Procter & Gamble (NYSE:PG) is facing an unusual shareholder challenge. Activist investor Trian Fund, after being turned down in talks with the consumer products giant's management, is going around the executive team and petitioning support directly from shareholders to win a seat on P&G's board of directors.

The move makes P&G the biggest company to ever face a proxy fight, according to The Wall Street Journal. Let's look at what the battle means for investors.

The proxy challenger

P&G's logo.

Image source: P&G.

Trian Fund has a long history of challenging the management teams of underperforming consumer products giants. Led by billionaire investor Nelson Peltz, the group once agitated for a breakup of PepsiCo's snack and beverage businesses, for example.

Peltz and his fund began accumulating P&G shares back in February when it revealed a $3 billion stake in the company. That made P&G just the eighth position in Trian Funds' targeted portfolio of consumer goods stocks. At the time, Trian didn't specify any demands that it might push for, and the consumer products giant didn't take it as a challenge, either. "P&G welcomes investment in our company," a spokesman said.

But in a financial filing this week the fund spelled out its grievances against Procter & Gamble. P&G's "disappointing results over the past decade," it explained, include stock price underperformance, lost market share, and "excessive cost and bureaucracy."

Trian's not wrong

P&G would likely take issue with the third point, considering that management has squeezed $10 billion out of its cost infrastructure since 2012 and is targeting a further $13 billion of cuts over the next few years.

Tide detergent.

Image source: P&G.

Trian's broader complaint is less controversial, though. After all, P&G has trailed the market lately. It has also given up several points of market share from critical sales categories, including a Gillette franchise that's plunged to 65% from 70% in just a few years. Organic sales growth has been stubbornly slow overall, ticking up to just 2% this year from 1% in fiscal 2016.

On the bright side, it's hard to argue that P&G has been complacent about working to meet its growth challenges. In addition to the aggressive cost cuts, management just finished a bold brand-shedding initiative that's whittled the portfolio down to 65 of its most promising franchises from over 160.

Every aspect of its business, from manufacturing to packaging to distribution, is being overhauled and simplified, and the changes have already yielded one of the highest profit margins in the industry. Toss in massive cash returns, and shareholders don't have much to be upset about today.

What's at stake

That's likely a big reason why Trian Fund's demands appear to be narrow. The company isn't advocating that P&G get broken up, that the CEO be replaced, or that it take on tons of extra debt to go on a merger binge. Peltz isn't pushing the company to cut back on marketing expenses or research and development, either. "As a long-term shareholder," the fund argues, "our objective is to create sustainable long-term shareholder value."

Still, Peltz and his team believe P&G needs a shake-up in its culture and its organizational structure, and so they're petitioning shareholders for a seat at the table that might help make those changes possible. The odds are stacked against the activist in this fight. The fund owns less than 2% of P&G's outstanding shares and, even if it somehow wins this proxy fight, it will control just one of the eleven seats on the board of directors.

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