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 ks, 10 Q and 8 ks reports, which are also available on the company's website. David?
Good morning, everyone. Good morning, ladies and gentlemen. A pleasure to be here. I'm David Taylor, Chairman of the Board, President and Chief Executive Officer of Procter and Gamble. I'd like to welcome everyone to P&G's 20 17 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 John Molla, our Vice Chair and Chief Financial Officer and Debbie Majoris, our Chief Legal Officer and Secretary. Seated to my right are members of the Board of Directors.
If you just stand in mass here. We are also honored to have with us today 3 former Chairman and Chief Executive Officers that I just want to recognize. Mr. Ed Arst? Marlise's wife is with him.
Thank you for being as well. Mr. John Pepper. And Mr. AG Lafley.
Thank you all for being here. Kathy Engelbert and Jeff Potts of Deloitte and Touche are present in the event of questions that are more appropriately answered by auditors, so welcome as well. And we also have William Marsh, Doug Czarnecki, and Henry Warky of IBS Associates Incorporated, who 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 1 year term until the 2018 Annual Meeting of Shareholders and until successors are elected. I now declare the polls are open. With those wishing to vote at this time, please raise your hand and the 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 Debbie Majoris 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 Brawley, Amy Chang, Ken Chenault, Scott Cook, Terry Lundgren, Jim McNearney, David Taylor, Meg Whitman, Pat Wirtz, 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 18, 2017, certain investment funds affiliated with Triumph Fund Management LP provided advanced notice required under the regulations of the company and submitted notice of a proposal to nominate Nelson Peltz to the Board.
Tryon's Director nominee is Nelson Pelts.
Mr. Pelts, 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 6 minutes to make a statement.
Thank you, David. I don't need 6 minutes.
First of
all, I want to thank all the shareholders who are here today, and I want to thank you for your amazing support. I also want to thank Clay Daley. Clay is a very brave man. You know he served this company for a long time. He's been attacked by some, but Klade 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.
But I want
you to know win or lose, the shareholders have spoken. Either way, today's vote is a change 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 has got to be open to outsiders, people, ideas and perspectives. Structure, which is empowerment and accountability. P and G has some really terrific people, but we believe they're struggling under a suffocating bureaucracy. TRION today has about $3,500,000,000 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. Pelts. The Board does not endorse Triumph's nomination of Mr. Pelts and recommends you vote for the company's nominees. At this time, the nominations are closed.
We will now collect the ballots for item 1. If you're finished with your ballot for items 2 through 8, you may also hand in as well. If not, you can hold on to those ballots and we will collect them later. But for item 1, we'll have the ushers come and collect them. And we'll take a short pause as they do that.
Anybody else that has a ballot, should raise your hand if you want to turn it in while the ushers check. We want to make sure we get all the there we go. Another over here, please. We'll take a minute. We're still getting some ballots.
We also have people downstairs in an auditorium. So be patient with us. We want to make sure everybody that has a ballot has a chance to turn it in. We've got 3 different rooms full of folks right now. So, they're calling to make sure the other two rooms, the ushers have a chance to collect all the ballots.
Another one over here, please. We're just waiting for the other two rooms. I've been informed that the ballots have now been collected for Item 1 in all three rooms for the election of directors. At this time, the polls are closed with respect to Item 1. We will now proceed with the rest of the meeting.
The next item of business is to ratify the appointment of Deloitte and 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 executive compensation, 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 1 year for this resolution.
That concludes the Board proposals. Now, we move to the shareholder proposals. We have 4 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 5.
The next proposal was submitted by the North Star Asset Management Funded Pension Plan and request that the company provide a report on representative here today to present this proposal?
Mr. Chairman, Christine Janssen.
Very good. If you prefer, good morning. And 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 3 minutes. Please go ahead.
Thank you. Good morning. My name is Christine Jantz with NorthStar Asset Management, 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 6. 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 and G stood up against the discriminatory Cincinnati City Ordinance Article 12, which prohibited our company from LGBT employees from discrimination. In 2014, our company publicly supported equal marriage rights.
In 2015, P and 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 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 and G products because a store employee has perceived sexual orientation or gender identity. We know that P and G understands and G understands the importance of employee morale and employee retention.
We need a plan to protect employees and remedy employee harassment before a 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 and G's commitment to diversity and inclusion is unwavering. P and G's global nondiscrimination policy that's outlined in our worldwide business conduct manual explicitly prohibits discrimination based on employee sexual orientation, gender identity or gender expression. For 4 consecutive years, P and G has received a perfect score of 100 on the Human Rights Campaign's Corporate Equity Index, which each year earns P and 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. Therefore, the Board of Directors recommends a vote against this proposal. The next proposal was submitted by the Heartland Initiative and 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 there a 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 3 minutes. Please. Thank
you. Good morning. I'm 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 and Gamble Shareholders, we at Heartland take great pride in our company's corporate social responsibility practices. In particular, we're 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 and G sets the highest standards when it comes to respecting and protecting human rights around the world. To this end, we request that Procter and 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 and 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 and 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 and 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 and G is committed to conducting responsible operations everywhere we do business around the world. We have 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 the 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 Triumph and requested 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 for the company and not by the company's shareholders subsequent to April 8, 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. Tryon's proposal may be found on Page 71 of your proxy statement. The Board's response to Triumph'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 2 through 8. If you would please hold up any remaining ballots so the ushers may collect them now in this room and in the other two rooms that we're collecting. So 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. You can raise your hand high in all three rooms. We want to make sure we collect all the ballots. Items 2 through 8. 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 2 through 8.
They've got all the ballots now. So 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 and 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. And P and G is in the middle of a comprehensive transformation journey, which is yielding positive results for shareholders. A few years ago, the P and G Board and management recognized the need to transform and position P and G to meet the significant changes in the consumer, retail and marketing environment. There were 5 big factors that affected us.
First, as a U. S. Domiciled company, P and G was differentially affected by negative foreign exchange versus our European and Japanese competitors. 2nd, traditional retail channels were being disrupted by e commerce. 3rd is consumers spent more time online.
We needed to learn new ways to reach consumers and to market through digital tools. Technology advances were enabling rapid innovation cycles. And finally, China, our 2nd 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 and 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 in 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, and 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 $12,800,000,000 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 and G returned nearly $22,000,000,000 of value through dividends, share exchanges and share repurchase. We increased the dividend by 3%, paying $7,200,000,000 marking the 61st consecutive annual increase in the 127th year P and G has paid a dividend.
Over the past 10 years, P and G has delivered more than $135,000,000,000 of capital shareholders in the form of dividends and share repurchase amongst the best in our industry and amongst the elite in all industries. And we're making good progress across markets, increasing the percentage of our top markets holding or growing share from about 10% 2 years ago to more than 50% today. We're seeing the same progress with brands on a global basis, about 50% 2 years ago to nearly 70% today. Our results in China also show the progress we're making. In 2016, China 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. Thank you. It's exciting. P and 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 2 years, well above P and G's peers during that same time frame and above both S and 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 and 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 and 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 Unstoppables, Always Discreet and Radiant, Oral B Power and many others.
By any measure, P and 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 and G Brands held 5 of the top 10 and 7 of the top 25 innovations in the most recent report. Since the first report was published in 1995, P and G has had 170 products make the top 25 list, more than our next 6 largest competitors combined. P and G is innovating to create new brands and product forms that lead category growth.
Always Discrete is the new entry into the adult incontinence category and is accelerating category growth by 50%. In the 8 countries where we've launched, we've reached market shares in the range of 10% to 20% already. Discrete is $200,000,000 in sales, and it grew almost 40% last year. Downey Scent Beads, an example of P and G creating an entirely new category, in wash scent boosters. P&G's Scent Beads business is already greater than $500,000,000 in sales and grew almost 30% last year.
Household penetration or VERT's 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 and G holding 80% share of that segment. Worldwide, sales for Tide Pods, Aerial Pods and Game Flings are more than US1.5 billion dollars The global market for the pants formed in the diaper category is growing 15%.
P and G is now the global leader with 28% share, up 5 share points versus a year ago. P and 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 2, 3, 4 or even 5 times. These big brands are number 1 because they perform better and they're trusted by consumers.
P and G's largest brands are the fastest growing. Nearly half of P and G's top 25 brands grew organic sales by more than 4%, with 4 of those brands growing 10% or more last year. For example, Tide is the largest laundry detergent brand in the U. S. And is growing market share and sales plus 5% last year and the year before.
Head and Shoulders is the largest shampoo brand in the world It has 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 omnichannel retailers. Our $3,000,000,000 e commerce business is the largest of any of our multinational consumer packaged goods companies, growing 30% last year, and we grew share in 8 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 and brands such as Always, Tide, Downy, Don, Downy, Charmin, Gillette, Crest and several others.
Further evidence of P&G's leadership. Now, 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 32nd ad. And social media connects our stories and messages to others at a fraction of the cost. Now, 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. Now, 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 USA.
Could you play the video, please?
What I'd like to tell you about my junior high girls' 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 so small, so
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 of 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. I need you now to walk out there knowing that I believe in you and you should believe in
yourself.
It was incredible. It's a wonderful experience, and I feel more confident about myself when I play.
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 550,000,000 views and 25,000,000,000 PR impressions. Always has been building awareness and market share, now by 2 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 cost by more than $10,000,000,000 in 5 years. We've improved profit per employee by 45%. But we're not finished. We've announced another $10,000,000,000 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, 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 $7,000,000,000 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 and increased currency neutral core earnings per share growth by an average of 11% over the last 5 years.
And these efforts have enabled P and G to achieve core after tax margins, the 2nd highest in our industry, which we intend to improve going forward. We changed our organizational structure to speed decision making and improve accountability. There's now one organizing principle for P and 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 MDN 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 and 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. And we remain committed to hire and develop the absolute best talent.
And 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 and 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 and 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 and Gamble Company. Thank you. You're very kind. Thank you. Before we go any further, I would like to announce that today, your Board of Directors has declared P and G's quarterly dividend of $0.6896 per share, which is good news.
P and G has been paying a dividend for 100 and 27 consecutive years ever since the company was incorporated in 18/90. And we've increased the dividend, as I said earlier, for 61 consecutive years. We're committed to returning cash to UPNG shareholders. It is now time for questions and comments on matters related to the company business. We've allocated 30 minutes for this section.
Now 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 2 minutes. Once this time limit has been used, the shareholder will not be allowed another turn at the microphone. You may go to the microphone located in room 110. And let me open it up for questions now in both rooms. When you're ready, Mr.
Chairman.
Christine Jantz. Christine?
Good morning, again. Good morning. And thank you. I would like to just relay a brief message from Julie Goodridge, the CEO of Northstar, regarding the bid by Mr. Pelz for the Board.
He would be a welcome addition to the Board if he stood for core P and G values, was a woman or a person of color, and had some fresh ideas for the Board. But because it's 2017, we won't settle.
Thank you. Please,
George Morgan.
Good morning. I've been the beneficial owner of Block P and G Stock since the early '80s. My history with P and G started earlier as an 8 year old. I had a tour of Ivorydale in 1955. I spent all three summers during college working as an intern at Wynton Hill.
And first 11 years of my career were as a direct employee. I work mostly in product development and process development. I have 2 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.
So I've got about 50 years with the company. I'm really here to tell you that while I don't approve of ultra capitalist, 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. You 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 cost for new project requiring a letter rework and your purchasing system is really decoupled from results and 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, and I implore the Board to do something to fix this problem. Thank you.
I thank you for the input and also tell you that many of the items you bring up are items that we're working on. And as I said, we're in a major transformation right now. And one of the areas we're putting tremendous energy into is improving and speeding up the way we innovate. P and G has an outstanding team of innovators around the world, and we want to unleash them. And 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 and G can and will always need to evolve to make sure we're at the leading edge. Your points though are well taken and I appreciate your service to the company. And certainly, what I can tell you is I and the leadership team in the company is committed to ensuring P and G keeps the consumer at the center and 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.
And the whole idea is to increase that level of superiority and make sure we truly delight consumers in our products, our packages and how we show up in shelf and how we communicate in a respectful way to consumers. So thank you for your input. Okay. We have a question thank you. We can take a question from the basement.
Mr. Chairman,
this is
There'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 JLNS Investor Network, a Jewish values based investor network. We own thousands of shares of PNG. I'm here today to urge our fellow shareholders to vote against Proposals 57.
We're pleased to hear Proposal 5 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 and G that has successful business ties to Israel. Proposal 5, the Holy Land Principle, 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 7 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 3rd 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 leery to be aware of and leery of misleading and politically charged resolutions and hope we all voted against issues 57. Thank you.
Thank you. All I'd say just to add is P and G is extraordinarily committed to diversity and 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 is included and everybody has the opportunity to perform at our peak, at their peak, that we get the best innovation, the best brand building and the most productive company we can be. So you can count on us continuing to embrace more broadly diversity and inclusion is part of our heritage and it will be part of our future.
Thank you.
Next question, please. Mr. Chairman, Julian Martinez.
Mr. Chairman, My name is Julian Martinez Nourif, and I represent SARE Jobs For Progress National. SARE is a national nonprofit community based organization serving more than 1,300,000 people a year by assisting them with employment and educational needs. With SARE, I would like to thank Procter and Gamble for giving back so generously to many communities you serve. Your 2016 citizenship report speaks well of P and G's commitment to corporate responsibility.
Much of the Credit Muscovy Board of Directors, which is one of the most diversified of the Fortune 500 Companies. Your supplier diversity program is outstanding, paying over $2,000,000,000 a year with your supplier diversity network for over 9 years in a row is truly remarkable. However, 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 made reference to Latinos in the U. S.
Latinos are the fastest and 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 7th largest in the world. Latinos are expected to make it a third of the U. S. Population by 2,050, and Latino businesses are growing at 15x 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 quick comments. 1, 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. And you mentioned our citizenship program, and I just want to make one comment. We have and you're welcome to read our citizenship report. I encourage you to read it. P and 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's 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. But thank you for your comments. Next, please, whichever.
Mr. Chairman, Jim Baker.
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 Retirement. He told 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? And should we be in the top third?
Very clear. First, thank you. Go ahead. Do you watch a little longer? You've got 50 minutes.
Go ahead, please. Okay.
Second is to Mr. McNearney. Why is the organic sale growth percentile rank in peer group? In other words, how do we how are we doing against our peers? No longer a PCP measure for the performance period for the upcoming 3 year performance period.
Again, for Mr. McNairney. Once again, the compensation committee has lowered the target for the 100% bonus. This is the 2nd consecutive 3 year period where targets have been lowered to provide the same amount of money. Why are you doing that?
And, 3rd, for, Mrs. Whitman, I listened to the webcast. 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 4 CEOs.
2 well, the first was Dirk Yaeger. Under his leadership, the company lost about 50 percent of its market cap.
Please hurry up because we've run out of time, but go ahead and finish your
last update. And you just said that the selection of Bob McDonald was probably not the right board choice. So my question is 2 out of 4, it kind of looks like flipping a coin. What have you done what have you done to change the system of selection of CEOs? Because although mister Taylor, you get great.
I'll let you finish that comment. Go ahead.
A a number of people are saying you're doing all the right things. Okay. Okay.
Now we can stop. I'm concerned about In all seriousness, I want to address each of the questions and give my Board colleagues an opportunity. 1st, is TSR still important to this company? Absolutely, yes. Is our objective to be in the top third?
Absolutely, yes. Period. Everyone in the presence understands that's the objective that we're working against right now. Success is growing share, top third of our peer group and total shareholder return. That's what our objective is to go after.
So 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.
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% 60% of target. The message was delivered to the team that they weren't performing. So that's one part of the answer. 2nd part of the answer is, going forward, the 1 3 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.
So it's a tough plan, it's a gainshare plan, and it's a TSR based plan when you tear it apart. What was the CEO? Meg? Yes, 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 Dirk Yaeger 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 and Gamble and those that had but maybe left and could be brought back and then people who had never worked for Procter and Gamble. We looked at results, we looked at integrity and ethics And we looked at their vision, future vision for the company. And 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. So thank you.
Thank you. Thank you.
Question from
we have a question from the other room.
Mr. Chairman, Helga Schwab.
Good morning, Helga.
Good morning, Mr. Chairman and Board and fellow shareholders. My question is, why did we spend $100,000,000 to solicit proxies? I've been inundated by P&G, shareholder phone calls, proxy mailings more than once, more than twice, about 4 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 to for us. And what did we, as shareholders, get from the I'm disposition? Nara, nasi. We got something when Schmucker bought some of their lines, and I must say the Schmucker acquisition for the shareholders was very, very good.
Schmucker is having the same kind of 3% yield in dividends as P and G. So 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. And 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 have the opportunity by providing you a proxy proxy to vote. So 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 shareholders.
We're held by over the shares outstanding. There's over 2,500,000 shareholders of P&G. So, 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.
We felt this proxy fight or contest was important. And 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 many, many industries. This is a Board a very engaged Board.
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 and 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. And 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 how whoever the acquirer does. But what we do and what the Board does is look to 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 and product and 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. So it's always a very deliberate decision made. We either buy or sell a business, but 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.
Now I'm Tom Bookman. I'm just one of the $2,500,000 plus you don't count my life shares, I'm probably on the below the median. But of all the very impressive and motivational analysis, great tremendous video presentation on how any of us can make it all the way home without stopping at Walmart or Target and find a few more cases of world's leading products. Some of it's inconspicuously absent and I bet the majority of the $2,500,000 are concerned about share price. We saw a lengthy analysis of the market share in this net.
It kind of gives you the impression that management is very impressed with your performance, but the market, as it relates to the S and P, the Dow Jones Industrial market, not so much impressed. The shareholder got in, he had a nice graph, showed up price. Not 68, when there's tremendous growth from 68 to 2000, but again, like 2,000. 2000 to 2017, it's kind of tough off my fingers to calculate the compound interest compound growth rate. But if it went from like 60% to 90% on your graph, it's like 2%, a 2% compound growth rate while the market has soared.
It seems that's share price even though most of these folks here, the $2,500,000 is not day traders by any means. P and G is not suitable for that anyway. But it's seeing that even those people who are on 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 and G is more valuable stock than the market now gives credit for.
Just a couple of comments. Thank you for the comment. Just a couple of comments on P and G and what we've been through the last several years. What we did is highlight the results over the last 2 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 5 years of very significant foreign exchange where the company was differentially impacted. And 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, and I give you one example in Russia, when you have a $2,000,000,000 business and the ruble to the dollar is 33 and then it goes to 66, your revenue cuts in half and many times your expenses don't because some of the supply change in U. S. Dollars.
What we try 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 $14,000,000,000 of top line Hertz over those 5 years and $4,500,000,000 of after tax Hertz. That did slow down the earnings growth of the company for sure, without a question. And there were things which I highlighted in China. We got off track on China on having innovation that addressed the shift toward premium and 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 and 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. So, please know that we don't celebrate the period where we did not perform as well as the market.
We learn from it. And 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 and grow and share consistently. But thank you. One more question, I'm struck to hear. Please.
Mr.
Chairman, Peter Meyer. Mr. Taylor, it's been 2 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 has 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, the 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 Mahupany, 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 and 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 to $350,000 I know from the proxy materials that 5 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. Also note from the proxy statement that the top executives at P and G are each earning over $1,000,000 in star bonus. I'm all for management being well compensated, but when the results indicate that P and G is either at the bottom or in the bottom 25% performance of peer group as stated in Mr. Peltz's paper, it is clear to current and former P and G workers that the management that counts here at P and G are not held accountable for this dismal performance. P and G used to be the metric by which others are judged.
P and 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 appointment should be terminated their salary and bonus return to us, the shareholders. Maybe Mr. Pelz can stymie the plan the current Board has for the upcoming $10,000,000,000 cost reduction, which I read as employment reduction, and leave the workers to do their jobs, jettison poorly performing executives and get the P and G bus out of the ditch and return P and G to the performance that we, the shareholders, expect.
Thank you for your comments. And 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 that 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. But 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 has 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 and G people around the world are ready to do just that. The P and 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 mid term and the long term. But thank you for that. And this closes the Q and A session.
Excuse me.
This closes the Q and 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 you an update here.
Please enjoy some of the advertising. They said we'd limit the Q and A to 30 minutes. There's more. We could go for a long time, and we're trying to hold it to 30 minutes. So please watch the advertising.
We'll be right back.
It hasn't been 30 minutes.
Yes. It
P and G, proud sponsor of moms.
P and G,
proud sponsor of moms.
Hope you enjoyed the commercials. We'll be building the business in the future. We now have the preliminary vote count with respect to items 1 through 8. Based on the preliminary vote count provided by our proxy solicitors, P and G Shareholders have elected all 11 of the company's directors. We will be filing the voting results on Form 8 ks once they're 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. And we will continue to engage respectively with Nelson Peltz, whose input we value and we'll continue to listen to. As to the remainder of the Board and shareholder proposals 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 1 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 non discrimination 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 appeal 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's 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.