Just seeing that Trian is a hedge fund sets off the alarms. Their interest in companies has nothing to do with the success or management of the company. They go in to break it up, reduce employment, sell it off, whatever it takes to bring the money home to them. A blight on the economy.
38
I worked at DuPont for 20 great years, during which the rise of the sole focus on immediate share price took place. For sure if Peltz wins it will be a disaster for Wilmington and DuPont's great traditions, which have brought so much success for so long. I believe the financial sector has too much power, but does Lipton, Nocera or anyone have a plan as to how to roll this back?
43
I have been receiving so many phone calls and paper proxies - I have elected to vote electronically - that I would like to kick BOTH sets of board out. Either way, they are wasting shareholders' money as well as time
7
In practice today, much of the stock market has become a 'casino'.
Michael O'Neil's comment today concerned this.
But it isn't supposed to be a 'casino' If it actually is a 'casino', shouldn't that be outlawed?
So we seem to need to keep it, just because we need it to be there, to retain a semblance of the free market it's supposed to be, and thus retain hope it could be restored to what it originally was.
It's supposed to be a marketplace in which actual investors, who care about something that rightfully can be called 'shareholder value', can trade the shares and provide capital for bona fide companies.
Companies are being subverted, their executives working for misplaced goals, short-term profits ..., as well as the investing public then taking advantage of this.
It isn't helping the real economy; it distorts things by diverting too much money (under economic conditions where actual spendable money is in apparent short supply), for anything else. ... Infrastructure, more taxes to cover high cost of running the government, a fair wage for workers. And if we think harder, there are probably a lot of other ways that this bad use of money is causing problems.
It also gives a false view it's a good economy, and fattens profits as if making money from increased share values is real profit ... let alone deserved profit for actual production and property creation in real terms (not any real estate bubbles either!)
Michael O'Neil's comment today concerned this.
But it isn't supposed to be a 'casino' If it actually is a 'casino', shouldn't that be outlawed?
So we seem to need to keep it, just because we need it to be there, to retain a semblance of the free market it's supposed to be, and thus retain hope it could be restored to what it originally was.
It's supposed to be a marketplace in which actual investors, who care about something that rightfully can be called 'shareholder value', can trade the shares and provide capital for bona fide companies.
Companies are being subverted, their executives working for misplaced goals, short-term profits ..., as well as the investing public then taking advantage of this.
It isn't helping the real economy; it distorts things by diverting too much money (under economic conditions where actual spendable money is in apparent short supply), for anything else. ... Infrastructure, more taxes to cover high cost of running the government, a fair wage for workers. And if we think harder, there are probably a lot of other ways that this bad use of money is causing problems.
It also gives a false view it's a good economy, and fattens profits as if making money from increased share values is real profit ... let alone deserved profit for actual production and property creation in real terms (not any real estate bubbles either!)
17
Why do we keep thinking that our peculiar form of capitalism delivers better results than the more sane and balanced North European version?
Mr Nocera focuses on R&D spend as an indicator of wise resource allocation by corporations. Well, Sweden and most other north European nations exceed our level of R&D as a percent of GDP. Germany and Switzerland mirror our trend in R&D as % of GDP.
These generous, social democratic countries are efficient and effective, with many world-class companies that produce outstanding, highly engineered products that compete favorably on world markets. The Nordic countries in particular also produce great entrepreneurs. In terms of annual GDP growth, Sweden has consistently kicked our tail for 20 years!
The Nordic and Germanic form of capitalism offers generous social provision, excellent universities, a high degree of social cohesion and stability while allowing great individual freedom. And several are highly pluralistic, even multicultural societies.
When will Americans realize that our form of capitalism lags far behind other forms available to us? Look across the (northern) pond, fellow Americans: there's a better way.
Mr Nocera focuses on R&D spend as an indicator of wise resource allocation by corporations. Well, Sweden and most other north European nations exceed our level of R&D as a percent of GDP. Germany and Switzerland mirror our trend in R&D as % of GDP.
These generous, social democratic countries are efficient and effective, with many world-class companies that produce outstanding, highly engineered products that compete favorably on world markets. The Nordic countries in particular also produce great entrepreneurs. In terms of annual GDP growth, Sweden has consistently kicked our tail for 20 years!
The Nordic and Germanic form of capitalism offers generous social provision, excellent universities, a high degree of social cohesion and stability while allowing great individual freedom. And several are highly pluralistic, even multicultural societies.
When will Americans realize that our form of capitalism lags far behind other forms available to us? Look across the (northern) pond, fellow Americans: there's a better way.
45
To reach its size, DuPont had to have done something right.
BUT, firms reaching that size must struggle against
1. loss of customer focus (Indeed, who ARE the customers?)
2. self-congratulation at such bigness, followed by drift
3. bureaucracy that slows information flow to a crawl,
4. the tendency to bury problems
5. shifting attention inward towards cozening one's superior and looking good to
the layers over him.
Not all bottom-level employees deal with customers, but customers' and retailers' must deal with bottom-level employees to get quick response. They become less and less important in an overweight firm.
Like GM, Ford, Boeing, Exxon and other huge corporations, DuPont evolved into an organization whose reality is shaped by princes at the top, and less by customers. Past CEO Woolard knew this but was also that trend's victim.
Sum totally, any CEO today must daily sweep from meeting to meeting, hearing broad generalities, while wondering at the underlying reality. It is in the interests of layers of courtiers below the CEO to sway his perceptions so they keep their jobs and even advance. That often requires suppressing vital information. A far cry from Apple Computer. But Apple is not immune to such evolution either.
BUT, firms reaching that size must struggle against
1. loss of customer focus (Indeed, who ARE the customers?)
2. self-congratulation at such bigness, followed by drift
3. bureaucracy that slows information flow to a crawl,
4. the tendency to bury problems
5. shifting attention inward towards cozening one's superior and looking good to
the layers over him.
Not all bottom-level employees deal with customers, but customers' and retailers' must deal with bottom-level employees to get quick response. They become less and less important in an overweight firm.
Like GM, Ford, Boeing, Exxon and other huge corporations, DuPont evolved into an organization whose reality is shaped by princes at the top, and less by customers. Past CEO Woolard knew this but was also that trend's victim.
Sum totally, any CEO today must daily sweep from meeting to meeting, hearing broad generalities, while wondering at the underlying reality. It is in the interests of layers of courtiers below the CEO to sway his perceptions so they keep their jobs and even advance. That often requires suppressing vital information. A far cry from Apple Computer. But Apple is not immune to such evolution either.
5
Just because Dupont and other large companies don't do the R&D, doesn't mean it won't get done. If large companies won't develop new technology, then bold entrepreneurs and small start-ups will. They will either put the large companies out of business and replace them, or force the large companies to buy their technology at a gigantic price. That's the way capitalism works. Where are the largest US companies from 1950 today? Some of them are still around, but most of them aren't.
Basic research can be very expensive and out of the reach of many smaller companies irrespective of how talented their staff and how dedicated their ownership. As the author points out, it can takes years to turn basic research into products. Stripping that focus out of companies who rely on it may produce short term savings but much greater long term harm. Companies cannot save their way to growth.
20
Shareholder value is a misnomer. What we are really talking about here is stock market pricing. Only if we believe that the stock market it a rational reflection of true value can this be used as a substitute for cogent thought.
The stock market is a casino. Therefore the premise is questionable at best.
In fact if 'shareholder value' increases by selling your tomorrows to get a higher stock price today then it is a false value indeed. It is like crowing over the increase in profits from canceling the feed bill and selling the cow's milk. You have not pocketed a profit, for there will be no milk tomorrow.
The stock market is a casino. Therefore the premise is questionable at best.
In fact if 'shareholder value' increases by selling your tomorrows to get a higher stock price today then it is a false value indeed. It is like crowing over the increase in profits from canceling the feed bill and selling the cow's milk. You have not pocketed a profit, for there will be no milk tomorrow.
30
'Although DuPont is trying to convince me otherwise....' What an understatement!! We are getting two or three calls a day from them, begging for our votes, even after we tell them we sent them in. This has gone on for months with the intensity building this past week to a ridiculous level. It has gone beyond annoying to pathetic. DuPont pays us excellent dividends but we are seriously looking at selling our shares before Wednesday to avoid this mess.
2
Save this article and re-read it every time you hear some conservative politician say that government should be run more like a business.
19
Have you looked at Trian's website? I have. I find them a motley crew of corporate raiders with the hubris to boot.
14
Hedge funds prosper by sucking the life and value out of businesses, eroding their ability to invest and to expand employment. And then the hedge fund managers walk away with tax free treasure they have looted at the expense of employees and other shareholders.
And what does the congress do? It takes its cut in political contributions, perpetuates the inequitable tax treatment that lets the hedge fund runners escape fiscal, financial and civic responsibility.
And what does the congress do? It takes its cut in political contributions, perpetuates the inequitable tax treatment that lets the hedge fund runners escape fiscal, financial and civic responsibility.
29
Why are well run companies always cutting their workforce? That definition of "well run" should sicken you. Good for Mr. Lipton's statement.
17
Marty is 100% correct.
2
The roots of this invasive vine that is methodically strangling our economy lie in the very notion of passive income. Our society is destructively wed to the notion of passive income as a good thing, desired and deserved by all. As my grandmother used to say: “Nothing is for free” …nor should it be. As a shareholder, I should at least be taking a risk by committing my funds for a predictable length of time.
When I buy shares in DuPont, I am making them a loan that I can call it in at any time. DuPont cannot rely on my funds to operate or plan for the future. This isn't investing; it's speculating. We need to require that shares be held for a minimum length of time, or somehow tie the return on our “investments” to the length of time they are held.
The capitalist dream promises us all a life subsidized by passive income, as shareholders in a thriving global economy. This hope of individually tapping into corporate earnings without lifting a finger, has supplanted the very notion of society, in which we all "invest" in our commonwealth through taxation and voting. The difference being, of course, that we are not free to sell off our "shares" in the commonwealth and reclaim our taxes, but are - by definition – in it for the long haul. It is no wonder that so many of us are loathe to truly invest in society, when we can roll the dice for a passive stake in corporate earnings without any of the work or commitment.
When I buy shares in DuPont, I am making them a loan that I can call it in at any time. DuPont cannot rely on my funds to operate or plan for the future. This isn't investing; it's speculating. We need to require that shares be held for a minimum length of time, or somehow tie the return on our “investments” to the length of time they are held.
The capitalist dream promises us all a life subsidized by passive income, as shareholders in a thriving global economy. This hope of individually tapping into corporate earnings without lifting a finger, has supplanted the very notion of society, in which we all "invest" in our commonwealth through taxation and voting. The difference being, of course, that we are not free to sell off our "shares" in the commonwealth and reclaim our taxes, but are - by definition – in it for the long haul. It is no wonder that so many of us are loathe to truly invest in society, when we can roll the dice for a passive stake in corporate earnings without any of the work or commitment.
6
"When I buy shares in DuPont, I am making them a loan that I can call it in at any time."
When you buy shares, you are buying from another investor, who bought from a previous investor. The effect upon the DuPont Co. is insignificant...'cuz it's pretty much, "Turtles all the way down."
When you buy shares, you are buying from another investor, who bought from a previous investor. The effect upon the DuPont Co. is insignificant...'cuz it's pretty much, "Turtles all the way down."
4
Corporate greed explains why so many jobs have been outsourced.
Instead of keeping the jobs in America, making a good profit, showing patriotism and loyalty to the American worker, they send the jobs out of country strictly for profit.
This sort of greed is one of the things ruining our country.
Instead of keeping the jobs in America, making a good profit, showing patriotism and loyalty to the American worker, they send the jobs out of country strictly for profit.
This sort of greed is one of the things ruining our country.
9
I know this is simplistic, but I can't help but imagine how corporate management and shareholder behavior would be different with a more aggressive time-dependent capital gains tax: hold it ten years and pay 1%; sell it after a day of "ownership" and pay 99%.
19
I fail to see the difference between cutting employment or simply shipping them overseas, just like many companies have been doing with decades without the influence of these activists. China did not to get to be the supposed Economic Giant it claims to be ( I think otherwise) without the active support of Western companies who closed their manufacturing bases in our Country, shipped the jobs overseas closing thousands of plants and laying off millions of people, in order to make more profits for their shareholders. Trickle down economics is the reality of life: enrich a few with short term profits, and to hell with the majority and the future generations.
7
Kudos to Mr. Lipton. CEOs now consider one year to be long-term.
Imagine if CEOs were compensated just with stock shares, but every time they lay off employees, the CEO loses some shares. Every time they hire employees, they get more shares. The CEO's fate becomes linked to that of the average employee.
Laying people off just to improve the net quarter's results will cause the CEO to lose shares. But if they hire too many employees in a quest to get more share, results and share price will drop. Some of them might actually do the right thing...
Imagine if CEOs were compensated just with stock shares, but every time they lay off employees, the CEO loses some shares. Every time they hire employees, they get more shares. The CEO's fate becomes linked to that of the average employee.
Laying people off just to improve the net quarter's results will cause the CEO to lose shares. But if they hire too many employees in a quest to get more share, results and share price will drop. Some of them might actually do the right thing...
19
Listening to the shareholder class whine in view of an 18,000 plus Dow is like listening to spoiled children say they do not have enough toys. Peltz is like much of Wall Street where the vision is short term value and long term projections are next quarter earnings. This view has ruined corporate America, cost us millions of jobs, destroyed communities, stifled long term growth and innovation. Wall Street has been out of control and over stepped its bounds starting back in the Reagan era, they need to be collared and stiff armed.
42
Well said. We need stake-holder capitalism, and the reinstatement of Glass-Steagal, and a return to an aggressive progressive tax.
14
Mr. Nocera makes an excellent point regarding the impact of cutting R&D. As a former R&D employee, I'd like to add to his concern by saying that DuPont's ability to attract innovative R&D talent will deteriorate and that the company will cease to be value building force that it has been for these past 212 years.
15
R&D always seems to take a hit even inside a company. It takes someone with a long view to really protect the R&D side of the profitability equation. The strongest proponent is usually the original entrepreneur. Short term thinking is the usual mode for Activists and has its own reward. Untimely, it is unknown what gems could have been created by even more R&D in any company. There is the dilemma.
10
Over the past 35 years, 'Shareholder activists' seeking to 'enhance shareholder value' have liquidated our manufacturing and technology base for a quick buck. That it remains rampant shows the corruption and venality of our politicians.
45
I wonder if "shareholder value" will have any effect upon the production of chemicals that poison humans daily, and irreversibly pollute the environment. Oh well, as long as some operatives are making more money, who cares? It's not as if there's any moral question about the business of owning and operating DuPont, right?
8
If you are worried about being poisoned by "chemicals", then you had better stop typing on that computer made of hardened plastics and a zillion other chemicals. And by the way, I'd rather have DuPont manufacturing my chemicals than many of the other sorts of companies in the industry.
6
I should also point out that Delaware is at the top of the list of states with highest rates of cancers. Wonder how that happened? Wonder why so many "corporations" and banks are located there? How about it, Joe?
2
Too many directors of large companies are just a resume duct taped to a golfing partner. And the resume too often includes broad yet superficial
experience-- simultaneous service on two or three other boards as well as
service in charitable foundations, universities, etc. Those credentials are
in addition to whatever the board member does as full time work-- a law
practice or an executive position at a large company. With these time consuming interests the directors, whether they're "activist" or not, cannot possibly contribute the requisite effort or attention the job demands.
They attend meetings by Skype and exercise their generous option packages doing scarcely any productive oversight over the company on whose board they serve.
experience-- simultaneous service on two or three other boards as well as
service in charitable foundations, universities, etc. Those credentials are
in addition to whatever the board member does as full time work-- a law
practice or an executive position at a large company. With these time consuming interests the directors, whether they're "activist" or not, cannot possibly contribute the requisite effort or attention the job demands.
They attend meetings by Skype and exercise their generous option packages doing scarcely any productive oversight over the company on whose board they serve.
24
These people are links in an interlocked directorship far more sweeping than any contemplated by the authors of the Sherman Anti-Trust Act.
12
The Roger Martin article from 2010 is still a perfect analysis today. "Stockholder value" is what has driven the enormous multiple in the ratio of executive compensation to average pay; it has led to elimination of millions of American jobs; it has destroyed the incentives to invest in R&D, producct development, and support of innovation. Most of us, readers of colums like Joe's, are stockholders. It's hard to believe we are all stupid enough to believe that what's good for CEO's making tens and hundreds of millions in overall compensation is also good for us. They don't care about us stockholders, and the proof is in the pudding.
27
In the 1980s, when Icahn's idea that shareholders owned the company and therefore must be considered first was generally accepted, the country started its downhill trend toward rich versus poor. Shareholders can hardly be considered "owners" when they can bail out of the company in an instant.
Big companies are constantly praised by some of our representatives as "job creators," when in truth they are easily persuaded to become job destroyers in favor of becoming "wealth creators." Certainly, what's best for the country is not part of the consideration.
IBM became a huge success early on because they had an advisor who convinced Tom Watson that the way to success was to take good care of your employees and customers first, and success would follow. If only we had advisors like that today.
Big companies are constantly praised by some of our representatives as "job creators," when in truth they are easily persuaded to become job destroyers in favor of becoming "wealth creators." Certainly, what's best for the country is not part of the consideration.
IBM became a huge success early on because they had an advisor who convinced Tom Watson that the way to success was to take good care of your employees and customers first, and success would follow. If only we had advisors like that today.
50
Thanks. We won't see it with the dominance of theGOP however.
3
I am not sure how you can argue in favor of a hedge fund whose only interest is in the short term. Companies that play for the short term are not going to last. Unfortunately, it does not matter for the hedge funds which will simply book its profits and leave. The employees and broadly the culture of innovation and discovery are the victims of this.
23
Markets respond to current conditions, not conditions 10 or 20 years from now. Wall Street controls business. Wall Street does not make anything, but it owns everything. Wall Street is powered by rising stock prices. Emphasis on the word, rising. A company can have good sales and good profits, but if those profits do not steadily increase, the company is targeted for takeover. There must be something wrong.
This drives the race to the bottom. Nonfinancial equity is strioped out in the name of immediate profits. Assets are sold off, people are fired. Everything gets stripped down to a maximum profit making machine. The profits are diverted to the shareholders, Wall Street. But what about 10 years from now? The losses of equity weakens the company and reduces long term competitiveness. The time scale for new technology to become common in consumer products is about 30 years.
Running a business is like raising a child. It constantly has to be fed and nurtured. It requires continuous investment. Corporate raiders do not make good parents.
This drives the race to the bottom. Nonfinancial equity is strioped out in the name of immediate profits. Assets are sold off, people are fired. Everything gets stripped down to a maximum profit making machine. The profits are diverted to the shareholders, Wall Street. But what about 10 years from now? The losses of equity weakens the company and reduces long term competitiveness. The time scale for new technology to become common in consumer products is about 30 years.
Running a business is like raising a child. It constantly has to be fed and nurtured. It requires continuous investment. Corporate raiders do not make good parents.
37
Stock markets regularly go into bubbles and then crash destructively. Is this a desireable kind of behavior? Why would anyone suppose that stock price is the best way to judge the real worth of a company to the country? Prices in the market are typically driven by irrational overestimation of the worth of companies (and the converse in bad times). I suspect that there is a self-sustaining fad for down-sizing companies - when it becomes fixed in the collective mind of stock buyers that reorganization increases value, then the stock price rises accordingly. The fact that the company fails and the price crashes later is irrelevant - people want to get in on the original rise. Stock markets do not tend to stable equilibria; when unregulated they tend to oscillate destructively, and these reorganizations exploit that and accentuate it.
8
DuPont is a R&D based company and success of the company depends on higher management's insight on how to bring new products using the R&D. I used to work for a similar company, to protect the cash flow from cash cow product, they avoided bringing new product using their R$D. The result, within few years, the company was gone - like Eastman Kodak. There is value of outsider to break this comfortable state of the board. Question is how this outsider looking to the opportunity - like visionary Steve Jobs, or like corporate raiders Mitt Romney.
6
Way back in the history of American corporations, they were granted charters of limited duration - but renewable - to operate in a specific business and they were expected, among other things, to serve the public interest. It's long past time to go back to first principles.
32
As a young man I took an entry level job at a Dupont chemical plant in Texas. My biggest mistake was leaving that job. I've never seen another company who valued their employees more than Dupont. The training and constant emphasis on safety should be the standards for all companies. If the Dupont business model prevailed at more companies this would be a safer place for all of us.
If Trian wins this proxy fight Dupont employees will be the loser
If Trian wins this proxy fight Dupont employees will be the loser
35
A hedge fund is always first and foremost focused on an exit strategy and that means getting the share price up quickly and getting the hell out. What shambles of a company they leave behind is secondary to their profit. They have no real concept of operational management beyond the financial blinders that guide them.
17
Penny wise and pound foolish.
7
Consider Eastman Kodak and Fujifilm. Kodak was once a leader in research and development, and many of the technologies that underpin digital photography were invented there. They could have used their enormous profits from traditional photography to develop those technologies into products that would have dominated the market—but they did not.
Fujifilm, by contrast, poured the profits it earned from film sales into the development of digital photography, and today Fujifilm is one of the leaders in the industry. Kodak went bankrupt.
Short-term thinking kills companies—and destroys countries.
Fujifilm, by contrast, poured the profits it earned from film sales into the development of digital photography, and today Fujifilm is one of the leaders in the industry. Kodak went bankrupt.
Short-term thinking kills companies—and destroys countries.
84
Oh, andrew Smithers wrote a great book about this problem a long time ago. It's called The road to recovery; http://www.wiley.com/WileyCDA/WileyTitle/productCd-1118515668.html
Congratulations Mr. Nocera. A great article and it's about long term economic health. ECONOMICS. you could argue it's also about inequality (nice paying r and D jobs compared to top level exec and buy back bonus). It's a problem that needs to be fixed in order to help make capitalism work better for all. It's Good for the USA.
compare this to the weekly: I'm right about everything because the other side was wrong about inflation. Lets keep doing the same old thing, get our side elected, and do the lesser of two evils rather than making the best choice.
The of the columnist who writes that every week, for months and months will not be named.
This is what the editorial page is missing when it comes to "economics"
I do find it rather interesting that the E. warren sensible financial reform proposals have gotten so little coverage. Where's that economic pundit for the people when you really need him?
compare this to the weekly: I'm right about everything because the other side was wrong about inflation. Lets keep doing the same old thing, get our side elected, and do the lesser of two evils rather than making the best choice.
The of the columnist who writes that every week, for months and months will not be named.
This is what the editorial page is missing when it comes to "economics"
I do find it rather interesting that the E. warren sensible financial reform proposals have gotten so little coverage. Where's that economic pundit for the people when you really need him?
3
I would heartily recommend Marjorie Kelly's now-classic series of articles called "The Divine Right of Capital" to anyone wishing to examine the rise of the "shareholder value" ethic, its costs, and other implications.
5
same old, another form of "special Interest" trumping the preamble's promise to promote "the general Welfare."
1
Mr Lipton is right. Just look at what Peltz did to Kraft Foods/Mondelez.
4
The primary valid measure of any corporation must be: How well does it serve the public and the employees? The shareholders should come third, and the board of directors fourth. The obsession with "shareholder value" is a novelty of the Industrial Revolution; early proposed corporations in New England had to convince the colonial or state legislature that incorporation would benefit the public before they were given rights to incorporate.
9
When you put the services of one man in the crosshairs of billions of dollars, both side are nuts!
A bird in hand is worth two in the bush and DuPont appears to be doing very well under current leadership. Rocking the boat for the sake of some self-styled expert might destroy morale.
7
These 'self-styled experts' are just looters looking for a quick buck.
6
Seems like an attitude that is being pushed on us everywhere, from the Trans-Pacific Partnership trade scheme to the streets of Ferguson MO:
Little people need not be concerned about what their betters are doing with matters affecting their lives, and should just shut up and go away. It's simply disastrous when the hoi polloi want to have a say in their own future, since that might hinder those betters' search for the last bit of value in the marketplace they don't already own or control.
Sorry, Mr. Nocera, I can't agree.
Little people need not be concerned about what their betters are doing with matters affecting their lives, and should just shut up and go away. It's simply disastrous when the hoi polloi want to have a say in their own future, since that might hinder those betters' search for the last bit of value in the marketplace they don't already own or control.
Sorry, Mr. Nocera, I can't agree.
17
Little people, or what Obama calls 'folks'.
2
Shareholder activist sounds like individuals who crusade to correct injustices perpetrated by a corporation but instead they are predators with lots of cash who raid companies? How Orwellian.
17
First of all what short-termism? If you make move that will bring benefits in the short run but harm company in the long run that should have negative effects on the stock because the value of a stock is based on all generated cash from now till eternity. Now, market could miss that but this is more of an exception than a rule.
Nocera is a corporate columnist, writing on narrow topics, mostly inside business stuff and avoiding our huge issue---the corporate takeover of our govt, candidates, elections, lawmaking and policy.
His columns get few comments compared to other columnists on the page. Most Americanshave inequality and middle class insecurity on their minds--especially with the long campaign looming. Columns like Nocera are perfect for the business pages.
I'd like to see some other business columnists put on the op ed page for a while--like Steven Greenhouse (labor unions) Eduardo Porter (intl inequality issues) and Gretchen Morgenson (consumer rights and corporate regulations). And all with comments for these relevant issues.
His columns get few comments compared to other columnists on the page. Most Americanshave inequality and middle class insecurity on their minds--especially with the long campaign looming. Columns like Nocera are perfect for the business pages.
I'd like to see some other business columnists put on the op ed page for a while--like Steven Greenhouse (labor unions) Eduardo Porter (intl inequality issues) and Gretchen Morgenson (consumer rights and corporate regulations). And all with comments for these relevant issues.
4
Well run? Did Mr. Nocera read about the death of four DuPont employees in the La Porte, Texas chemical plant late last year? It was an epic fail. Reporting about cost cutting and efficiencies and increased earnings without mentioning the human cost is incomplete at best.
4
Yep, and outsiders joining DuPont's board have in the past ridiculed the company's emphasis on safety.
If Marty Lipton was also criticizing CEO pay as a "disaster for the country", then I would give him the benefit of the doubt. Instead he is just a hired gun to protect the entrenched executives. I don't find him very credible.
Who will fund research when "activist" funds are done making companies more efficient? How many disinterested employees will lose their jobs for someone else to increase their returns in a portfolio? When will the insanity stop?
Shareholder value has become one more tool used to favor capital held by the already rich over the labor of the struggling middle class.
Shareholder value has become one more tool used to favor capital held by the already rich over the labor of the struggling middle class.
7
corrected:
I cast my ballot, small as it is, with the last line of this commentary. Wall Street firms pushing business around do create a disaster for this country and probably the world, too.
Not matter what activists might say, what they are looking for is the quickest route to the biggest profit. Responsible corporate leaders have to think differently, if they are worth even half of their multi-million dollar paydays. True leaders have to think about building long term value.
Wall Street almost always rewards cuts, cuts and more cuts. Who cares about the future? This kind of thinking is ruining American business and destroying our future potential. It is also one of the factors behind the cheating of American workers when it comes to pay raises: if I am the boss, I have to keep salaries low or otherwise face a hostile takeover.
We are in a heap of trouble. Big money has gotten way too big and corporate CEOs are being reduced to errand boys and girls. Why not take out 50 or 100 million while you can, because, by next year, you could be gone. Wouldn't you rather be unemployed with 50 mil in the bank?
Dish Network, the satellite television provider started by Charlie Ergen and friends, promised it would never run pornography. Guess what? There's a ton of money to be made in PPV porn. They now say they MUST run it, otherwise the shareholders would attack them. This is the way of all American publicly traded companies: make maximum money fast or get wiped out.
Doug Terry
I cast my ballot, small as it is, with the last line of this commentary. Wall Street firms pushing business around do create a disaster for this country and probably the world, too.
Not matter what activists might say, what they are looking for is the quickest route to the biggest profit. Responsible corporate leaders have to think differently, if they are worth even half of their multi-million dollar paydays. True leaders have to think about building long term value.
Wall Street almost always rewards cuts, cuts and more cuts. Who cares about the future? This kind of thinking is ruining American business and destroying our future potential. It is also one of the factors behind the cheating of American workers when it comes to pay raises: if I am the boss, I have to keep salaries low or otherwise face a hostile takeover.
We are in a heap of trouble. Big money has gotten way too big and corporate CEOs are being reduced to errand boys and girls. Why not take out 50 or 100 million while you can, because, by next year, you could be gone. Wouldn't you rather be unemployed with 50 mil in the bank?
Dish Network, the satellite television provider started by Charlie Ergen and friends, promised it would never run pornography. Guess what? There's a ton of money to be made in PPV porn. They now say they MUST run it, otherwise the shareholders would attack them. This is the way of all American publicly traded companies: make maximum money fast or get wiped out.
Doug Terry
9
Peltz enters into industries he knows nothing about. Ever since he took control of Wendy's from Dave Thomas' family, the food and the service have been terrible.
DuPont is a much bigger disaster looming, because they deal in high value added products, not hamburgers. It's all about "shareholder value" and Peltz' fees. It's has nothing to do with growing a business and enhancing America.
DuPont is a much bigger disaster looming, because they deal in high value added products, not hamburgers. It's all about "shareholder value" and Peltz' fees. It's has nothing to do with growing a business and enhancing America.
7
Curious that Joe seems to think that excess in the interests of improving “shareholder value” is only now beginning to be dangerous. It’s been years since Carl Icahn and his inheritors such as Dan Loeb and David Einhorn have been forcing companies to do things that really have nothing to do with strategic sustainability, growth and health, but are meant merely to enrich those who own the stock NOW.
And they’re just the guys who want to cash in. There are also those with ideas that include a need for constant ferment at companies, regardless of how well-run they’re already regarded and how successful they are – Jack Welch’s ideas about firing the bottom 10% of his managers in a never-ending cycle of creative destruction. And it was in 1942 that Joseph Schumpeter coined the expression “creative destruction” in his book “Capitalism, Socialism and Democracy”.
The elements of excess have been around for a LONG time.
Businesses serve society best when they’re private and of manageable size – ideally run by the founders. The DuPonts of the world are natural targets for people like Nelson Peltz, because their public stock capitalizations are immense and offer a lot of opportunity for money to be made regardless of the consequences to people and to the strategic viability of the company itself.
Peltz may be the best of a questionable crowd, but he didn’t get into this racket to be a nice guy: he got into it to make money manipulating companies he had nothing to do with growing.
And they’re just the guys who want to cash in. There are also those with ideas that include a need for constant ferment at companies, regardless of how well-run they’re already regarded and how successful they are – Jack Welch’s ideas about firing the bottom 10% of his managers in a never-ending cycle of creative destruction. And it was in 1942 that Joseph Schumpeter coined the expression “creative destruction” in his book “Capitalism, Socialism and Democracy”.
The elements of excess have been around for a LONG time.
Businesses serve society best when they’re private and of manageable size – ideally run by the founders. The DuPonts of the world are natural targets for people like Nelson Peltz, because their public stock capitalizations are immense and offer a lot of opportunity for money to be made regardless of the consequences to people and to the strategic viability of the company itself.
Peltz may be the best of a questionable crowd, but he didn’t get into this racket to be a nice guy: he got into it to make money manipulating companies he had nothing to do with growing.
9
Shareholders, of course, are people of the country. So even if they think they're doing well in the short/medium term, thanks to a jump in the company's return rate, they're losing in the long run for all the reasons Martin Lipton and others state. Sadly, they're not going to realize it until it is too late, when they wonder why the company is no longer producing top-line, innovative products or is producing far less of them than in earlier days.
Absent unusual (at least nowadays) circumstances where it is understood that one individual/one family owns special shares, dominating the other shareholders thus enabling it to take action aimed at increasing the long term health of the company, the reality is that even the powerful CEOs and corporate boards still answer to faceless, occasionally nameless people whose feelings about the stock price/investment returns plays no small part in deciding what the business will do. And all these people care about, naturally, is whether they are making enough money. And if not, and someone else can and has an established track record of doing so for others, then they will pressure the board to allow that person or group of persons to all but dictate to the company.
Activists are most concerned with whether the corporation is (highly) profitable. But then who is left after the makeover to ensure that R.&D., capital investment, worker benefits and employment are not slashed? Increasingly, the answer is no one. And that is a scary thing.
Absent unusual (at least nowadays) circumstances where it is understood that one individual/one family owns special shares, dominating the other shareholders thus enabling it to take action aimed at increasing the long term health of the company, the reality is that even the powerful CEOs and corporate boards still answer to faceless, occasionally nameless people whose feelings about the stock price/investment returns plays no small part in deciding what the business will do. And all these people care about, naturally, is whether they are making enough money. And if not, and someone else can and has an established track record of doing so for others, then they will pressure the board to allow that person or group of persons to all but dictate to the company.
Activists are most concerned with whether the corporation is (highly) profitable. But then who is left after the makeover to ensure that R.&D., capital investment, worker benefits and employment are not slashed? Increasingly, the answer is no one. And that is a scary thing.
4
I am a minor, very minor, shareholder of DuPont and I am disappointed that so much paper and expense has been wasted on this proxy fight. I received numerous proxies, both white and yellow, asking me to vote my shares after I already had done so , online, weeks ago. I didn't read all of the pages of material I received on the matter but I did read enough to draw two conclusions which confirmed my original online vote for the existing leadership: 1) DuPont, in the course of pre-proxy fight negotiations did agree to permit several Trian representatives onto the Board, except not Mr. Peltz himself, leading me to conclude that there was an ego issue here; and 2) companies previously influenced by Trian had been broken up within a year or two, resulting in a quick return of shareholder "value" but enormous loss of value as an ongoing business not to mention thousands of jobs in the aftermath. Having lived through several hostile takeover battles as an attorney back in the early 80's, including Armand Hammer v. Mead Corp. and AT&T v. NCR, I believe that the target companies were doing just fine, thank-you, before they were targeted. Mead beat off its suitors, NCR did not. I hope DuPont is successful this week in the current battle.
8
This is a recap without context. The great strides made by DuPont come after years of underperforming results. To boil the argument down to "bad man wants to lay off noble workers" ignores the changed world DuPont operates in. This is now a world of competition from Asian countries that do not care about the environment and can therefor undercut prices They can pay workers slave wages. And thanks to the miracle of "free trade" they can sell here even when we are shut outbid their markets. I wish the writer could do more than just write book reports.
2
Are you saying this is something we should support rather than try to change?
Joe, I don't know enough about either Mr. Peltz or Trian to be other than terrified at the thought of 'activist' mutual funds participating in board-level decisions at companies they likely didn't help create, in which they have little internal knowledge of products and processes, and at which they've had no relevant experience as stakeholders, to boot.
I would, however, welcome a longer term management view, especially regarding spending on research and development. I've always found it stupefying that, because the American company that developed the VCR couldn't wait the three years projected to get it to market, we ended up surrendering an entire 'generation' of home entertainment technology to more patient and/or persistent Japanese manufacturers.
Our shortsightedness hasn't been limited to new and sexy technologies, either. We've bailed on much of traditional manufacturing -- from steel to textiles -- simply because, while profitable, they couldn't support ever-accelerating growth rates (the rate of the rate) and, therefore, ever-increasing returns to shareholders.
In some cases, much as in the children's story, we killed the geese that had laid the golden eggs.
I would, however, welcome a longer term management view, especially regarding spending on research and development. I've always found it stupefying that, because the American company that developed the VCR couldn't wait the three years projected to get it to market, we ended up surrendering an entire 'generation' of home entertainment technology to more patient and/or persistent Japanese manufacturers.
Our shortsightedness hasn't been limited to new and sexy technologies, either. We've bailed on much of traditional manufacturing -- from steel to textiles -- simply because, while profitable, they couldn't support ever-accelerating growth rates (the rate of the rate) and, therefore, ever-increasing returns to shareholders.
In some cases, much as in the children's story, we killed the geese that had laid the golden eggs.
10
The U.S. invented the renewable energy industry but because a few vested interests ran Congress, we handed it over to China and Germany.
The truth is that any country that hands away its innovations is eventually going to lose and then collapse from the weight of its own age and stupidity.
The truth is that any country that hands away its innovations is eventually going to lose and then collapse from the weight of its own age and stupidity.
The 266% return that Kullman has achieved since he took over is a track record that should not be ignored/thrown aside because someone ' credible ' has appeared with a handful of magic beans for shareholders.
The issue is: " What is shareholder value " in whose mind ?
Trian is part of an industry that emphasizes short-term rates of return over long-term enterprise value - part of a vulture industry that pretends that since the pieces of an enterprise might be worth than its current market value, that management is bad at its job.
The same mind-set shows that the human body is worth $46 million$ when parted-out and sold at market prices:
http://www.well.com/~justpat/bodyparts.pdf
yet the vultures seem to think they are more valuable as a whole than in pieces - why do they pretend that companies are different ?
Why do we let vultures get away with their pretenses, especially in the case of a company such as DuPont, with its record of return on shareholder value ?
Why are these vultures able to raise funds to mount attacks on such companies, pretending the value of the parts is the only consideration ?
*Have no interest in or association with DuPont or any of its employees
The issue is: " What is shareholder value " in whose mind ?
Trian is part of an industry that emphasizes short-term rates of return over long-term enterprise value - part of a vulture industry that pretends that since the pieces of an enterprise might be worth than its current market value, that management is bad at its job.
The same mind-set shows that the human body is worth $46 million$ when parted-out and sold at market prices:
http://www.well.com/~justpat/bodyparts.pdf
yet the vultures seem to think they are more valuable as a whole than in pieces - why do they pretend that companies are different ?
Why do we let vultures get away with their pretenses, especially in the case of a company such as DuPont, with its record of return on shareholder value ?
Why are these vultures able to raise funds to mount attacks on such companies, pretending the value of the parts is the only consideration ?
*Have no interest in or association with DuPont or any of its employees
15
*You clearly have no interest.
Ellen Kullman, DuPont CEO, is a woman. The first sentence of your comment refers to her as "...he...".
Ellen Kullman, DuPont CEO, is a woman. The first sentence of your comment refers to her as "...he...".
1
In a country that cannot plan for anything and a country full of people who unable/unwilling/refuse to save anything until they are 50 years old and did not maintain their infrastructure, it is a sign of last minute desperation to do something that they should have done over 30 years.
Most of America's problems come from people who do not get that there is no free ride, there are no shortcuts and no fairy dust. We have had freeloaders of all sorts (both the wealthy and poor kinds) for years. And, because we are a large nation with a large GDP, it has taken this long (decades) before the effects have caused it to slow to a crawl.
Most of America's problems come from people who do not get that there is no free ride, there are no shortcuts and no fairy dust. We have had freeloaders of all sorts (both the wealthy and poor kinds) for years. And, because we are a large nation with a large GDP, it has taken this long (decades) before the effects have caused it to slow to a crawl.
1
chump - mybad on the typo.
2
There is a place, at least in theory, for activists in helping sclerotic companies - specifically, their boards and management - regain focus. That said, problems arise when the investment horizon of the activist does not equal that of the company. Especially in manufacturing, as you discuss, R&D payback often comes over many years, even decades. No doubt those taking a shorter term view can identify changes that will result in short-term gains, but usually at the expense of long-term profitability. Add the fact that activists are, by nature, concerned with only one group of stakeholders, namely stockholders, and the other stakeholders - employees, customers, suppliers, and the overall industry - usually suffer. And, with that suffering, damage is ultimately done to the economy. That is the "disaster for the country" to which Lipton is referring, and which we are living today.
10
I would add that, if the activists have no one else to go after other than honorable and well-run companies, they should consider that they are trying to squeeze blood from a dead stone. This tactic achieves nothing good.
Lipton is correct. For at least three decades companies have blindly cut R&D chasing quarterly profits, and not incidentally executive compensation. DuPont has resisted this and remains at the forefront of science and technology.
And look what has happened to US leadership...only in the computer and chemical sectors does the U.S. maintain a technology advantage.
And look what has happened to US leadership...only in the computer and chemical sectors does the U.S. maintain a technology advantage.
12
The problem with most activist investors is their focus on the next quarterly report rather than the long term future. R&D and capital investment are some of the first things to go with an activist investor but are vital for the long term viability of a company. Anyone else note that even in this article and the Trian white papers, the employees are barely mentioned? Perhaps Trian is different, perhaps not. Is shareholder value now the only criteria for success? It also is diametrically opposed to conventional conservative economic thought we are hearing from Republican presidential candidates. Investment supposedly creates jobs and yet these company makeovers, lead by "investors", hedge funds, and other entities that receive funds from outside "investors", invariably reduces jobs to increase shareholder value.
17
Modern American financial capitalism is its bain. Time to realize what it truly is: a giant leech sucking the blood out of this country.
I work for an unnamed company whose activist shareholder is causing all sorts of drama - cutting R&D, reducing headcount etc etc, putting the future of the company in jeopardy. This short term focus is going to do more to harm the American economy than anything anyone else can do. Somehow "value" has become to mean only stock price and Boards are spineless in the face of this pressure. This trend does not bode well for companies, employees or the economy but the trend seems to be a steamroller and the worst is yet to come.
74
"“Activism has caused companies to cut R.& D., capital investment and, most significantly, employment,” he said. “It forces companies to lay off employees to meet quarterly earnings.”
“It is,” he concluded, “a disaster for the country.”
Good stuff. Certain Americans have become addicted to the stock market - and this addiction is making our macro-economy sick.
“It is,” he concluded, “a disaster for the country.”
Good stuff. Certain Americans have become addicted to the stock market - and this addiction is making our macro-economy sick.
7
Isn't Capitalism wonderful? Shareholder value indeed. If all shares were owned by individuals perhaps I could agree with the concept.
Short term thinking, rewarding executive on quarterly results, rewarding executives before their strategies bear results, giving them security up front before they make their first move.
Eliminate jobs, reduce benefits, cancel pensions, evade taxes, off-shore jobs and money.
Not unlike a game of Monopoly, someone ends up with all the money.
Short term thinking, rewarding executive on quarterly results, rewarding executives before their strategies bear results, giving them security up front before they make their first move.
Eliminate jobs, reduce benefits, cancel pensions, evade taxes, off-shore jobs and money.
Not unlike a game of Monopoly, someone ends up with all the money.
23
The entire problem has been very well described by Clay Christensen in his "Capitalist's Dilemma" article. US companies have stopped investing in ideas and R&D in favor of making money on money for short-term gains and personal enrichment of management and shareholders. It is a sure-fire recipe for future failure. And by the way, please stop calling it shareholder value - it's shareholder worth. Value implies something beyond money.
17
"Better Shareholder Activist Around" is an oxymoron plain and simple. I've been a DuPont shareholder since the days of Irving Shapiro. DuPont historically has had one of the best R&D departments around and the company's performance in coming up with new products has been sold. Peltz may have good intentions but does he really know much beyond financial engineering?
DuPont has made lots of tough decisions over the years in terms of shedding businesses and other companies (notably GE who was too late in figuring things out but now on the right track) could learn from them. I voted my proxy for management the day I received he email notification of the annual meeting and am confident that they have DuPont on the right track.
DuPont has made lots of tough decisions over the years in terms of shedding businesses and other companies (notably GE who was too late in figuring things out but now on the right track) could learn from them. I voted my proxy for management the day I received he email notification of the annual meeting and am confident that they have DuPont on the right track.
7
If you look at the fundamentals for DuPont, you see a well run company and a fairly valued stock. The company's return on equity is 21%, which is good. It's profit margin is 10.1% and growing. It's market capitalization continues to grow. It's total debt load is very manageable.
In a stock market that is a little overvalued, DuPont stock has a price to sales ratio under 2.0, which means the stock is fairly priced. Without Trian, this is already a great company to be in any conservative investment portfolio.
In a stock market that is a little overvalued, DuPont stock has a price to sales ratio under 2.0, which means the stock is fairly priced. Without Trian, this is already a great company to be in any conservative investment portfolio.
8
The movement toward shareholder primacy that started in the mid-1970s was devastating to the public sector. When profits are more important than the common good, corporations relocate operations to seek lower wages, relocate headquarters to avoid federal taxes, seek tax breaks from states and local governments, ruthlessly cut benefits and pensions to employees, and cut middle management jobs in the name of efficiency.
As a school administrator from the late 1970s onward I witnessed how this played out in public education. We experienced diminished revenues, frazzled and stressed out parents, and backlash from voters who saw school employees retaining benefits that they had lost in their private sector jobs.
My father retired from DuPont in the late 1980s with a pension and health benefits that went to my mother when he passed away. When he was working he had time to be the coach my little league team, head the PTA, sing in a community chorale and church choir, and take family vacations. I doubt that many DuPont employees today have the time he was able to devote to community service and I doubt that rank and file employees at DuPont have the benefits and pension he received. The DuPont shareholders, on the other hand, are doing very well.
As a school administrator from the late 1970s onward I witnessed how this played out in public education. We experienced diminished revenues, frazzled and stressed out parents, and backlash from voters who saw school employees retaining benefits that they had lost in their private sector jobs.
My father retired from DuPont in the late 1980s with a pension and health benefits that went to my mother when he passed away. When he was working he had time to be the coach my little league team, head the PTA, sing in a community chorale and church choir, and take family vacations. I doubt that many DuPont employees today have the time he was able to devote to community service and I doubt that rank and file employees at DuPont have the benefits and pension he received. The DuPont shareholders, on the other hand, are doing very well.
121
Thank you for connecting the dots here. I doubt many see the connection between what happens in remote boardrooms to what happens in local classrooms. Toss a pebble in a pond, and the ripples go to all the edges. Throw in a boulder, and the water splashes over the shoreline and into your basement.
1
Good old shareholder value -- Enron was always trying to increase shareholder value and it turned out to be little more than a pyramid scheme where the people left holding the now-worthless shares paid the price. I keep my framed Enron stock certificate next to my framed trillion-dollar Zimbabwe note.
17
As an former Du Pont employee I'm disheartened by the trend to maximize shareholder value at all costs. When I worked there, Du Pont's mantra was to serve four constituency groups; the employees, the community, the customer and the share holders. As such it was considered one of the most respected companies in the country with leading edge R&D which led it to profits and global leadership. This reputation attracted the best and the most talented who furthered the image and the profits of the company. For years I've seen it trending away from this model and becoming more concerned with short term profits than corporate responsibility. At the same time, I've seen it side down the Fortune 500 list and loose it's appeal to future managers. The focus on shareholder returns will eventually emaciate Du Pont and other companies and have a serious impact on the economy. I completely agree with Mr. Liton's observation that it is "a disaster for the country".
51
This is a lucid set of reader comments and a pleasure to read. I want to add my voice in favor of socially responsible corporate management where leadership understands that they are rich in part because of the institutional and infrastructure fabric that supports them, not just because they're savvy. The usual dichotomy that profits are for us, the leadership, or it's charity is a false binary foisted on us by writers who think freedom can exist without complementary equality of opportunity and interactive commerce of ideas, values and products. In place of the binary is a well understood concept of society where everyone benefits and everyone contributes a portion of their effort for the common activities like road construction, public health, education,regulations and law that help us all to prosper. As leading citizens if we make the laws, we also have to follow them.
15
There seem to be two bad 'mantras' going in the U.S.
These make exercise of a free enterprise system, and synergy between corporations and a better standard of living, less possible.
One says: Keep it for us, (and nobody else): selfishness incarnate.
The other says: Make it easy for people to get something for nothing (applying not only for the disadvantaged, but now, by extension, to the 'plutocrats' too).
And these two things can also exist together, for the same, and enhanced kind of privileged getting at anyone elses' expense.
And neither has any virtue or goodness inherent in it.
The first is optional in a free republic, but because with a competitive spirit
abounding, it shouldn't ordinarily happen because greed in a free system where honesty and transparency can exist, is not so possible. Today things can be hidden by various subterfuges, because of laws passed that make being honest more difficult.
The second got its beginnings out of 'charitable' welfare being enacted into law. Then people who shouldn't get such charity thought if it's good enough for the 'poor' then it's good enough for us too, to get (unfair advantage).
These make exercise of a free enterprise system, and synergy between corporations and a better standard of living, less possible.
One says: Keep it for us, (and nobody else): selfishness incarnate.
The other says: Make it easy for people to get something for nothing (applying not only for the disadvantaged, but now, by extension, to the 'plutocrats' too).
And these two things can also exist together, for the same, and enhanced kind of privileged getting at anyone elses' expense.
And neither has any virtue or goodness inherent in it.
The first is optional in a free republic, but because with a competitive spirit
abounding, it shouldn't ordinarily happen because greed in a free system where honesty and transparency can exist, is not so possible. Today things can be hidden by various subterfuges, because of laws passed that make being honest more difficult.
The second got its beginnings out of 'charitable' welfare being enacted into law. Then people who shouldn't get such charity thought if it's good enough for the 'poor' then it's good enough for us too, to get (unfair advantage).
4
The plutes didn't get the idea of "something for nothing" from the poor. Rather, they were the first to 'profit' from it.
Speaking of which: Two ways to profit are (1) charging more for a good or service than it's worth (the total cost to develop, produce, and distribute it) and (2) paying less to create a good or service than it should have cost, given fair, if not prevailing, rates for labor and/or materials. The latter can involve undercutting or forestalling any increase in the wage scale. Alas, profits were nearly maximal under slavery, where, relatively, the slaveholder received a lot for almost nothing.
Speaking of which: Two ways to profit are (1) charging more for a good or service than it's worth (the total cost to develop, produce, and distribute it) and (2) paying less to create a good or service than it should have cost, given fair, if not prevailing, rates for labor and/or materials. The latter can involve undercutting or forestalling any increase in the wage scale. Alas, profits were nearly maximal under slavery, where, relatively, the slaveholder received a lot for almost nothing.
5
Actually the Chinese figured out long ago and our Civil War proved that you make more profit by cutting the slaves loose to fend for themselves rather than taking responsibility for them. It's a great system for the .1% but not sustainable.
1
@James
Yes, I suppose we could argue that wage skavery has been more profitable than chattel slavery.
Yes, I suppose we could argue that wage skavery has been more profitable than chattel slavery.
Will "one of the better shareholder activists around" continue the legacy of community involvement established by the DuPont Company, the DuPont family and their employees? We fear Trian will literally cut and run, leaving our community and its future diminished. Companies used to care about the environment where their employees lived; the educational, cultural, recreational and charitable opportunities. What a shame that profits are now everything. As noted in the op-ed, what a disaster for us and for the country.
65
"Shareholder value" can mean different things. Value this moment, or long term value? What it can be sold off for this moment, or the long term prospects of income and growth from holding it?
Just saying "shareholder value" doesn't answer the real questions of the purpose of running a company. Is it to be sold off today, or to be managed for decades of growth in income and value? Both are legitimate issues, but they are not the same things. They can be opposite things.
We CAN'T decide just by repeating the mantra of shareholder value, because it doesn't answer the question.
Just saying "shareholder value" doesn't answer the real questions of the purpose of running a company. Is it to be sold off today, or to be managed for decades of growth in income and value? Both are legitimate issues, but they are not the same things. They can be opposite things.
We CAN'T decide just by repeating the mantra of shareholder value, because it doesn't answer the question.
44
" Is it to be sold off today, or to be managed for decades of growth in income and value?"
DuPont has been a successful company for at least 212 years. You tell me.
What is more likely, a company abiding by its tradition of research that have kept it profitable for more than a century will in future continue to be profitable? Or will a financial engineering party coming lately to the scene make the company even more profitable over the next century by prompting the DuPont to abandon its research?
DuPont has been a successful company for at least 212 years. You tell me.
What is more likely, a company abiding by its tradition of research that have kept it profitable for more than a century will in future continue to be profitable? Or will a financial engineering party coming lately to the scene make the company even more profitable over the next century by prompting the DuPont to abandon its research?
3
Shareholder activists like Trian aren't really shareholder activists, that's the problem. They are just one more big investor that is happy to kick the employees of a company out to make a few pennies more. That was your mistake. Corporations cannot be regulated by this kind of activism, activism that is motivated by money.
Stockholder activists who go after corporate policies that are harmful to humans like pollution and worker abuse are the ones who should be given more power. They are the ones trying to change the slash and burn and short sighted policies of CEOs making millions just by shedding employees and ignoring safety. They are trying to change the destructive and in many cases fraudulent culture now business as usual in board rooms.
Stockholder activists who go after corporate policies that are harmful to humans like pollution and worker abuse are the ones who should be given more power. They are the ones trying to change the slash and burn and short sighted policies of CEOs making millions just by shedding employees and ignoring safety. They are trying to change the destructive and in many cases fraudulent culture now business as usual in board rooms.
74
For America to match its rhetoric, it should stop talking about it and actually start to live up to its fancy words and speeches. Before we become "Great" Britain.
There are many things that damage the economy in the long run but make economic sense to businesses in the short run. Running corporations to maximize shareholder value, moving production overseas, paying low wages, and insisting on low taxes all weaken the economy. Healthy economies need redundancy to be resilient, so the best way to be efficient is not to be too efficient.
Free enterprise is inherently unstable and self-destructive. Competition without victors is unnatural and must be continually recreated by the sort of constant intervention and adjustment in the competition that we see in professional sports. If pursuit of shareholder value weakens companies in the long run or hard tackling disables too many players, the rules must be changed for the good of the sport. If the referees can be bought, then the game degrades into a meaningless but money-making spectacle, a scripted story to distract us.
Free enterprise is inherently unstable and self-destructive. Competition without victors is unnatural and must be continually recreated by the sort of constant intervention and adjustment in the competition that we see in professional sports. If pursuit of shareholder value weakens companies in the long run or hard tackling disables too many players, the rules must be changed for the good of the sport. If the referees can be bought, then the game degrades into a meaningless but money-making spectacle, a scripted story to distract us.
23
Maximizing short-term shareholder value has been a disaster for this country for several decades. Much of destruction of American manufacturing jobs, like in Ohio, was because hedge funds could make more money buying companies and selling the parts rather than improve R&D and improve the company's productivity. Many of these jobs did not need to be shipped overseas and that only happened because it made the hedge fund managers rich. The mantra of overseas labor prices are just a cover for the vultures plunder . Core American competencies developed by past R&D for decades were looted in an instant. This ability to destroy and quickly reap shady spoils is why finance has grown to such a large segment of the US market. United States business leaders need to wake up to the fact that much of finance destroys rather than produces. This plundering path goes one way and that is downhill for the US.
159
Time is a factor too loosely or implicitly mentioned or ignored altogether. Shareholder value over what period? Vagueness leads to apples and oranges arguments. Kullman is trying to build a sustainable company for decades to come. Triad is probably aiming for an exit in the coming months or a few years at most. Nocera points out that R&D is a long term series of bets. However, after all these years Dupont should have a plan for exploiting it on a regular basis, like 3M which sets goals for the percentage of new, internally developed products. If shareholders insisted on better consideration of time factors for each policy, there would be more solid decisions and less noise.
14
"If shareholders insisted on better consideration of time factors for each policy, there would be more solid decisions and less noise."
Uh, huh. But I would rather bet on a company that has been converting R&D successfully into profit repeatedly and consistently for more than 200 years, than I would on anybody touting any short-term drive to make R&D pay off on any short cycle.
Uh, huh. But I would rather bet on a company that has been converting R&D successfully into profit repeatedly and consistently for more than 200 years, than I would on anybody touting any short-term drive to make R&D pay off on any short cycle.
2
If many companies are under stress, is it not because of the effects since near financial collapse in 2008?
Whose fault is it, if companies are cutting corners, reducing R&D, in order to survive. Now we see soaring stock prices. Some companies seem to do much better; investors decide to 'reward' them more. People, on the left especially, now are considering this as unrepentant greed; yet really they are keeping that going.
If not already sadly a fact, society is polarizing into two camps. The 'conservatives' , are simply trying to survive. The other camp, consisting of lawyers, investment groups of activist type, and supposed 'friends' of the system such as it has become: a 'crony' capitalistic oligarchy in place of a free enterprise system of any good kind ... seems to work to the detriment of the companies themselves. So it points to government meddling.
Government control to an extent is needed, but it is the bad way it handled the aftermath, and maybe even caused the financial crash by interfering with to the detriment of a free enterprise system. Of course there are faults on both sides, but today the govt. has really usurped things unduly. They keep talking about needed stimulus, but the theory is to confiscate 'unearned' wealth to give it back to workers to increase demand. Yet if R&D is being reduced, they are leaving that problem up to the very companies they are at same time hurting, in order supposedly to restore a better economy for the U.S.
Whose fault is it, if companies are cutting corners, reducing R&D, in order to survive. Now we see soaring stock prices. Some companies seem to do much better; investors decide to 'reward' them more. People, on the left especially, now are considering this as unrepentant greed; yet really they are keeping that going.
If not already sadly a fact, society is polarizing into two camps. The 'conservatives' , are simply trying to survive. The other camp, consisting of lawyers, investment groups of activist type, and supposed 'friends' of the system such as it has become: a 'crony' capitalistic oligarchy in place of a free enterprise system of any good kind ... seems to work to the detriment of the companies themselves. So it points to government meddling.
Government control to an extent is needed, but it is the bad way it handled the aftermath, and maybe even caused the financial crash by interfering with to the detriment of a free enterprise system. Of course there are faults on both sides, but today the govt. has really usurped things unduly. They keep talking about needed stimulus, but the theory is to confiscate 'unearned' wealth to give it back to workers to increase demand. Yet if R&D is being reduced, they are leaving that problem up to the very companies they are at same time hurting, in order supposedly to restore a better economy for the U.S.
1
Activist funds? They are looters as described in this article. Share price and quarterly earnings are bean counter items that can be inflated by cutting capital investment, R&D and the number of employees - the very things that can make a company a good investment because it serves clients well and adds employed people to the demand side.
I didn't know that corporations are being looted, not by predatory taxing but by forcible redirection toward greed and short term goals. If I were a shareholder I would be against it.
I didn't know that corporations are being looted, not by predatory taxing but by forcible redirection toward greed and short term goals. If I were a shareholder I would be against it.
70
It is a sad thing when "long term planning" is measured in milliseconds. Make no mistake - these are not "activist' investors engaging in "disruptive" investing - they are pump and dump parasites.
133
Too true, John. Parasites, yes, but also "rational" in the sense that economists use the term. They are look out for their own welfare and don't care squat about DuPont, its employees or anybody else. It is the logic of the capitalist system that has evolved here in the US.
1
A few years ago, I bought shares of Dupont as part of my personal retirement plan. the company has been a good solid performing one, with an increase in dividends for decades.
Their dividends along with those from other old line well established companies are part of my retirement income. So far in the past couple of years I have lost some on that income due to "activist investors" and private equity buyouts. i got a premium for my shares, but will have to find other companies to invest in, to keep my income stable.
People like Peltz are not investors, they are corporate raiders. They own millions of shares, inflate the value, load the company up with debt, lay off workers, and sell at enormous profits. A few years later the companies are in chapter 11 proceedings. Those laid off employees used to buy from the merchants in their communities. People like me, have to sell our shares, and use the money to replace lost income, so we do not continue to contribute to the economy any longer either.
Peltz and his gang are hedge fund managers. Hedge funds make much of their money, by shorting the shares, causing the value to fall and paying back with the devalued shares. You have to be a multi millionaire to invest with a hedge fund. The small investor like me, does not stand a chance, we just make people like Peltz richer than Midas.
Their dividends along with those from other old line well established companies are part of my retirement income. So far in the past couple of years I have lost some on that income due to "activist investors" and private equity buyouts. i got a premium for my shares, but will have to find other companies to invest in, to keep my income stable.
People like Peltz are not investors, they are corporate raiders. They own millions of shares, inflate the value, load the company up with debt, lay off workers, and sell at enormous profits. A few years later the companies are in chapter 11 proceedings. Those laid off employees used to buy from the merchants in their communities. People like me, have to sell our shares, and use the money to replace lost income, so we do not continue to contribute to the economy any longer either.
Peltz and his gang are hedge fund managers. Hedge funds make much of their money, by shorting the shares, causing the value to fall and paying back with the devalued shares. You have to be a multi millionaire to invest with a hedge fund. The small investor like me, does not stand a chance, we just make people like Peltz richer than Midas.
194
David
Like you I invested in DuPont years ago for my retirement. I invested because I found DuPont to be a strong company with good dividend yield and acceptable equity growth. I did not invest in DuPont to trade it for capital gains possibilities.
The recent attempt by Trian Management has been an annoyance to me at best. Constant proxy mailing coupled with constant phone calls requesting my support for them has been unbelievable. I will be glad when this is over and hopefully life can return to normal
Like you I invested in DuPont years ago for my retirement. I invested because I found DuPont to be a strong company with good dividend yield and acceptable equity growth. I did not invest in DuPont to trade it for capital gains possibilities.
The recent attempt by Trian Management has been an annoyance to me at best. Constant proxy mailing coupled with constant phone calls requesting my support for them has been unbelievable. I will be glad when this is over and hopefully life can return to normal
6
The best assets of raided corporations always seem to wind up in private plutocratic empires.
3