Procter & Gamble board sticks by criticized CEO

• Activist who owns 1% of stock has 75 pages of complaints about Bob McDonald
• P&G continues restructuring plan that includes cutting 4,100 jobs
• Stock price has been stalled in the low to mid $60s in recent years

CINCINNATI -- Procter & Gamble's board of directors was quick to respond to a shareholder activist's 75-page list of complaints about the CEO's leadership of the consumer goods giant.

The board late Thursday restated its support for CEO Bob McDonald, despite demands he be replaced from William Ackman, a hedge fund manager who recently took a 1% stake in P&G.

McDonald and Ackman met face-to-face for the first time Sept. 4, when Ackman submitted his lengthy list of complaints, including his disappointment about subpar returns for P&G shareholders.

Board members James McNerney, CEO of aircraft maker Boeing, and Kenneth Chenault, CEO of financial services firm American Express, attended the meeting, according to a report in The Wall Street Journal.

A P&G spokesman confirmed Thursday that Ackman, who manages hedge funds at Pershing Square Capital Management, and McDonald recently met in person. The spokesman declined to discuss details.

In a statement, McNerney said: "I, along with the entire board, have reviewed and support P&G's restructuring, refocus plan which appears to be off to a good start. The board also wholeheartedly supports Bob McDonald as he leads its implementation."

Shareholders of Cincinnati-based P&G have expressed impatience in recent years with a stock price that has hovered between $60 to $65 a share. The maker of Tide, Pampers and other well-known consumer brands twice missed profit projections in the past year as it battled a weak global economy and puny revenue growth in its mature markets.

In recent weeks, P&G's share price has risen to the high $60s. Friday, the last trading day of the third quarter, the stock closed at $69.34, up 15 cents a share. Analysts credit the stock's recent rally to fourth-quarter results that beat estimates and reports of Ackman's investment.

Ackman's reputation as a change agent precedes him, says Matt McCormick, a portfolio manager at Cincinnati-based Bahl & Gaynor Investment Counsel. He is known for taking large stakes in sputtering stocks, including Kraft Foods, J.C. Penney and Target, and then demanding that CEOs and boards change to improve a company's performance and shareholder returns.

His results have been mixed, but management at the companies he has invested in are quick to note when he takes a substantial stake, McCormick says.

P&G says it remains committed to a restructuring plan that aims to cut $10 billion in costs by 2016. The restructuring, which includes a 10% cut in non-manufacturing jobs, or 4,100 layoffs by June 2013, is ahead of schedule, McDonald told analysts in August.

The job cuts, most of which are happening via employee buyouts, are expected to be complete by December.

"The board will actively oversee the plan's implementation to ensure its effectiveness," McNerney said in his statement Thursday.

McDonald has acknowledged that P&G's results are "not as strong as we'd like." The chief executive took a 6.1% pay cut for the fiscal year that ended June 30 for not hitting performance goals, according to a P&G's financial results filing with securities regulators.

Still, McDonald has noted that the company has grown since he took over the CEO post three years ago. The company also has increased its dividend each of those years, at an annual average of about 8%.

Ali Dibadj, an analyst with New York-based Bernstein Research, said Ackman's move comes as no surprise.

"We certainly expected that Ackman was going to make some proposal to P&G, as he always does with companies that he invests in," Dibadj said."There is opportunity for management to improve, and everything else is up to the board."

Shareholders will get a chance to hear firsthand from McDonald about the company's progress during P&G's annual meeting, slated for Oct. 9.

Shareholders can ask questions of management, but the floor will not be open to any other presentations, said Jennifer Chelune, a company spokeswoman.

Whether Ackman will show at the meeting is anyone's guess, analysts said Thursday. Ackman and Pershing did not return phone calls Thursday.

With just 1% of P&G's stock, Ackman doesn't have enough power to launch a surprise proxy battle. He would likely need to buy more shares or gain the support of other large shareholders.

Still, P&G's recent announcement that it is now planning a stock buyback program after stating earlier this year that it wouldn't pursue one, "was a direct result of Ackman's agitation," McCormick said.

"Ackman represents one side, and McDonald has the other. They both think their ideas are right, and they're each vying for votes," said McCormick, whose firm manages roughly $5 million in P&G shares. Ultimately, this is going to come down to results and which side has the best vision to get the stock higher."