The Edge by Michael Useem

Author:Michael Useem [Useem, Michael]
Language: eng
Format: epub
Publisher: PublicAffairs
Published: 2021-06-22T00:00:00+00:00

EDWARD BREEN’S TRANSFORMATION OF DUPONT

Until 2013, Ed Breen continued to run one of the Tyco spin-offs, retaining the Tyco moniker and presiding over a work force of one hundred thousand. Just fifty-six years of age but already a veteran of four executive suites, he made a compelling candidate for search firms, and among several offers and near offers was the top job at General Electric. After considering his many options, Breen agreed to join the DuPont board in 2015.

Here was an opportunity to deeply engage again, without the all-consuming commitment of line management. The company was industrial, diversified, and massive, just as Tyco had been when Breen had first arrived. He found DuPont ripe too for restructuring, and some of its owners clamored for just that. Activist investor Nelson Peltz led the charge. His $11 billion Trian Fund had acquired 2.7 percent of DuPont’s shares, not enough to gain control, but more than enough to rattle the cage. Peltz openly questioned whether DuPont’s management was “capable of achieving best-in-class revenue growth.” He wanted the company to “eliminate corporate bureaucracy,” and most far-reaching of all, to “separate the portfolio,” that is, to break it up. Other activist investors and the premier governance advisory services—Glass, Lewis & Co. and Institutional Shareholder Services—agreed. “We believe Trian has presented a compelling argument that Mr. Peltz is capable of working” with DuPont, said Glass Lewis, on its “ongoing transformation process.” Institutional Shareholder Services was more blunt: “Instead of addressing the core issues,” it said, DuPont’s board and management “are more inclined to obfuscation than accountability.” In other words, change or be changed.8

DuPont, however, recruited a second executive, James Gallogly, former CEO of LyondellBasell Industries (a chemical company), to join the DuPont board. He and Breen would, said the company, bring “deep expertise” to its transformation. Left unsaid: their business reputations ought to give Peltz and his allies pause.

Bringing on Breen and Gallogly, though, failed to repel the activist investor, and the Trian Fund turned against the company with a resolution for DuPont shareholder approval to add its own directors to the board, who would press for a breakup. The proxy campaign fell short, with 46 percent of the investor vote going for Peltz and his three hand-picked candidates, including former GE executive John Myers. And though that assault failed to deliver a knock-out punch, it came close at a time when DuPont’s share price was languishing, down by 27 percent in the run-up to the proxy fight.

Five months later, DuPont’s chief executive, Ellen Kullman, stepped down after seven years at the helm. Then, in an unusual but not unknown move, seen already at Boeing and later at General Electric, DuPont directors turned to one of their own to take charge. Boeing directors had selected fellow director James McNerney, General Electric directors selected their fellow director Larry Culp, and DuPont directors now selected their fellow director Edward Breen to serve as chief executive. DuPont was not facing a wholesale crisis quite yet, but a calamity was not far ahead unless the board secured the right leadership for the company.

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