News Journal: Peltz’s version of DuPont or the company it should be?

A couple of weeks ago I sat in at a meeting the editorial board of the News Journal had with Nelson Peltz, the activist investor whose Trian Fund now owns at least one percent of DuPont. He was meeting with the editorial board to make the case for putting him and three of his associates on the DuPont board.

He is obviously a smart guy, and I was impressed with the charts, graphs and numbers he threw out in his half-hour presentation. He focused relentlessly on increasing shareholder value. But at the end, I was puzzled by what he was missing.

Not once in his presentation to a Wilmington newspaper did he say anything about DuPont’s roots in and long-time commitment to the city and the state of Delaware. In fact, he seemed especially unhappy that the company owned a golf course, a playhouse, and a hotel. Someone on the editorial board pointed out that all three operated at close to breakeven, and that they had long been important parts of the community. No, he insisted, it didn’t make any difference that they didn’t cost the company anything to speak of. A corporation should concentrate solely on its only mission: to increase stockholder equity.

Mr. Peltz is certainly not alone in that view, but it is hard for me to square that with the reality of what Wilmington and DuPont have meant to each other for over 200 years.

There are a lot of different theories on what a corporation should value. I’ll cite just one, but emphasize that it comes directly from The Business Roundtable, a group of CEOs of major U.S. companies with $7.2 trillion in annual revenues and nearly 16 million employees. No one has ever accused the Roundtable of anti-business policies. A few years ago, it issued a report on “Company Stakeholder Responsibility” that called for more involvement with what it defined as a corporation’s ”major stakeholders,” a group that went well beyond owners of its stock.

“This is not Milton Friedman’s argument that the only social responsibility is to increase profits,” the report said, “but rather it is a practical matter—giving money to the opera doesn’t make up (in any moral sense) for short-changing customers or communities. We need to focus on how value is created in the basic business proposition. How does this company make customers, suppliers, communities, employees, and financiers better off? Capitalism is a system of social cooperation – a system of working together to create value for each other, value which none of us could create on our own. In this sense, business is already an enterprise with moral ramifications.”

If I still owned DuPont stock, I would be voting in next month’s annual meeting against Mr. Peltz and for giving Ellen Kullman the opportunity to continue to execute her vision for the company. One big reason I would vote that way is because Mr. Peltz wants to eliminate central research in Wilmington and send all research and development activities back to the managers of the company’s divisions. That position is far too short sighted and focused on the next quarter’s earnings. For DuPont to succeed in the long run it needs a vibrant Experimental Station working on ideas for new products and processes.

I wouldn’t be voting against Mr. Peltz, however, because DuPont is currently following the Business Roundtable’s vision of “Company Stakeholder Responsibility.” Sadly, it is not, perhaps because of pressure from major stockholders like Mr. Peltz. DuPont sold the playhouse in January and is reported to be accepting bids for the hotel and country club this week.

Recently, when it announced it had sold three parking lots used by the hotel and its restaurant, the DuPont spokesperson said that it is open to the possibility of selling the hotel, “if appropriate value can be received for shareholders.”

I think the Business Roundtable has it right when it says every corporation should ask, “How does this company make customers, suppliers, communities, employees, and financiers better off?”

For most of its storied history, DuPont asked that question. Mr. Peltz doesn’t believe it is even pertinent. But current management ought to remember what its predecessors built and make sure the company continues to make positive contributions to Delaware and the Wilmington community.

Ted Kaufman is a former U.S. Senator from Delaware.