‘Uncle Dupie is dead’: Kullman’s exit is seismic shift
From Delaware Online, posted October 12, 2015
Dupont CEO Ellen Kullman’s Abrupt Exit a Seismic Shift Signaling Trouble for Company and Delaware.
CHAPTER 1: End of an era
When former DuPont Co. executive Dave English learned that company CEO Ellen Kullman would step down in a matter of days, it hit him like a kick in the gut. “DuPont does not do things this way,” the former general manager of the DuPont Country Club said to himself.
His next thought: “This is the end of an era.”
English is not alone. To many in the extended DuPont community, Kullman’s uncharacteristic departure so soon after she led the company through its first-ever proxy battle, against activist investor Nelson Peltz and his Trian Fund Management, is evidence the much-celebrated “DuPont Family” is not that close.
Kullman’s abrupt resignation Monday, which many believe was forced, signals the end to the benevolent patriarch that brought enormous pride and prosperity to Delaware in the 20th century, former executives say.
“Uncle Dupie is dead,” said Tatiana Copeland, a du Pont family member and former DuPont manager. “That message came through loud and clear.”
While it’s been apparent for some time that the $66 billion company with 60,000 employees worldwide was moving away from its long tradition of resoluteness, patience and loyalty in the face of difficulties, Kullman’s exodus came as a seismic shift, said Kurt Landgraf, former DuPont chief financial officer who was in line to become CEO in the late 1990s. Now, it appears DuPont corporate governance is no different than other major corporations focused largely on quarterly profits, he said.
“This hits home because it is home. Ellen Kullman was a homegrown CEO whose family is here. This marks the end to the ‘DuPont Family’ tradition,” said Landgraf, who served as chairman of DuPont Pharmaceuticals.
What’s more, the board’s leadership during this crisis, doesn’t bode well for DuPont’s future, former executives and leadership experts say. It’s unprecedented in DuPont’s modern history not to have a seamless transition to a new CEO.
“That the board had so little backbone is shameful,” said Jeffrey Sonnenfeld, senior associate dean for leadership studies at Yale School of Management. “In fact, there has just been one tough quarter since shareholders enthusiastically ratified Ellen Kullman’s leadership (following the proxy vote). Such short-term thinking is exactly what DuPont attributed to Nelson Peltz and Trian – but I do not believe Peltz has ever acted as impulsively as DuPont’s own board in a key strategic decision.”
Even Peltz said last spring that he did not want to replace Kullman, but had issues with the board. Peltz, who proposed splitting the company, wanted to put Kullman in charge of an entity that would have included the agriculture, industrial biosciences, and nutrition and health businesses, according to insiders. Peltz and Edward Garden, Trian’s co-founder, declined to comment.
Now, plans to slash company expenses by $1.6 billion next year, on top of the cuts already made by Kullman, have many in that state dreading what’s in store for DuPont and Delaware in 2016. That deep a reduction will be difficult for even DuPont to absorb, Landgraf said.
Many fear Delaware, with approximately 7,000 DuPont employees, will bear the brunt of the pain. “It’s not going to be very comfortable,” Landgraf said.
“I’m very worried,” said Michael Bowman, former DuPont vice president and general manager of advanced materials system and now head of the Delaware Technology Park at the University of Delaware. “DuPont has changed many times and it’s going to change now, but I’m fearful.”
Unless the board reverses itself completely and brings in a leader who will build the organization, DuPont could destroy itself, Sonnenfeld said.
“The company’s worst enemy is the board of directors,” Sonnenfeld said.
But others are withholding judgment.
“I am not judging the board in this case without knowing more. It is altogether possible that Trian Fund was threatening another proxy fight due to the decline in the stock price, and that the board and CEO Kullman concluded that some action was required to avoid another difficult proxy contest,” said Bill George, former chief executive of Medtronic and a director Goldman Sachs.
Now, George is taking a wait-and-see approach, saying it’s “way too soon” to know what the new leadership will do. The temporary chief executive, Edward Breen, needs some time to analyze the situation, he said.
“I would not judge Ed Breen’s actions before he decides what to do. I suspect he will lead an intense examination of the company’s portfolio post-Chemours, and work with the board to decide. I think he will realize the value of DuPont’s central research labs and keep it healthy. He may elect to take out more costs from the operation. He may also conclude to spin off the agriculture business, as other companies have done,” George said.
Significant cuts may be required to keep the company intact and on-track, he said. Breen, is equal to the job, George added.
“He is a highly competent and rational person, with a long-term view, as he has proven in the past,” George said. “The key will be to appoint a new CEO before the end of the year, and before the activists descend once again.”
CHAPTER 2: The DuPont Age
DuPont’s unparalleled influence over the past 213 years has woven itself so deeply into the fabric of the state, it’s often not apparent.
But it was evident recently in the excited face of a toddler at A.I. du Pont Hospital for Children.
Inside a glass atrium, a pig-tailed pre-schooler was having the time of her life in front of an interactive 50-foot wide, 9-foot high digital video wall. With a wave of her arms she made a blue bird fly in the Disney-style magical landscape depicted on the screen. Her father was having trouble getting her away.
The so-called Discovery Zone was made possible with a $2.5 million gift from DuPont for the capital campaign supporting a 2014 hospital expansion. Lori Counts, operational vice president at Nemours Fund for Children’s Health, said DuPont has been extremely generous to hospital over the years.
“DuPont’s support was critical to this extensive project,” Counts said.
Indeed, the company’s impact on Delaware in the 20th century is impossible to overstate.
What was once a gunpowder company on the Brandywine Creek hit the big leagues in the early decades of 20th century after three du Pont cousins took over the 100-year-old family business in 1902 and transformed it into a global powerhouse. Almost overnight it gave Delaware a unique identity and worldwide bragging rights.
David Weir, a former DuPont vice president for global research and development and currently director of the University of Delaware’s Office of Economic Innovation and Partnerships, said he knew about DuPont growing up in Scotland.
“DuPont defined the state,” said Delaware historian Susan Mulchahey Chase. “Economically it was very powerful in the country and the company changed American life with its products.”
One of its most significant first acts of the cousins was the decision to stay in Delaware and not move to New York City or Philadelphia. Downtown Wilmington was transformed from an industrial-based economy to office economy with the construction of the DuPont Building, which opened in 1907.
To accommodate visitors, the company built a first-class hotel. As a cultural amenity, it opened a playhouse to host shows on the Broadway circuit. Next, it led a behind-the-scenes creation of Rodney Square, one of the earliest attempts at the planning of public space, according to a 1981 survey of Wilmington’s city halls by the planning department.
When there was a housing shortage in New Castle County as the company went through an historic growth spurt during World War I, DuPont turned homebuilder. While Wawaset Park at the intersection of Greenhill and Pennsylvania was in Wilmington, it was the beginning of the major influence DuPont would have on suburban development in Northern Delaware.
By 1918, an advertisement billed Wilmington as “the wealthiest city per capita in America,” according to Carol E. Hoffecker in her book “Corporate Capital: Wilmington in the 20th century.” One newspaper article referred to it as the “Magic City.”
The growth didn’t stop. With the invention during the Great Depression of the blockbuster product, nylon, the first completely man-made fiber, DuPont was shot into the stratosphere. In 1939, DuPont opened the first nylon plant in Seaford, bringing significant job and economic growth to Sussex County.
Following World War II, DuPont launched a major expansion – adding 10,000 new jobs in five years. The suburbs around Wilmington blossomed with new housing developments targeted to the influx of young professionals. The Experimental Station also underwent a dramatic expansion with 19 new buildings.
That new crop of employees made their impact felt in Delaware, serving on school boards and charitable organizations. Employees also lent their time to economic development efforts, civic associations and politics.
One former DuPonter, Russell W. Peterson, became governor. Another, Daniel S. Frawley, became Wilmington mayor.
DuPont was a key player in building the University of Delaware over the years, including helping in the creation of the Delaware Technology Park and the Delaware Biotechnology Institute. Not only did the company lend talent to the organizations, but retired DuPonters became leaders of the technology efforts.
“The history of DuPont and the history of the University of Delaware are inextricably linked,” said former UD President Patrick Harker in 2012.
Others who left the company started businesses that led to significant economic growth for the area, including W.L. Gore & Associates, founded by former DuPonter Wilbert “Bill” L. Gore. More recently, former DuPonters helped build Incyte Corp., a drug discovery company that is a bright light in the state’s economic picture.
Paul A. Friedman, the scientist and physician who led Incyte from 2001 to 2014, had been president of DuPont Pharmaceuticals Research Laboratories, a wholly owned subsidiary of DuPont Pharmaceuticals Co. Friedman was joined at Incyte by nearly 30 other DuPont Pharma scientists. Many were part of a DuPont team that developed Sustiva, a successful drug used in the treatment of HIV.
Because of the influence of the du Pont family members, who led the company for most of the 20th century, the family’s values permeated the state. The corporate culture prized thoroughness, excellence, intellectual achievement, scientific discovery and innovation. Since DuPonters served on school boards and PTAs, these ideals trickled down to the school systems.
There was also a conservative element that put great store in patience, perseverance and loyalty.
“It’s in the genes of the du Pont family to be conservative and look at the long-term,” Copeland said. “I feel so sad that something that is part of my life and made me what I am is gone forever.”
People were proud to say they worked for DuPont.
CHAPTER 3: The turning point
Even the abrupt announcement of Kullman’s departure seemed uncharacteristic of DuPont, say long-time observers.
Kullman’s siblings were not told of the impending announcement until shortly before it became public, said her brother Brien Jamison. Kullman called her siblings to tell them she was stepping down and it would be hitting the news later in the day.
“We had no idea,” Jamison said. “I can tell you whatever decision she made she made for the DuPont company. She was worried more about the company and where it was headed than what the stock price was doing. She always told me she had a plan and she didn’t get to finish her plan.”
Sen. Tom Carper said he was baffled at Kullman’s exit after she fought so valiantly for the company in the proxy fight.
“I think she was heroic. To see this reward is troubling,” Carper said. “I don’t get it.”
George said believes Kullman behaved heroically in resigning.
“Unless you have weathered a proxy fight personally, it is hard to overestimate just how much time and effort it takes from the CEO and how distracting it is for the business itself. Ellen Kullman did an exceptional job in fending off Trian, and this will be an important part of her legacy,” George said.
He said he believes Kullman felt she was a “lightning rod for criticism of DuPont’s recent results and decided to step down to relieve the pressure on the company”
“This is so typical of Ellen – always putting DuPont ahead of her own interests,” he said.
Sonnenfeld said after he referred to Kullman as “Joan of Arc” during the proxy contest, Kullman contacted him and said:
“ ‘You know what happened to Joan of Arc?’ ” Sonnefeld recalls Kullman asking him. “ ‘She was burned at the stake.’ ”
Going forward, Carper said the state and Congressional delegation wants to do everything it can to preserve Delaware jobs.
“We need to continue to focus on what we can do to make this a great place to do business,” Carper said.
But the task could be difficult, former executive and observers said. What would be most devastating to the company would be to gut central research and development and spin off business. The way Sonnenfeld sees it, the board has inflicted more damage on the company than any global competitor could have.
The current tough quarter DuPont experienced is a result of global forces beyond Kullman’s control, George and Sonnenfeld said – turmoil in the Chinese economy and the increased value of the dollar, making some company products more expensive abroad, dampening exports.
“Economic growth in China is way down and all companies are reflecting this in sales below expectations,” George said.
But Sonnenfeld said there are many CEOs of Fortune 500 companies “with far more prolonged and problematic exposures to the ripple effect of China’s economic slowdown that have not be treated so badly” as Kullman was.
“A board at a dot-com start up wouldn’t do this,” he said.
It would be “a colossal mistake” for DuPont to now begin spinning off businesses, he added.
Weir said DuPont has reinvented itself so many times in 213 years, going from a gunpowder company to chemicals to materials to life sciences, it’s easy to believe the company could do it again.
But most in the extended DuPont community in Delaware said this time it feels different.
“This could be this is the end of the road,” Weir said.
This article was originally posted 10/9/15 on Delawareonline.com.