of any of our multinational consumer packaged goods companies, growing 30% last year, and we grew share in eight of our 10 categories. We're also a recognized leader in the use of digital media and advertising, and in raising the performance standards of the digital media industry.
We have the number one market share position among millennials in brands such as Always, Tide, Downy, Dawn, Bounty, Charmin, Gillette, Crest, and several others. Further evidence of P&G's leadership. One reason we're winning among millennials is because we pivoted hard to digital media and advertising. Online video helps us tell compelling stories and convey important messages that couldn't be done in a traditional 30-second ad. Social media connects our stories and messages to others at a fraction of the cost. Always is a great example. The Always team set out to change the meaning of the phrase Like a Girl to mean amazing things with an original ad. The ad was run almost entirely online, but it did air one time on TV in the Super Bowl. It was the number one most tweeted ad and the number one most discussed ad on Facebook.
You've probably seen most of the Like a Girl spots, but here's one you probably haven't seen. It comes from a partnership we have with Walmart to build or provide much-needed assistance to keep girls in sports across the U.S.A. Could we play the video, please?
What I'd like to tell you about my junior high girls basketball team is that they rock. They're intelligent and beautiful, and they can do anything as long as they know people believe in them. In 14 years, they've never had a brand-new set of uniforms. I'm duct-taping their shorts to them to make sure when they get on the court, that they don't drop to their ankles.
Our locker rooms are super small. We all pretty much have to sit on the floor.
They're not really thought about. They don't get fans out to watch them.
It would mean a lot if people came to support us because we need that support, and we look to our family and everything to cheer us on.
By the time it's all said and done, they really think that nobody cares about them. It's your night. I need you now to walk out there knowing that I believe in you, and you should believe in yourselves.
Lady Bears. Lady Bears.
On three. One, two, three.
Lady Bears. It was incredible. It's a wonderful experience, and I feel more confident about myself when I play.
Thank you. This video created strong awareness and led to record shares at Walmart, an example of building the brand's business, building the brand's equity, growing with our largest retailer, and communicating a wonderful message. Worldwide, Like a Girl has achieved 550 million views and 25 billion PR impressions. Always has been building awareness and market share now by two points since this campaign began, and attitudes are changing. 76% view the phrase Like a Girl as a positive expression, as opposed to 19% before. Just exciting. We've implemented also a number of major productivity and cost-saving programs necessary to address the foreign exchange impacts we faced. We've reduced cost of goods sold, non-working marketing spending, and overhead costs by more than $10 billion in five years. We've improved profit per employee by 45%. We're not finished.
We've announced another $10 billion cost savings initiative, which we are confident we will achieve. This program can be used to improve the bottom line and continue to make the necessary investments in our business to accelerate growth for the future. A major part of our productivity effort is the dramatic improvement of our supply chain in North America, followed by Europe and Latin America, and with plans in India, Middle East, and Africa. We're constructing more cost-effective multi-category manufacturing sites in geographically strategic locations. Our new U.S. mixing centers put 80% of our shipments within 24 hours of our retailers. The savings will ramp up over the next several years. The productivity plan is delivering results. It has allowed the company to overcome $7 billion in negative foreign exchange impact while investing in the core innovation, selling, and marketing capabilities necessary to grow.
It has increased core operating margin 270 basis points, 610 basis points if you exclude the effects of currency. It increased currency neutral core earnings per share growth by an average of 11% over the last five years. These efforts have enabled P&G to achieve core after-tax margins that are the second highest in our industry, which we intend to improve going forward. We've changed our organizational structure to speed decision-making and improve accountability. There's now one organizing principle for P&G, the product category. We're dismantling the matrix that powered P&G for many years and have moved to 10 category leaders that each have full accountability, from strategy all the way to financial results. We're implementing what we call an end-to-end ownership and accountability approach in our larger markets, representing 70% of sales.
This approach gives category leaders full accountability from the front-end innovation all the way through the staffing levels of the salespeople in the market with P&L responsibility. We're implementing a new freedom within a framework approach in smaller markets. This model enables the markets to be faster and more agile by executing within predefined strategies, but with the freedom to make real-time decisions and changes without the need for engagement with regional or global resources. We've changed our compensation system to hold category leaders even more accountable, to better reward specific contribution of local teams with more granular incentives. We remain committed to hire and develop the absolute best talent. In today's fast-moving world, we're supplementing internal development with hiring from the outside to add skills and experience when needed to win. We've made dramatic changes to transform P&G.
We're raising the bar to a higher standard of performance on everything we do. We are embracing the disruption of today's world and using it to reshape our company, to win with consumers, win in the marketplace, and deliver winning results for P&G shareholders. P&G has reinvented itself many times in the last 180 years, and we're confident we have the right team, the right board, and the right strategy and plan in place to take the company to new heights. We're committed to win with consumers and deliver winning shareholder value, but we will not stop there. We're committed to the well-being of our employees. We're committed to improve the communities in which we live and work. We take positive actions to achieve gender equality and promote diversity and inclusion. We take meaningful steps to operate in a way that preserves the environment. We're committed to win.
We do what is right for the short, mid, and long term for consumers and for you, P&G shareholders. We do it the right way, within our purpose, our values, and our principles that have guided P&G for 180 years. We're excited about the transformation journey and about our future. We're on the road to meeting current and future consumer needs with brands and products that exceed their expectations, and to delivering the business and financial results you expect from us and we expect from ourselves. I want to thank you for your continued investment in The Procter & Gamble Company. Thank you. Thank you very much. Thank you. You're very kind. Thank you. Before we go any further, I would like to announce that today our Board of Directors has declared P&G's quarterly dividend of $0.6896 per share, which is good news.
P&G has been paying a dividend for 127 consecutive years, ever since the company was incorporated in 1890, and we've increased the dividend, as I said earlier, for 61 consecutive years. We're committed to returning cash to you, P&G shareholders. It is now time for questions and comments on matters related to company business. We've allocated 30 minutes for this section. Out of respect for everyone who would like to ask a question- According to the rules established for the conduct of this meeting, each shareholder is allowed one turn at the microphone for a maximum of two minutes. Once this time limit has been used, the shareholder will not be allowed another turn at the microphone. There will be a limit of three speakers on any one subject. For our shareholders in our downstairs room, you may go to the microphone located in room 110.
And let me open it up for questions now in both rooms. Okay.
Peter Meyer.
Peter-
Peter Meyer is the one.
Okay. Is he coming here? When you're ready.
Mr. Chairman. Christine Janzsen.
Christine.
Good morning again.
Good morning.
Thank you. I would like to just relay a brief message from Julie Goodridge, the CEO of NorthStar, regarding the bid by Mr. Peltz for the board. He would be a welcome addition to the board if he stood for core P&G values, was a woman or a person of color and had some fresh ideas for the board. Because it's 2017, we won't settle.
Thank you. Thank you. Please.
George Morgan.
Good morning. I've been the beneficial owner of block P&G stock since the early 1980s. My history with P&G started earlier. As an eight-year-old, I had a tour of Ivorydale in 1955. I spent all three summers during college working as an intern at Winton Hill, the first 11 years of my career were as a direct employee. I work mostly in product development and process development. I have two patents with P&G, one of which was on every package of Charmin, Bounty, and White Cloud for about 20 years. I'm very proud of that. I've continued working with P&G employees in technology and project rollouts up until I retired last year. I've got about 50 years with the company.
I'm really here to tell you that while I don't approve of vulture capitalists, I think that Mr. Peltz does have a good point in that your project delivery, your technology innovation is not nearly as good as it could be. There's a number of issues. You've lost credible capacity to manage projects effectively. Your project teams are too big. You allow project teams to be broken up for career moves, so accountability is diffused. From what I've seen over 50 years, you have a problem with not invented here technology, not accepting to outside ideas. You consistently underestimate costs for a new project, requiring a lot of rework. Your purchasing system is really decoupled from results in that you focus on first cost and spend an inordinate amount of money repairing, upgrading, and fixing those first costs for a total cost that is far too expensive.
I think you can do a lot better. Mr. Taylor, you have a good reputation with the mid-level managers at P&G. You listen well, I implore the board to do something to fix this problem. Thank you.
Of course. I thank you for the input, I'll also tell you that many of the items you bring up are items that we're working on. As I said, we're in a major transformation right now, one of the areas we're putting tremendous energy into is improving and speeding up the way we innovate. P&G has an outstanding team of innovators around the world, we want to unleash them. We are using both technology and new techniques. There's something called lean innovation that we've adopted that gets to small teams and leave them dedicated from start to finish that I think will make a difference. It's one that we believe P&G can and will always need to evolve to make sure we're at the leading edge. Your points, though, are well taken, I appreciate your service to the company.
Certainly, what I can tell you is I and the leadership team in the company is committed to ensure P&G keeps the consumer at the center, that we innovate to create truly superior products. In fact, one of the changes that we've made is to go from just being better to being what we call noticeably better, irresistible superiority. The whole idea is to increase that level of superiority and make sure we truly delight consumers in our products, our packages, how we show up in shelf, how we communicate in a respectful way to consumers. Thank you for your input.
We're going to take a question from the basement.
Okay, we have a question. Thank you. We're gonna take a question from the basement.
Mr. Chairman, this is-
It's a lower level here. It sounds better.
Mr. Chairman, this is Rachel Cohen.
Hello, Rachel.
Hello. I'm Rachel Cohen. I'm the director of research from JLens Investor Network, a Jewish values-based investor network. We own thousands of shares of P&G. I'm here today to urge our fellow shareholders to vote against proposals five and seven. We're pleased to hear proposal five has been withdrawn. Given that all have cast their votes, I hope it was in line with the management's recommendation. I have a comment about these proposals that I'd like to share. While these proposals are written in the important language of responsible investment, both proposals are part of an economic warfare campaign designed not to address the issues they raise, but to increase the cost and controversy for companies like P&G that have successful business ties to Israel.
Proposal five, the Holy Land Principles, so that we know, claims to represent anti-discrimination, but in fact supports a discriminatory campaign waged against the Jewish side of the Israeli-Palestinian conflict. Ironically, Israel has the most comprehensive, robust set of anti-discrimination and non-discrimination employment laws in the entire Middle East. Proposal seven, by the Heartland Initiative that we heard earlier, is another misleading campaign. This proposal hopes to achieve similar aims while disguising its intentions by using the language of conflict-affected areas. It is led by a former employee of Sabeel, an organization whose founder denies the Jewish people's connection to Israel and has called for a third Intifada of violence against Israelis, according to the Anti-Defamation League. We support responsible business practices in every region of the world.
We caution shareholders and our company's leadership to be aware of and leery of misleading and politically charged resolutions and hope we've all voted against issues five and seven. Thank you.
Thank you. All I'd say just to add is P&G is extraordinarily committed to diversity inclusion. It's one of the things that makes this company great. We believe when you can tap into the ideas of all of our employees where everybody feels valued, everybody's included, and everybody has the opportunity to perform at their peak, that we get the best innovation, the best brand building, and we're the most productive company we can be. You can count on us continuing to embrace more broadly diversity inclusion as part of our heritage, and it will be part of our future. Thank you. Next question, please.
Mr. Chairman, Julian Martinez.
Sir, you are welcome.
Thank you, Mr. Chairman. My name is Julian Martinez, and I represent SER Jobs for Progress National. SER is a national non-profit community-based organization serving more than 1.3 million people a year by assisting them with employment and educational needs. We at SER would like to thank Procter & Gamble for giving back so generously to many communities you serve. Your 2016 citizenship report speaks well of P&G's commitment to corporate responsibility. Much of the credit must go to your board of directors, which is one of the most diversified of the Fortune 500 companies. Your supplier diversity program is outstanding, paying over $2 billion a year with your supplier diversity network for over nine years in a row is truly remarkable. We are disappointed in your lack of diversity as it relates to Latino participation.
Outside a few sentences about your Hispanic leadership team, very little is made reference to Latinos in the U.S. Latinos are the largest and fastest-growing minority group in the U.S. A new study commissioned by the Latino Donor Collaborative, a nonpartisan organization that works to bring further understanding and appreciation to the impact made by Latinos in society, politics, and commerce, has found that the Latino GDP is projected to fuel at least a quarter of the U.S. economy by 2020. If the Latino GDP were a country, it would be the seventh largest in the world. Latinos are expected to make up a third of the U.S. population by 2050, and Latino businesses are growing at 15 times the national rate. We would encourage you to participate in the Hispanic Association on Corporate Responsibility's annual corporate index survey.
We feel you would rate well and grow more aware of the Latino community in the United States. Thank you.
Thank you for your comments. Just a couple of quick comments. One, we share your passion for winning with Latinos and with the Hispanic population in the U.S. We also are absolutely committed to making sure we develop inside our company, all people, including Latinos, and we have at all levels, very good representation. You mentioned our citizenship program, and I just want to make one comment. We have, and you are welcome to read our citizenship report, I encourage you to read it. P&G has a very focused effort, and our board has supported all the way through this process, making sure ethics and compliance, community service, diversity inclusion, gender equality, and being great stewards of the world's resources is front and center on how we win.
It is built into how we operate in this company, including ensuring we serve the Hispanic population in the U.S. and all consumers across the world very well. Thank you for your comments. Next, please. Whichever.
Mr. Chairman, Jim Baker.
Thank you. I'm Jim Baker. I'm a shareholder and a P&G retiree. To provide some context of my comments and questions, I voted blue. My comments and questions are about TSR, long-term compensation, and how CEOs are selected. For you, Mr. Taylor, about 20 years ago, John Pepper introduced the organization to something called TSR, or Total Shareholder Return. He taught us to focus on it. He taught us how to measure it. Results were posted everywhere, and he said that in context, we should be in the top third in terms of total shareholder return versus our peers. My question to you, is total shareholder return still an important metric to you? Should we be in the top third?
Very clear. First, thank you.
Go ahead. Do you want a little longer?
I-
You got 15. Go ahead. Please.
Okay. Second is to Mr. McNerney. Why is the organic sales growth percentile rank in peer group, in other words, how are we doing against our peers, no longer a PSP measure for the performance period for the upcoming three-year performance period? Again, for Mr. McNerney. Once again, the compensation committee has lowered the target for the 100% bonus. This is the second consecutive three-year period where targets have been lowered to provide the same amount of money. Why are you doing that? Third, for Mrs. Whitman. I listened to the webcast where you talked about choosing CEOs. I believe you're on the CEO selection committee. In the past 20 years, we've had 20, or since 1998, we've had four CEOs. Two. Well, the first was Durk Jager. Under his leadership, the company lost about 50% of its market cap. Please hurry up because we've-
Oh, sorry.
We're out of time. Go ahead and finish your last statement.
You just said that the selection of Bob McDonald was probably not the right board choice. My question is, two out of four, it kind of looks like flipping a coin. What have you done to change the system of selection of CEOs? Because although Mr. Taylor, you did great, you did,
I'll let you finish that comment. Go ahead.
A number of people are saying you're doing all the right things.
Okay, now will you stop?
I'm concerned about the succession.
In all seriousness, I want to address each of the questions and give my board colleagues an opportunity. First, is TSR still important to this company? Absolutely, yes. Period. Is our objective to be in the top third? Absolutely, yes. Period. Every one of the presidents understands that's the objective that we're working against right now. Success is grow and share top third of our peer group in total shareholder return. That's what our objective is to go after. I wanted to reinforce that, and it remains very important because it's a wonderful integrated measure of success, of shareholder success. Now I want to turn it to Jim for a comment on, we got a mic right behind you, on executive comp. I won't talk about it.
Executive comp. Looking back, which was part of your question, the discretionary amount of money versus target that the senior management team, including the CEO, made during times of poor performance averaged somewhere between 50% and 60% of target. The message was delivered to the team that they weren't performing. Second part of the answer is, going forward, the one in three-year targets, if this team doesn't gain share and expand margins significantly when compared with the organic growth rate in the plan, they will also fall significantly short of target. It's a tough plan, it's a gain share plan, and it's a TSR-based plan when you tear it apart. What was the CEO
Meg?
Yeah, go ahead.
Thank you. First is, there is actually no CEO selection committee per se. That is the providence of the entire board. This board selects the CEO of the company. I can't comment on Durk Jager because I was not on the board. What I can comment on is the selection process that we went through with David Taylor. We looked inside and outside the company, people who had been employed by Procter & Gamble, and those that had but maybe left and could be brought back, and then people who had never worked for Procter & Gamble. We looked at results, we looked at integrity and ethics, and we looked at their vision, future vision for the company. We decided that David Taylor was by far and away the best choice that we had for the CEO, and we enthusiastically and unanimously appointed David as the CEO.
It is the most important thing that the board does, which is select the CEO. We take that responsibility very seriously, and I can assure you we have a very robust process in which we do that selection. Thank you.
Thank you. Thank you. We have a question from the other room.
Mr. Chairman, Helga Schwabe.
Good morning, Helga.
Good morning.
Good morning, Mr. Chairman, board and fellow shareholders. My question is, why did we spend $100 million to solicit proxies? I've been inundated by P&G shareholders, phone calls, proxy mailings, more than once, more than twice, about four times. Was it really necessary? I really don't think so. My other question is, I noticed in the proxy statement that most of our directors have either extensive leadership, vast amount of leadership, significant leadership, wealth of leadership, but it looks to me like there's not very much leadership going on right now. I'm sorry. We are selling some of our product lines. Other people are buying them. They're highly profitable to them. They somehow were not profitable for us. What did we as shareholders get from the Iams disposition? Nada. Nothing.
We got something when Smucker's bought some of their lines, and I must say, the Smucker's acquisition for the shareholders was very, very good. Smucker's is having the same kind of 3% yield in dividends as P&G. I'd like to get some answers on this. Thank you.
Thank you. There's several questions there. There's several questions. Let me first address the proxy. Everybody that is a P&G shareholder did receive several pieces of mail, and some of you did get called. We didn't ask for a proxy contest, but we also believe it's very important that we communicate our message respectfully to all of our shareholders. During the contest, both sides communicated, and the idea was to make sure you, throughout the process, were informed, you understand our point of view, and you had the opportunity by providing your proxy to vote. The whole intent was to make sure we kept you informed throughout the whole process, and that's what we did. It was necessary to do the information for all of the shareholders. The shares outstanding, there's over 2.5 million shareholders of P&G.
Whether it's an individual shareholder or the institution, we worked hard to inform, and that's what we did, and we think that's an important principle. We're dedicated to making sure we do what's right for this company in the short, mid, and long term, and we felt this proxy fight or contest was important. For that reason, we did everything we thought was necessary. On leadership on the board, just a couple of comments. I can say from my experience, we have an outstanding board that has leadership across many, many industries. This is a very engaged board, and at times, there's challenges made.
Over the last couple of years, 95% attendance at meetings, at calls, not to mention the number of times I or the management team has asked this group to come in early to help with specific matters that are important to the future of this company. This board is committed to the success of Procter & Gamble, committed to making sure we have a robust strategy. The transformation plan that I took you through, they've been involved throughout this process, and the portfolio choices that were made were made looking forward to see if the segments that we were playing in, we were the best steward of that business, or we could create value better by selling it and redeploying that capital. Each one of the transactions, we created value. The company created value for shareholders and then redeployed that capital to other uses.
We now have a portfolio that's focused on products that solve problems or address specific benefits. The purchase decision for each of our categories now is performance. We did have some categories that were more fashion. We decided those weren't in the best interest. I wouldn't assume that because we sold the business, others have done better with them. In many cases, that's not the case. There'll be a variety of whoever the acquirer does. What we do and what the board does is looked at the portfolio every year and say, "What are the categories and brands that will best create shareholder value?" Categories and brands that take advantage of the capabilities of this company, innovation in product, in package. That go through channels that we have expertise in and where performance really matters, and building trust allows us to build the brand over time.
While we did sell a number of brands, we preserved over 90% of the profit and was then able to use the money generated to ensure the future of this company is very bright. It's always a very deliberate decision made when we either buy or sell a business. I can tell you the board was involved every year in every step of the way and will continue to be. Thank you for the question. Next, please.
Mr. Chairman, Tom Bookman.
Yeah.
I'm Tom Bookman. I'm just one of the 2.5 million. Plus, if you don't count my wife's shares, I'm probably below the median. Of all the very impressive motivational analysis, great, tremendous video presentation on how any of us are going to make it all the way home without stopping at Walmart or Target and buying a few more cases of the world's leading products. Something that's been conspicuously absent, and I bet the majority of the 2.5 million are concerned about, share price. We saw a lengthy analysis of the market share, and this and that. Kind of gives the impression that management is very impressed with your performance, the market, as does relation to the S&P, the Dow Jones Industrial market, not so much impressed. The shareholder got in, you had a nice graph to show the price.
Not 1968, when there's tremendous growth from 1968 to 2000, I get back to 2000. 2000 to 2017, it's kind of tough off my fingers to calculate the compound growth rate. If it went from 60 to 90 on your graph, it's like 2%. A 2% compound growth rate while the market has soared. It would seem that's share price, even though probably most of these folks here, the 2.5 million, are not day traders by any means. P&G's not suitable for that anyway. It would seem that even those people who are in it for the long haul that would like to see it grow for their grandchildren and great-grandchildren, the way it grew for the previous generations, a 2% growth rate when there's so many other opportunities in the market, one has to wonder if management really should be that impressed.
Maybe they could have done share repurchases, whatever, to increase the perception that P&G is more valuable stock than the market now gives credit for. Right on time.
A couple comments. Thank you for the comment. Just a couple of comments on P&G and what we've been through the last several years. What we did is highlight the results over the last two years as part of the transformation. I don't deny, and we've talked about, there was a period of time where the company did slow down, and we went through five years of very significant foreign exchange where the company was differentially impacted. Just for perspective, we compete in countries all around the world. If you take a large country where we compete with either European, Japanese, or local competitors, and the currency changes, which it did, I give you one example in Russia.
When you have a $2 billion business and the ruble to the dollar is 33, then it goes to 66, your revenue cuts in half, and many times, your expenses don't because some of the supply chains are in U.S. dollars. What we tried to do throughout this period across the world is make sure we handle that in a way that looks to the long term. In the short run, we faced almost $14 billion of top-line hurts over those five years and $4.5 billion of after-tax hurts. That did slow down the earnings growth of the company for sure, without a question. There were things which I highlighted in China. We got off track on China on having innovation that addressed the shift toward premium to super premium.
The transformation is all about addressing those things and making sure we get back to delivering top third shareholder return and get back to share growth. We don't consider the results great until we're outstanding. Be very, very clear. I share your dissatisfaction over the longer term with how we've performed, which is why we're working so hard to make sure we make the changes necessary to get back on track. The last couple of years, we're seeing improvement. We're not declaring success. We're seeing improvement. Evidence that it's broad-based in countries and brands. At the core, it's going to be, do we really understand consumers better than anybody else in the world?
Can we focus on serving those consumers better than anybody else in the world with innovative products, packages, equity-building communication, be available to the consumer or shopper wherever he or she wants to shop, which is now 24 hours a day in a lot of places? By executing the transformation plan, we'll address those fundamental builders of long-term value. Please know that we don't celebrate the period where we did not perform as well as the market. We learn from it. From there, we've pivoted to the transformation. The board has been involved throughout this and is not satisfied as well until we're back to the top third in grow and share consistently. Thank you. One more. One more question I'm instructed to hear. Please.
Mr. Chairman, Peter Meyer. Mr. Taylor, it's been two years since my wife came here and asked the question, what assurance can you give me, the shareholder, that the officers and directors that drove the company bus into the ditch are the ones that get us out? Well, I think the answer's been made abundantly clear by current data. They can't. Also noted that evidently, I'm one of those people that AG, in a recent article, put in his self-described basket of deplorables, a so-called grumpy, old, mostly white, male retiree. I didn't realize I was so despised. In short, I was your counsel when you were plant manager at Mehoopany, and again when you were GM and eventual president of Family Care.
I never heard you or anyone else that I had the privilege to work with during my time at P&G categorize me as grumpy, old, mostly white male. In that regard, I firmly believe that it's time for the company to take a new direction. When the battles are not going well, the foot soldiers doing the work are not replaced, the top leaders are. It is clear that the officers and directors of P&G, those who make the real decisions in the direction of the company, are making poor choices and are not held at all accountable, and in fact, are highly compensated for making these poor decisions. To note, from the proxy statement, the directors here today are each compensated somewhere around $300,000-$350,000. I know from the proxy materials that five of the current directors have been on board for at least 10 years.
It was during their watch that the bus went in the ditch. I also note from the proxy statement that the top executives at P&G are each earning over $1 million in STAR bonus. I'm all for management being well compensated, but when the results indicate that P&G is either at the bottom or in the bottom 25% performance of its peer group, as stated in Mr. Peltz's paper, it is clear to the current and former P&G workers that the management that counts here at P&G are not held accountable for this dismal performance. P&G used to be the metric by which others are judged. P&G is now just striving to make mediocrity. Frankly, it's time for the top leadership in the way of the sitting directors and company vice presidents and presidents to be held accountable.
If they don't perform, their employment should be terminated, and their salary and bonus returned to us, the shareholders. Maybe Mr. Peltz can stymie the plan that the current board has for the upcoming $10 billion cost reduction, which I read as employment reduction, and leave the workers to do their jobs, jettison poorly performing executives, and get the P&G bus out of the ditch, and return P&G to the performance that we, the shareholders, expect.
What I can say, we respect all the comments that are made, and certainly, the company, and I hope I've been clear, is committed to outstanding results. We do not accept mediocrity. Our board does not accept mediocrity. The board has been hand-in-hand with the management team over the last several years to lead this transformation. We are changing everything about our business model, but we're keeping our purpose, values, and principles rock solid. We've been very open about some of the challenges that we faced over the period of time, whether it is the challenges in China, where we got out of position with the leading innovation in premium and super premium, whether it's some of the challenges in foreign exchange, whether it's our organization that we needed to continue to evolve to make sure we are agile, changes we've made in innovation.
What I can assure you is the board is engaged. We have a number of different leaders in senior management roles, and we'll continue to do what is necessary to make sure that the leadership of this company owns delivering for you, our shareholders, outstanding results, and does it in a way that's consistent with how this company's always delivered results. At times, it takes time to both develop products, industrialize products, commercialize those brands, and build the equity. There's clear evidence that we're making very good progress, but until we're back to outstanding results, I share the sentiment that we have to do more, and we have to move faster. What I can tell you is P&G people around the world are ready to do just that.
The P&G employee survey that we do every year came back with confidence in the plan that we have right now, belief that it will, when executed well, build this company back to outstanding results. The board expects nothing less of that of me and the senior management team that leads this company. And what I can assure all shareholders is we are committed to getting back to outstanding results, but to do them in a way consistent with our purpose, values, and principles, keeping an eye on the short term, the midterm, and the long term. Thank you for that, and this closes the Q&A session.
Mr. Peltz?
Excuse me. This closes the Q&A. We have one more thing here. We need a short recess. Please remain in your seats, and we'll resume the meeting shortly. I need to get an update here. Please enjoy some of the advertising. They said we'd limit the Q&A to 30 minutes. There's more. We could go for a long time, and we're trying to hold it to 30 minutes. Please watch the advertising. We'll be right back.
It hasn't been 30 minutes.
Yes, it has.
P&G, proud sponsor of moms.
P&G, proud sponsor of moms.
Good job. Woo. Oh. Oh. Nice job.
P&G, proud sponsor of moms.
Hope you enjoyed the commercials, what will be building the business in the future. We now have the preliminary vote count with respect to items one through eight. Based on the preliminary vote count provided by our proxy solicitors, P&G shareholders have elected all 11 of the company's directors. We will be filing the voting results on Form 8-K once they are received. On behalf of the P&G Board of Directors, I want to thank you, P&G shareholders, for your support of our board, of our plan, of your participation and input throughout this proxy contest. We look forward to continuing the transformation journey. We remain committed to meeting the needs of consumers with our brands and products, and to creating value for all P&G shareholders. We will continue to engage respectfully with Nelson Peltz, whose input we value and will continue to listen to.
As for the remainder of the board and shareholder proposals Thank you. Thank you all. Thank you. Thank you. A heartfelt thank you to all of you and to all of our shareholders. As for the remainder of the board and shareholder proposals, proposal number 2, to ratify the appointment of the independent registered public accounting firm, has been approved. Proposal number 3, for an advisory vote on executive compensation, has been approved. Proposal number 4, for an advisory vote on the frequency of executive compensation, resulted with one-year frequency getting the highest number of votes. Shareholder proposal number 5, submitted by Holy Land Principles, was withdrawn by the proponent, and as a result, not presented at the annual meeting. Shareholder proposal number 6, for a report on the application of the company nondiscrimination policies in states with pro-discrimination laws, was not approved.
Shareholder proposal number 7, for report on the company's approach to mitigating the heightened ethical and business risk associated with procurement and activities in conflict-affected areas, was not approved. Shareholder proposal number 8, to repeal each provision or amendment of the regulations of the company that were adopted by the board of directors of the company and not the company shareholders subsequent to April 8, 2016, and prior to the approval of this resolution, was not approved. We will now conclude the meeting. Do I have a motion to close? I declare the meeting adjourned. Thank you all.