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Dupont's Up-and-Down History Shaped Biden's Views -2-

11/23/2020 | 02:04pm

Consumer activist Ralph Nader wrote in a 1971 investigative report that "virtually every major aspect of Delaware life...is pervasively and decisively affected by the DuPont Company, the DuPont family, or their agents." He and other critics accused it of using that clout to suppress unions, avoid taxes, and discriminate against minorities. The company clashed over the years with regulators, antitrust enforcers, and activists over such things as groundwater contamination, hazardous waste and its control of the cellophane market.

DuPont leaders brushed aside those attacks and cultivated an image of a corporation steered by a broad civic mission. "Business is a means to an end for society, and not an end in itself," CEO Lammot du Pont Copeland, great-great-grandson of the founder, wrote in a 1967 corporate publication. "Therefore business must act in concert with a broad public interest and serve the objectives of mankind and society."

That's how many Delawareans, including Mr. Biden, saw the company. DuPont was one of the first companies to provide employees health insurance and pensions. In his 2007 autobiography, Mr. Biden recounted boyhood memories of neighbors who "wore tie clips imprinted with the company trademark: a little oval with DuPont in the center. There was a saying among the DuPont dads: 'The oval will take care of you.' "

After winning his upstart bid for senator in 1972, Mr. Biden quickly developed a good relationship with DuPont, meeting with top executives at least twice a year and speaking regularly to gatherings of the company's rising stars. In 1975, the new senator bought a 10,000 square-foot mansion built and once owned by the du Pont family. He helped DuPont win federal grants and earmarks.

DuPont executives and employees were modest contributors to Mr. Biden's Senate campaigns, as well as to those of his Republican opponents, according to the Center for Responsive Politics. They gave him a total of $46,725 in his four campaigns elections between 1990 and 2008, the years covered by Center data, and $12,525 to his GOP challengers.

"He helped us a lot," says Charles Holliday, DuPont's CEO from 1998 to 2008, now chairman of Royal Dutch Shell PLC. There were also clashes over taxes and regulation: Mr. Holliday recalls lobbying Mr. Biden unsuccessfully to drop support for legislation on safety regulation of rail transport. Still, he adds, "He talked a lot about the company, how it cared about its employees."

Then, through the 1990s and early 2000s, DuPont saw its profit margins squeezed as many product lines such as nylon became commoditized by Asian competitors and the company's vaunted innovation culture struggled to come up with new high-profit patent-protected chemicals to replace them. It tried to pivot toward biotechnology and agriculture, but had trouble catching up with leaders in the field such as Monsanto Co. By the early 2000s, DuPont's Delaware employment had fallen to less than half the 1990 peak.

DuPont faced a new challenge in 2013, when Mr. Peltz's Trian took a 2.2% stake worth $1.3 billion and demanded big changes. A college dropout from Brooklyn, Mr. Peltz first won Wall Street fame trading junk bonds in the 1980s. He and two others later founded Trian, which went on to shake up corporate icons such as H.J. Heinz Co., Wendy's Co., and Bank of New York Mellon Corp. Mr. Peltz said DuPont was "destroying shareholder value" by clinging to its hotel, country club, and theater, and maintaining a large R&D budget with few visible returns. He decried its complex blend of seven business lines, demanding it break into separate, more streamlined parts.

Facing off against Mr. Peltz was CEO Ellen Kullman. She grew up in Wilmington, attending the same Saturday evening mass as the Bidens. With degrees in engineering and business, she was climbing the ladder at General Electric Co. before getting lured back home to DuPont.

Mr. Biden met Ms. Kullman a few times as she rose through the corporate ranks and later served on the Obama administration's Council on Jobs and Competitiveness. Mr. Biden saw her as someone focused on the long term and employees, said Mr. Graves. At a 2015 luncheon with Chinese President Xi Jinping and American business leaders, the vice president singled out Ms. Kullman as "the best one."

Other companies gave Mr. Peltz board seats without a fight. Ms. Kullman and Trian negotiated privately for months to reach an agreement, but those talks broke down, triggering one of the hardest-fought proxy battles in years.

Ms. Kullman noted that since she'd become CEO in January 2009, DuPont shares had outpaced the broader market. She dismissed attacks on the hospitality business, whose costs she said were minimal, and defended R&D as providing value for investors willing to wait a few years to see returns. She ran local newspaper ads warning DuPont's role as a "proud pillar of the greater Wilmington community" was under attack. In a close 2015 vote, shareholders rejected Trian's proposal to replace four of the 12 directors.

Mr. Peltz lost the battle but won the war. Later that year, DuPont fell far short of its earnings guidance. Management blamed the miss on a strengthening dollar and a sharp slowdown in big agriculture markets such as Brazil. But investors had grown weary of repeated profit shortfalls and called for deeper cuts. Ms. Kullman resigned amid board pressure.

Her successor, consulting closely with Mr. Peltz, announced at the end of 2015 a complex plan to merge with Dow Chemical Co., then to break the combined company into three smaller parts, mirroring a Peltz demand. Shortly after the merger announcement, DuPont said it would lay off 1,700 of its remaining Delaware employees, leaving around 4,400. The Wilmington News Journal ran a column headlined: "Uncle Dupie is Dead."

The new smaller, more-focused DuPont makes specialty-sciences products ranging from adhesives to biomaterials.

Five years after the DuPont-Dow merger was announced, the combined market value of the current DuPont and the two other companies spun out of that process is roughly the same as it was back then, lagging behind the S&P 500, which is up about 70% over the same period. Total jobs fell about 9% through 2019 to around 92,500.

Most analysts following the company say the transformation was worth it. "They're far more efficient and lean than they would have been," says David Begleiter, managing director for chemicals and agriculture for Deutsche Bank Securities Inc.

Still, this past February DuPont's board, disappointed with the pace of restructuring, shook up management yet again.

Mr. Biden didn't comment publicly on DuPont's turmoil but in private was frustrated at Ms. Kullman's departure and the company's breakup, said Mr. Graves.

Ms. Kullman, now CEO of Carbon Inc., a 3-D printing technology company, recalls running into Mr. Biden a few times after departing DuPont. When they crossed paths, she says Mr. Biden would indicate to her his displeasure.

In January 2016, he decided to make a major declaration on the failings of 21st century American capitalism at the World Economic Forum in Davos, Switzerland. He recounted to a room full of CEOs a conversation that he said he'd had with a top corporate executive.

The men met, in Mr. Biden's telling, on the Amtrak platform in Wilmington, the politician heading southwest to Washington, the business leader northeast to New York. "I said 'Where are you going?' " Mr. Biden recalled. "He said: 'To meet with some sniveling little guy on Wall Street who's gonna tell me that I have to increase profitability in the next quarter, or I'll be downgraded.' "

The executive complained that would force him into "short-term decisions that were not in the long-term interest of his company," Mr. Biden said, then lectured his audience: "A lot of you corporate leaders don't like me saying that, but you know it's true."

Biden aides said the company was DuPont, but couldn't identify the executive.

Around then Ben Harris, the vice president's chief economist, and Mr. Graves organized nearly a dozen meetings with CEOs, investors, labor leaders, and scholars in which Mr. Biden delved deeper into the intersection of finance and business. Jeff Zients, an Obama economic adviser now co-chairing the Biden transition team, was also involved.

The guest lists were heavy with outspoken critics of so-called short-termism and shareholder focus, including BlackRock Inc. CEO Larry Fink, Virgin Group founder Richard Branson and Jeffrey Sonnenfeld, a Yale School of Management professor. At one meeting, University of Massachusetts Lowell economist William Lazonick argued buybacks explained why workers' wages lagged behind their productivity, which became a regular theme for Mr. Biden, though other economists dispute it.

Aides say Mr. Biden's original goal was to persuade the Obama administration to end its term embracing an ambitious agenda for reorienting American business. Some administration economists balked: They said curbing stock buybacks wouldn't raise wages or capital spending. Officials also concluded there wasn't time to write new regulations, and legislation stood no chance in the Republican-controlled Congress.

Shortly after leaving office, Mr. Biden compared the effort to the famous observation from British philosopher G.K. Chesterton about religion -- "it's not that Christianity has been tried and found wanting; it's been found difficult and left untried." He added: "that's kind of where we are in a policy sense."

--Jacob Bunge in Chicago contributed to this article.

Write to Jacob M. Schlesinger at jacob.schlesinger@wsj.com

(END) Dow Jones Newswires

11-23-20 1403ET

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