The Contrarian

“In the investment markets, what everyone knows is usually not worth knowing.”

The Most Expensive Proxy Fight In History

Over two billion votes were cast by shareholders of P&G, and we still don’t know if the person who wanted a board seat won. It’s incredible that in this age of computers, artificial intelligence, robots, and algo-traders whole computers can outfox other computers by a few micro-second trading stocks automatically based on a news item the computers read without human intervention.

Here is an interesting look at the situation by Matt Levin who writes an excellent column for Bloomberg View.

Look, to be fair, in the 2000 U.S. presidential election, 105,421,423 votes were cast, roughly 6 million of them in Florida, and it took a month, a Supreme Court case, and a still-sensitive controversy to conclusively declare a winner. Procter & Gamble Co.’s shareholder vote last month to elect new directors, in which activist investor Nelson Peltz of Trian Fund Management ran a proxy fight to try to win a board seat, had about 20 times as many votes to count. So it’s not surprising that the vote-counters are having a hard time:

After the most expensive proxy fight in history, an independent firm’s count of the roughly 2 billion votes that were cast found Mr. Peltz had 42,780 more votes than a P&G director he ran against, the company said. That is a margin of 0.0016% of the shares outstanding.

Mr. Peltz quickly claimed a victory Wednesday and called on P&G to concede the contest and let him into its boardroom. But the Cincinnati giant didn’t admit defeat, saying Mr. Peltz “is leading” but that the tally was still preliminary and subject to a challenge period. P&G is still deciding whether to contest the results, a person familiar with the matter said.

Last month P&G had said that Peltz had lost by about 6.2 million votes, which is two orders of magnitude bigger than his (apparent) actual winning margin (and bigger than the entire 2000 U.S. presidential vote in Florida), but still pretty small for P&G: only 0.31 percent of the votes cast (and 0.24 percent of the shares outstanding). “P&G will disclose the final results after receiving the Independent Inspector of Elections’ final certified report, which we expect in the weeks ahead,” it announced yesterday, and I suppose things could still be sliced more finely.

What if Peltz ends up losing by, like, six votes? It just seems like there would be a margin for measurement error here, where if the official count ends up being 1,000,000,000 for Peltz and 1,000,000,006 for management’s candidate, then the best you can say would be “there is a slightly greater than 50 percent chance that the management candidate actually got more votes.” It is epistemologically a tie. I am kind of with Peltz in thinking that a tie should go to the activist. “If 49 percent of your shareholders are unhappy, it is probably better to appease them than to just count on the other 51 percent,” I wrote last month, and that’s even more true if the numbers are 50/50.

Last month, when we discussed Peltz’s (now vindicated) refusal to admit defeat, I grudgingly forced myself to type the words “this problem could all be solved with the blockchain!” That is grudgingly still true. I mean, you don’t have to use the b word. This problem could all be solved by having a single central computerized voting system run by some trusted intermediary that provided clear voting instructions and kept a secure auditable electronic record of votes that could report its results in real time. This is not, like, Star Trek-level sci-fi at this point. People keep records on computers these days. We have the technology for it, and honestly we had the technology for it long before blockchains were invented.

And the financial world — unlike the political one — is so generally infused with technology that it is weird to find places where it isn’t. Robots compete to buy stocks microseconds faster than other robots. People build artificial-intelligence-based systems that can figure out which stocks to buy better than humans can. And then you have a proxy fight and someone dumps two billion paper ballots on the floor of a warehouse and starts counting them up with an abacus and a clay tablet. It is a bit incongruous.

We live in an exciting time for incredibly boring financial innovation. Someone is going to invent much better ways to keep lists of shareholders and count their votes than the current fractured multi-level ownership- and vote-tracking structure, and then, more interestingly, people are actually going to pay attention and perhaps even implement those better cleaner smarter more automated methods. The time is ripe for them, in part because the word “blockchain” has so utterly captured the imaginations of people at the highest level of finance, and the blockchain is one plausible better method. But the time is also ripe because dumb stuff like this keeps happening, and seems increasingly unnecessary.


My View: on Thursday, November 16, it was determined that Nelson Peltz won the board seat. P&G said the proxy battle cost it $60 million. Imagine, just keeping a smart outsider with a great track record out. They should have rolled out the welcome matt. Nelson, you are welcome to be on my board of our small research firm anytime.

Could it be that P&G execs were afraid Peltz might interfere with their cozy “old boys club?” Of course, this was shareholder money. The shareholders should demand the board and CEO pay for it themselves.