The gloves were off. On one side of the ring was DuPont Chief Executive Officer Ellen J. Kullman recommending the reelection of all 12 members of the chemical giant’s board of directors. On the other was activist investor Nelson Peltz, CEO of the hedge fund Trian Partners, proposing a new slate of directors to replace four of DuPont’s. It was a long, hard-fought, well-contested fight. And Kullman won.
DuPont’s annual meeting of shareholders, which took place on May 13 in Wilmington, Del., put an end to the two-year battle between the company and challenger Trian. Peltz, whose fund owns a 2.7% ($1.8 billion) stake in DuPont, wanted four seats on DuPont’s board, including one for himself. He failed to secure any of them. He had proposed that DuPont split into three businesses—agriculture and nutrition, industrial materials, and performance chemicals—to free up costs and compete more efficiently. His proposal was rejected.
Throughout the process, Kullman has shown grit, focus, and determination, confident in a solid performance over the past few years. Her time at 213-year-old DuPont has truly been impressive. At 59, she’s been the company’s CEO since 2009, and she’s the first woman to ever hold that position. In 2014, Forbes magazine ranked her as the 31st most powerful woman in the world. She also made it into the Wall Street Journal’s “50 Women to Watch” list in 2008 .
By Kullman’s accounting, she has cut $2 billion in costs, rationalized DuPont’s management structure, arranged to spin off performance chemicals business Chemours, refreshed the composition of DuPont’s board, and ensured that the company’s stock has consistently beaten the market since her appointment. Under her tenure, the company continues to have a great reputation—it was C&EN’s choice for the 2013 Company of the Year—and is one of a few still investing into R&D ($2.1 billion, or 6.0% of sales, in 2014).
This victory is all the more significant because 72-year-old Peltz was a credible opponent. A well-known activist investor, he is attracted to companies with solid business models that, according to Trian’s website, “trade significantly below intrinsic value due to operating underperformance.” Peltz, whose previous targets include PepsiCo and snack giant Mondelez International, is respected as “one of the better shareholder activists around,” according to New York Times columnist Joe Nocera.
Beyond its implications for DuPont, this fight raises an important question: Is shareholder activism good for business, or is it crippling it?
DuPont was performing well, and major change seemed unnecessary. Activist funds are now a very powerful force in the market, so many companies—regardless of their performance—decide to capitulate to their demands rather than put up a long and costly fight, as DuPont did. Indeed, late last year, Dow Chemical CEO Andrew N. Liveris declared a cease-fire by agreeing to give two board seats to the activist shareholder Third Point.
But in the process, the corporate emphasis shifts toward short-term performance, with a focus on meeting quarterly earnings targets. These actions can weaken the long-term earning power of a company and often have undesired consequences such as cuts in R&D, capital investment, and employment.
Indeed, cuts to R&D were one of the interesting bones of contention in the DuPont-Trian fight. Trian contended that DuPont’s spending on R&D—its science—was not yielding an adequate return. We all know what it takes to turn a scientific advance into a successful product. But R&D has always been at the very heart of DuPont’s business model. So the May 13 showdown was also a referendum on the value of R&D, or at least R&D at DuPont, and R&D won. If Peltz had his way, it wouldn’t just hurt the company, it would hurt the industry as a whole. So hats off to Ellen Kullman.
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