Home » Topics




Jodie Kirshner - DuPont and Shareholder Activism

Senior Fellow at the Kresge Foundation and visiting scholar and lecturer at Columbia Law School, on the case study of DuPont and the heavy toll of shareholder activism on companies

Jodie Kirshner at Corporate Governance in the Global Economy: The Changing Role of Directors

Jodie Kirshner at Corporate Governance in the Global Economy: The Changing Role of Directors

Jodie A. Kirshner | 15.02.2016

In May 2015, the American chemicals company E.I. DuPont de Nemours emerged victorious from a bruising four-month battle against an activist investor that had sought to take control of the board of DuPont. DuPont ranked as the largest public company ever subject to a proxy fight for board seats. The experience of DuPont raised questions over who best governs a company – established board members or nimble investors seeking increased dividends – and demonstrated the high costs of shareholder activism.

DuPont became a target of Trian Fund Management in spite of the reputation of DuPont as a generally well-run company. DuPont consistently had earned high returns, and had beat the S&P 500 Index for a number of years. Nevertheless, the fund argued that its own leadership could save the company $4 billion in expenses. After gaining a 2.7% stake in DuPont, which made the fund the fifth-largest shareholder in the company, the fund made a bid for four seats on the DuPont board. The fund intended to use the seats to spin off divisions of the company, which the fund claimed would unlock more value for shareholders.

Today, there exist more than 400 activist funds, with access to more than $100 billion in assets to invest. Some have predicted that shareholder activism will reach its highest level in 2015. In the first quarter of 2015, 54 American companies outside of the finance sector became the targets of activism. The figure represented a 26% increase over the 43 companies targeted in the first quarter of 2014. The technology sector has proved the most susceptible to activists.

Recent studies, however, have documented negative consequences of shareholder activism.

One such study has demonstrated that activism deters investment in research and development, since investment in research and development benefits long-term, and not short-term, investors. The credit rating agency Moody’s has published a report that details how shareholder activism increases risks at companies, to the detriment of credit investors. The increased risk generally is caused by changes in corporate direction and strategy.

While many activist investors have stated a desire to improve shareholder value by waging proxy contests, the cost of such contests also has proved significant. DuPont beat back the challenge from Trian Fund Management narrowly—and at a high cost. Not only did DuPont invest heavily in the victory, in both money and time, but the fund invested heavily as well.

DuPont spent $15 million to fight the fund. DuPont cast the fund as a short-termist antagonist. The company identified factual errors made by the fund and also articulated a clear corporate strategy. Ultimately, the shareholders of DuPont backed all twelve directors nominated by the company management. The twelve directors, however, won by only 52% of the vote.

The fund lost despite spending $8 million on its campaign. Although the efforts of the fund attracted the support of proxy advisors, institutional investors nevertheless sided with management.

The institutional investors cited as reasons for voting against the fund the strong performance of the company, concerns about the effect of the fund proposals on the company credit rating, and the attempts by management to reach a settlement with the fund.

The experience at DuPont represents both a significant blow to activist investment and a case study of the heavy toll of shareholder activism on companies. Because of the proxy battle, DuPont recently reported its largest quarterly drop in earnings in more than two years. DuPont also engaged in spinoffs which reflected Trian’s strategy. 

Jodie A. Kirshner was a participant at the Salzburg Global program Corporate Governance in the Global Economy: The Changing Role of Directors. The session was hosted in partnership with BNY Mellon, Goldman Sachs, and Shearman & Sterling LLP and was sponsored by Barclays, LIXIL, Mars, Potter Anderson & Corroon LLP, the state of Delaware, and Warburg Pincus. More information on the session can be found here: http://www.salzburgglobal.org/go/550

Jodie A. Kirshner