Lisa Bernard-Kuhn reports:
When Procter & Gamble shareholders gather for their annual meeting this week, they’ll be asked to re-elect company director Angela Braly – and, in effect, approve the makeup of a board heavily weighted with Fortune 500 CEOs.
Braly resigned as Wellpoint Inc.’s CEO last month under mounting shareholder pressure. Under P&G’s corporate governance guidelines, any board director whose job changes “substantially” is required to submit his or her resignation to the board.
“Ms. Braly did submit her resignation… and based on her vast amount of leadership, consumer industry, government and marketing experience, which has not changed, the board decided to reject her resignation,” P&G spokeswoman Jennifer Chelune said in an e-mail to The Enquirer. “Ms. Braly is delighted to remain a productive and valued member of our board of directors.”
The board is recommending that shareholders re-elect Braly when they meet at their annual meeting on Tuesday. It’s scheduled for 9 a.m. downtown at Aronoff Center for the Arts, 650 Walnut Street.
Braly could not be reached for comment.
During her tenure at Wellpoint, the health insurance company became politicians’ go-to example for why healthcare reform is needed. Critics called out the company for targeting policeholders with expensive conditions and finding reasons to drop their insurance coverage.
Braly was known for being quick to defend the Indianapolis-based firm. She wrangled with regulators, Congress and even President Barack Obama over her company’s pricing and business practices.
Since 2009, she has been one of 11 members on P&G’s high-ranking board, which boasts five other CEOs.
While CEOs lend considerable expertise to the boards they serve, some corporate governance experts say there is a tipping point. Having too many top executives with high-profile jobs and busy schedules can weaken a board, they say.
“Even if (Braly) were not on the P&G board, that’s too many CEOs for it to actually do an acceptable job,” said Paul Hodgson, chief analyst at GMI Ratings.
The New York-based corporate governance research firm gives P&G a “C” in its scorecard of the company’s board composition and leadership.
“This is a very busy board,” Hodgson says.
And 2013 is shaping up to be among the busiest years in P&G’s recent history.
The company is battling a sagging economy and stalled sales in its developed markets and working through a restructuring plan aimed at cutting $10 billion in costs by 2016.
P&G’s leadership also is standing guard as activist investor Bill Ackman unveils his plans for the $84 billion-a-year, consumer products giant. Ackman’s hedge fund Pershing Square Capital earlier this year spent $1.8 billion to buy a 1 percent stake in P&G, signaling it will push for changes to increase company profits and shareholder return.
P&G’s board last month restated its support for CEO Bob McDonald, following news that Ackman has requested that McDonald be replaced.
“This is really a time when a board needs to swing into action,” Hodgson said. “Their primary responsibility is to represent shareholder interests. From that point of view, having one or two CEOs on the board is an advantage, but more than that is too many.”
For P&G’s part, Chelune said the board “has an extraordinary level of leadership experience, is highly engaged and has a strong track record of attendance and participation.”
Now that Braly is no longer a CEO, P&G says its board CEO membership is below averages found at other large U.S.-based companies.
“Across industries – manufacturing, financial services, non-financial services – about half of board members are CEOs, presidents or board chairs of for-profit companies,” said Chelune, citing a 2011 report by The Conference Board, a New York-based corporate governance consultant.
Last year, P&G’s board also revised its guidelines to limit the number of outside public board positions that directors can hold.
The board chair is limited to two additional outside public boards. Directors who are CEOs at other public companies also are limited to two additional public boards. Other directors, excluding McDonald, are limited to three additional public boards.
All directors are in compliance with the policy, according to P&G’s recently filed proxy.
Over the past year, directors attended more than than 86 percent of board and committee meetings. Attendance under 75 percent of meetings gives cause for the board chair and governance committee to consider the reason for an absence.
For the upcoming shareholder meeting, Ackman missed a May deadline to nominate new directors, a tool he has used at other companies to gain support for his shake-up plans.
So far, he has yet to say what his plans are. He’ll need considerable support from shareholders and the board to push through any agenda.
Hodgson says Ackman still could lobby for new members to be elected in the future. The board’s guidelines allow it to have 10 to 15 members.
“Regardless, they could still appoint new members, and I would think it is still one of the weapons in (Ackman’s) armory that he will consider using at some point,” Hodgson said.