By Jacob M. Schlesinger
To see what President-elect Joe Biden thinks is wrong with the
economy today and how he would try to fix it, look to his
relationship with DuPont Co. For much of his life the company was
the largest employer and philanthropist in his home state of
Delaware, funding schools, libraries and theaters.
At age 29, Mr. Biden staffed his first Senate bid with DuPont
employees, who opened a campaign office on the highway built by and
named for the chemical giant. While bashing other big companies for
tax avoidance, Mr. Biden singled out DuPont as a "conscientious
corporation" for paying a higher rate. He celebrated his long-shot
1972 victory in the Gold Ballroom of the Hotel du Pont.
More than four decades later Mr. Biden, by then Barack Obama's
vice president, watched with concern as DuPont, struggling to boost
profits, was targeted by an activist shareholder, sold the hotel,
eased out its chief executive, merged with another company, split
into three pieces and cut its Delaware workforce by one-fourth.
Mr. Biden seldom publicly discusses DuPont by name, but in
private, according to aides, he regularly cites its restructuring
and downsizing as Exhibit A of modern capitalism gone awry. He
often bemoans what he believes to be corporate America's
prioritization of investors over workers and their communities.
His platform during this year's campaign was thick with policies
aimed at altering corporate behavior: a minimum corporate tax to
curb tax avoidance, penalties for shipping jobs overseas, measures
that make it easier for unions to form. "It's way past time we put
an end to this era of shareholder capitalism," he declared in a
Mr. Biden can expect a backlash from many economists and
business leaders, who argue that his gauzy view of history
overlooks the inefficiencies of the old corporate titans -- which
ultimately harmed their workers and communities -- and ignores the
pressures of globalization and the dynamism of a modern economy
that allows healthier upstarts to replacing slumping behemoths.
"I don't think corporate America has very much to apologize
for," says John Engler, who was head of the Business Roundtable, a
trade group of the nation's largest companies, in 2016, when he
attended one of a series of meetings Mr. Biden hosted with CEOs and
economists during his vice presidency to try to hone a new
"If companies get top-rated on other measures, if they're very
woke, it won't save them if they don't make money for investors,"
Mr. Engler, a former Republican governor of Michigan. "I don't
think there's a role for government in that."
Despite his criticism of corporate behavior, Mr. Biden is in
some ways closer to Mr. Engler than to the Democratic Party's left
wing, which wants to require big companies to obtain a federal
charter imposing a new list of requirements on executives such as
putting workers on boards. Mr. Biden often indicates he'd rather
change corporate America not through regulatory fiat but moral
suasion by persuading executives to take a broader view.
A career politician, Mr. Biden has no direct business
experience. But he often says his perspective is shaped by his
roots in Delaware, its business-friendly laws and its long history
as the preferred incorporation locale for large U.S. companies.
DuPont's looming presence there has been a major influence. "He
views DuPont as a proxy for a responsible corporate citizen, for a
lot of American corporations in the '50s, '60s, and into the '70s,"
says Don Graves, who was Mr. Biden's policy adviser during the
Obama administration and now works on his transition team. "He felt
that over time DuPont and others began shifting away from that
framing, because of the focus on quick shareholder returns."
There are parallels between Mr. Biden's outlook on commerce and
politics, both worlds he often portrays as more benign in his youth
-- sometimes glossing over the turmoil, or the dominance of white
men -- as an era when CEOs had a stake in their communities, and
lawmakers compromised across party lines. He often suggests that a
calming, compromising leader such as himself could revive a more
genteel age, a view some critics consider naive.
"It used to be that corporate America had a sense of
responsibility beyond just CEO salaries and shareholders --
corporate America has to change its ways," Mr. Biden told a group
of donors at a July fundraiser. He then added: "It's not going to
require legislation. I'm not proposing any."
Mr. Biden is swimming against a tide of American business
orthodoxy that is often traced to an influential 1970 essay by the
late Nobel laureate economist Milton Friedman, "The Social
Responsibility of Business Is to Increase its Profits." Like many
on the left, Mr. Biden blames it for ushering in an era when
executives purportedly sacrificed workers and communities for the
sake of next quarter's bottom line -- breaking what he calls the
"basic bargain" of shared prosperity. "We act like Milton Friedman
is still alive and well on dealing with corporate policy," he told
a group of Indiana donors in June.
"DuPont is a classic example of what Milton Friedman did," said
Ted Kaufman, a former DuPont engineer who helped develop Corian
countertop material, joined Mr. Biden's staff in 1972, and now
co-chairs his transition team. For Mr. Biden, he added, DuPont's
battle with activist investor Nelson Peltz and his Trian Fund
Management LP "was an epiphany."
Trian says Mr. Biden's diagnosis is wrong. DuPont's
"underperforming relative to its peers...negatively impacted all
stakeholders including employees, customers, and communities," a
Trian spokesperson said. Trian's goal was "returning the company to
best-in-class status...for the benefit of all its constituents, not
just its shareholders."
The smaller DuPont left after all the restructuring takes a
similar view. "Over its 200-year history DuPont has evolved," says
spokesman Dan Turner. "The one constant has been deploying our
science and innovation to remain a leader...committed to delivering
sustainable value to all the customers, employees, shareholders and
communities we serve."
Many academic economists and corporate-governance experts say
Mr. Friedman is still mostly correct, although the debate has
evolved in recent years, with more executives saying they now look
beyond shareholders, and more shareholders saying they look beyond
The rise in so-called ESG investing -- in which funds rate
companies by environmental, social, and governance benchmarks in
addition to profitability -- suggests the market may be moving past
the ostensible focus that Mr. Biden and other critics decry.
The Business Roundtable last year issued a statement declaring
that CEOs should "lead their companies for the benefit of all
stakeholders -- customers, employees, communities and
shareholders." That replaced a 1997 directive that a company's
"paramount duty...is to the corporation's stockholders."
Yet for all the talk of change, most companies still give
priority to shareholder returns, an emphasis most analysts consider
inevitable. "What's changed over time is that there's a view that a
lot of customers care about the environment and care about social
issues, and companies need to respond to that," says Steven N.
Kaplan, an economist at the University of Chicago, Mr. Friedman's
academic home when he published his essay. "That said, if you do
all of that without maximizing shareholder value, you're going to
be uncompetitive." Those forces are driven in by part by the spread
of globalization that intensified after DuPont's heyday, says Mr.
Kaplan, and can't be reversed "unless the whole world does it."
Charles Elson, a University of Delaware finance professor,
agrees. "If you're accountable to everyone, you're accountable to
no one, and you create a mess," he said. "Some would argue that's
where DuPont found itself."
Mr. Elson made that point to Mr. Biden when the two appeared on
a panel discussion at the university's newly created Biden
Institute in 2017 titled "Win-Win: How Taking the Long View Works
for Business and the Middle Class." Activist shareholders like Mr.
Peltz were often "a symptom of problematic management," and gave
the economy its dynamism by using their profits "to create new
companies, to create new ideas," Mr. Elson said.
A skeptical Mr. Biden replied: "What evidence is there of
Delaware itself offers evidence of how capital and labor can be
reallocated from declining to productive sectors. As DuPont shrank,
Delaware developed a thriving financial sector. A study by the
Economic Innovation Group, a think tank, shows Delaware's new
business startup rate outpaces the national average -- in part from
ventures by former DuPont executives and scientists. Over the past
three decades, total employment in Delaware has grown about 25%,
even as the share of employment from manufacturers like DuPont has
fallen in half, to about 6%. At the same time, however, income
growth has slumped, according to Moody's Analytics, underscoring
the Biden argument that workers have lost out from those
Mr. Biden's father moved his family from struggling Scranton,
Pa., to Delaware in 1953, where he ultimately ran a used-car
dealership, attracted by prosperity attributable in good part to
DuPont. Founded in 1802 as a gunpowder maker, its products such as
nylon, Teflon, Freon, Lucite, Mylar and Kevlar revolutionized
consumer and commercial life. At its peak in 1990, DuPont employed
27,000 in Delaware -- one of every 10 workers.
The company was affectionately dubbed "Uncle Dupie," and family
members funded schools and hospitals, ran dozens of charitable
foundations, made up their own bloc of lawmakers in the state
legislature and periodically were elected governor. It built and
ran a country club for employees, and a theater and hotel for
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
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
"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
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
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
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
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
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
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
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
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
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
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 email@example.com
(END) Dow Jones Newswires
November 23, 2020 14:03 ET (19:03 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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