Kullman: Tactics for Winning a Proxy Fight

Former DuPont CEO Ellen Kullman spoke with National Association of Corporate Directors’ (NACD) President and CEO Peter R. Gleason at the 2017 Global Board Leaders’ Summit. Kullman—known for leading the DuPont management to victory in the 2015 proxy battle against Trian Fund Management’s Nelson Peltz—shared insights into oversight of long-term value creation and tactics for succeeding in a proxy battle. 

Before discussing the finer points of DuPont’s proxy battle, Kullman addressed the company’s relationship with its stakeholders. Kullman once said that DuPont adheres to stakeholder theory by focusing on four areas: engaging employees, satisfying customers, supporting the community and, in turn, providing success for shareholders. “As a company that operated all around the world, many times our manufacturing plants were the biggest employer in the area,” Kullman said. “If we wanted to be successful, we had to support the citizen.”

Gleason compared DuPont’s relationship with Wilmington, Delaware, to Corning and the company’s headquarters in his own hometown of Corning, New York. “Attracting the right talent is an investment by the company,” Gleason said. “Corning had a philharmonic orchestra in a town of ten thousand people. However, investments in the community may have been seen as low-hanging fruit to shareholders more interested in seeing direct returns.”

In the case of DuPont, its small hotel and golf course in Wilmington became activist targets despite the sense of community they created with the citizens of the town. “Young people today have a choice about where they work,” Kullman said. “If you want to attract the best and brightest, you have to make the community something they want to be a part of. Why does Google have free food and good infrastructure? It’s not a historic appendage, it’s to keep employees working hard. The question is how much [do you want to invest to retain talent] because you can never calculate a return on it.”

Tell Investors Your Story

Kullman shared a number of tactics that helped DuPont emerge victorious in its proxy fight.

1. Keep Telling Your Story to Investors: “We understood our investors and our strategy, and I don’t think [Trian] did. A board member that had been [with DuPont] for three years did a better job explaining our strategy [to investors] than I did. He kept it to the points that were important and was helpful in making the connection as a shareholder.” 

2. Get Ahead of the Activist by Communicating Early and Often with Regulators: Kullman pointed out that activists’ communications tactics have a time advantage over their target companies because public companies must file shareholder communications first with the Securities and Exchange Commission (SEC). “I constantly rewrote letters to the SEC and filed responses [in order to be able to communicate with shareholders in line with the SEC rules for solicitation]. Going to CNBC would have been a no-win situation. That’s how we got that transparent information out to the investor and news community to make sure it wasn’t a one-sided innuendo from the activist.”

3. Trust the Management Team to Run the Business: “You have to have a top team. The CFO, regional vice presidents, vice presidents, and general managers of our businesses had to focus on running the company, while we took a small group of people to focus on the fight. I had to have a foot in both camps: I ran the fight during the day and the company on nights and weekends.”

4. Maintain Constant Board-CEO Communication: “You need to spend a lot of time with your board and you need to know where each board member is individually. Whenever I had an interaction with the activist, I would summarize it to the board right away. Say you want help and ideas from your board members because they have a lot of experience. At that point [in our proxy fight with Trian] there were no bad ideas.

5. Engage Retail Investors: “Proxy advisory firms came in to talk to the board and me about what we needed to do to protect ourselves. They said that retail investors vote for management, but they don’t vote. So we identified shareholders that owned more than $1 million in stock. I called them personally and some of them actually called me back.”

6. Use Social Media: “I was new to social media, but I had to learn quickly. With such a large retail base, we couldn’t assume they were all retired investors—and they weren’t. We had to use as many vehicles as possible to get our story out there.”

Learn more about the 2018 NACD Global Board Leaders’ Summit and register here.