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ISS backs two Trian seats on DuPont board (update)

April 28, 2015
Chemical Value Chain
The Institute for Shareholder Services (ISS; Rockville, MD), a proxy advisory firm, is recommending that two Trian nominees, including Trian founder and CEO Nelson Peltz, be elected to DuPont’s board of directors. ISS also backs former GE Asset Management CEO John Myers for the company’s board. Trian’s four board nominees, including Peltz, Myers, former H.J. Heinz CFO Arthur Winkleblack, and former Rockwood Holdings CFO Robert Zatta, will square off against DuPont’s incumbent nominees at the company’s annual meeting in Wilmington, DE on 13 May.
 
ISS says, in its analysis, that DuPont “is not a broken company – but there is compelling evidence that the dissidents are onto something in their critique. Operating efficiency is not what it should be, yet instead of addressing core issues, the board management, at least in their communications with shareholders, are more inclined to obfuscation than accountability.” ISS questioned parts of DuPont’s analysis of its operating performance, such as claims the Ebitda margin in the ag business, and claims that Trian’s calculations of corporate costs are overblown – although the firm did not endorse Trian’s figures on costs.
 
However, ISS did not call for the further break-up of DuPont, as a white paper released last year by Train argued. On the question of whether DuPont should be broken up, ISS says “we don’t know, and neither does anyone outside the DuPont boardroom.” Despite this, disappointing financial performance and high corporate costs mean that the addition of dissidents to DuPont’s board is in the interest of shareholders, ISS says.
 
DuPont criticized ISS’s conclusions. “We strongly believe ISS reached the wrong conclusion” in failing to endorse all of the company’s board nominees, DuPont says. “This demonstrates a fundamental lack of understanding of our business and the needs of a global science company,” the company adds.
 
ISS also notes that Trian’s analytics-heavy approach on corporate boards could be beneficial to DuPont shareholders. “The evidence of this contest strongly suggests the Trian method – providing its executives who go on boards with extensive analytic support throughout their tenures – may not be simply desirable, but necessary to drive the appropriate change,” ISS says. DuPont has dismissed Trian’s framework as the creation of a “shadow management team,” but ISS views Trian’s potential contributions as mostly positive. “For a management team, getting that sort of intensive, unsolicited ‘help,’ can be unwelcome,” the firm adds. “Shareholders, however, should consider the larger question of whether it may be necessary.”
 
DuPont and Trian have been locked in a proxy fight for several months, with Trian criticizing DuPont for financial underperformance and DuPont accusing Trian of advocating a high-risk strategy for the company. The fight has intensified in recent weeks, in advance of the annual meeting, with DuPont and Trian taking out opposing advertisements in a local Wilmington newspaper yesterday.
 
Trian owns a 2.7% stake in DuPont worth about $1.7 billion, making it the company’s fifth-largest shareholder.
 
By Vincent Valk
 

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