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How Procter and Gamble's 'gummed-up' bureaucracy is holding it back

Monday’s news that activist investor Nelson Peltz would kick off a proxy fight for a board seat at consumer giant Procter & Gamble (PG) comes amid significant cost-cutting at the company.

P&G, the biggest household and personal care company in the world, has spent the past five years cutting $10 billion in costs and shedding more than half of its brand portfolio. Last year, P&G even announced that it would cut another $10 billion in costs.

But that’s not enough for Peltz’s hedge fund Trian Management, which announced his $3.3 billion stake in P&G on Feb 14 and has said it’s disappointed by P&G’s performance.

AP Photo/Steve Helber

As a board member, Peltz would push for faster changes at the company behind Pampers, Tide, Crest, and Gillette. Peltz has already hinted at what’s holding P&G back, and it all comes down to one word: bureaucracy.

Bureaucratic bog-down

In his SEC filing, Peltz pointed to an underlying issue of bureaucracy.

“P&G’s challenges stem in large part from its organizational structure and culture, which can be highly resistant to change,” according to the filing. “Trian believes the job of a highly engaged shareowner in the boardroom is to foster a true sense of ownership among directors and inspire the board to take decisive and timely action to create sustainable, long-term value for both the company and its shareholders.”

Bernstein analyst Ali Dibadj added that the company has been slow to respond to changing consumer behavior relative to its peers. Dibadj says too many of P&G’s decisions have to go through the top levels of the company, and that the problem has persisted after CEO David Taylor took the helm in November 2015.

“The bureaucracy and gummed-up-ness of the company is the issue. They just aren’t able to get things done,” Dibadj told Yahoo Finance.

Forgetting about the consumer

P&G’s bureaucracy has made it difficulty for the company to rapidly meet consumer demands.

“Though P&G has long called the consumer ‘boss,’ it clearly lost sight of that mantra...