Nelson Peltz's Trian Fund Management began a proxy fight to wina board seat at Procter & Gamble Co., characterizing the makerof detergents and diapers as a lumbering giant whose stock hasunderperformed its peers.

Trian will seek a seat for Peltz at P&G's annual shareholdermeeting, according to a proxy filing Monday with the U.S.Securities and Exchange Commission. The firm, which initiallyrevealed its position in February, now holds 37.6 million P&Gshares, or about 1.5%. It's not seeking a breakup of the company ora new chief executive officer, but rather to shake up its“slow-moving and insular” culture, according to the filing.

P&G CEO David Taylor is struggling to reignite sales growthat the maker of Tide laundry detergent and Pampers diapers asit faces assaults from cheaper rival brands and retailers that arekeeping a tighter rein on inventory to defend themselves fromonline competition. P&G shares are showing a 5.1% total returnfor shareholders since the start of the year, trailing gains of 29%for Unilever in local currency terms, and 12% for Colgate-PalmoliveCo., according to data compiled by Bloomberg.

“Structural and organizational bureaucracy may be preventingmanagement from identifying and responding to commercialopportunities in a timely manner, hindering product innovation anddampening sales growth,” Trian said in the filing.

The consumer company said it has “maintained an active andconstructive dialogue” with Trian since its investment, accordingto a statement Monday.

“P&G's board and management team are keenly focused onexecuting the company's strategy to drive innovation, accelerateorganic sales and volume growth, improve productivity and coststructure, and strengthen P&G's organization and culture. Theboard is confident that the changes being made are producingresults, and expresses complete support for the company's strategy,plans, and management.”

With a market capitalization of $223 billion, P&G would bethe largest company to face a board seat proxy fight. The sharesgained 0.6% to $87.59 in early trading in New York after the filingwas posted.

Shareholders are frustrated with the direction of this “veryslow-moving” company, said Ali Dibadj, an analyst at Sanford C.Bernstein & Co., who has an outperform rating on theshares.

“We've been advocates for a long time for cost reductions,simplifications for organizations and better incentives formanagement,” Dibadj said in an interview. Peltz's goals are in linewith this, he said.

Trian hired former P&G CFO Clayton Daley to advise on thematter. Trian will compensate Daley, who spent 35 years at thecompany before retiring in 2009, with a total of $250,000 to hisfamily's charitable foundation.

Unilever, Nestle

Consumer companies are becoming increasingly attractive toactivists. Dan Loeb's Third Point disclosed last month that it hadamassed a $3.5 billion stake in Nestle SA, encouraging the companyto sell its stake in cosmetics maker L'Oreal SA and increaseleverage for share buybacks. Peltz's fund has also invested inPepsiCo Inc. — a stake that it said last year it no longer held —as well as Wendy's Co., Mondelez International Inc. and GeneralElectric Co.

Earlier this year, Unilever, which owns the Ben & Jerry'sice cream and Dove personal-care brands, fended off an unwantedtakeover approach from Kraft Heinz Co., prompting the Anglo-Dutchgiant to say it would take steps to improve shareholderreturns.

Some of Peltz's previous campaigns with U.S. corporate giantshave yielded results. Jeffrey Immelt said last month that he wouldstep down as chairman and CEO of GE after Trian criticized what itdescribed as the conglomerate's underperformance. One of Trian'smost recent high-profile campaigns was at DuPont, where the fundargued as early as 2013 that the company should be broken up torealize shareholder value. The company later announced a $60billion merger with Dow Chemical Co.

Trian, which manages $10 billion, said it had numerousdiscussions with P&G management and some board members over thepast four months after an initial meeting attended by Peltz,co-founder Ed Garden, P&G CEO Taylor and CFO Jon Moeller onMarch 7. In the subsequent meetings, Trian outlined ideas foraccelerating growth and improving profitabilty and performance,including by cutting down on bureaucracy within theorganization.

On July 11, Peltz proposed he be given one seat on the board.The request was deemed “unnecessary” by P&G directors in lightof recent initiatives the company had implemented, according to theproxy filing. Trian said it was disappointed by the rejection andadvised those in attendance it would push ahead with a proxy fight.Trian, whose plans were reported earlier by the Wall StreetJournal, said Monday it still hopes it can avoid a proxy fight.

If Peltz were elected to the board, the first order of businesswould be to propose that the board increase the number of directorsby one and reappoint the board member who wasn't re-elected, Triansaid in the filing.

Slowing Sales

It's not the first time P&G has been targeted for ashake-up. In 2012, Bill Ackman's Pershing Square Capital Managementdisclosed a $1.8 billion stake in the company and pushed to replacethen-CEO Bob McDonald, who was ultimately replaced the followingyear.

P&G, which reports quarterly results Aug. 2, has shownslowing sales growth over the past five years and the company haslost market share across most of its categories, Trian said. A $10billion cost-cutting plan begun in 2012 has had no effect onearnings or sales growth, according to the firm.

“Disruptive and existential threats are impacting the entireconsumer packaged goods industry,” Trian wrote. “The company mustact with the greatest possible urgency to address the market shareit is losing to both its peers and smaller local competitors, whoare adapting to industry changes more effectively thanP&G.”

Bloomberg News

Copyright 2018 Bloomberg. All rightsreserved. This material may not be published, broadcast, rewritten,or redistributed.