Death of DuPont
Coming merger brings cuts, layoffs and memories of innovation.
The gang now running DuPont Co., that incubator of 20th-century U.S. industry, is scrapping many of its Wilmington headquarters institutions, as if they were old Rust Belt factories.
Glowing paints and super plastics, miracle fabrics and insulators, electronics and fuel additives and their often toxic by-products are just a few of DuPont's highlights. Its science and engineering created that new-car smell, the snug and cleanable feel of a mass-marketed American home, and the security and menace of a fully equipped American soldier.
But the latest round of cost cuts, as CEO Edward Breen prepares to marry DuPont to rival Dow Chemical Co. and break them into three themed successor companies, has meant lights off at offices and labs that made DuPont's mixed products one company.
Breen shut what was left of the old Corporate Marketing and Sales group, axed lawyers who pioneered toxic-tort and cyber-espionage defenses, scrapped a massive supply-chain system, and closed such facilities as a new $35 million seed lab near the University of Delaware.
What is most symbolic is that at DuPont's 90-year-old Central Research and Development Group, birthplace of nylon, Kevlar, and the moisture barrier Tyvek, and training ground for Ph.D scientists who went on to win Nobel Prizes, more than half the 270 chemical and materials researchers were laid off last week, employees tell me. (DuPont declined to detail research changes and called employee accounts "speculation.")
Fewer than 30 percent of the Central Research scientists were reassigned to DuPont's consolidated business units. Fewer than 20 percent of the group will keep their jobs, in a shrunken, renamed Science and Innovation successor unit, say insiders.
At the steaming, gated DuPont Experimental Station, departing scientists were told to label their chemicals for disposal. Some of their offices will lie as vacant as the company's ruined gunpowder works across the Brandywine, or some labs at AstraZeneca, up the hill past DuPont Country Club and A.I. du Pont Hospital.
The idea is to make DuPont's remaining businesses more self-sufficient - and, maybe, easier to sell and spin off.
Who to blame? "Greed, and short-term profits," Carnegie Mellon chemical engineering professor Ignacio Grossmann wrote in a note to Chemical and Engineering News last month, after DuPont told scientists it would consolidate the central research group.
"It is truly amazing that a corporate raider and financial terrorist like Nelson Peltz from Trian Partners can get away with the damage he has done to DuPont and to the U.S. chemical industry," Grossmann told me.
In a statement to DuPont shareholders last year, Trian said it supports R&D - when it is "well-managed," at projects "expected to produce an economic return." But at most of DuPont, Trian added, "current R&D spending has not been effective."
"For practical purposes, DuPont doesn't exist anymore," Abraham Lenhoff, chemical engineering professor at the University of Delaware, told me.
"It takes an enormous effort and a lot of time and a large infrastructure, especially human infrastructure, to create value in a large company like DuPont. The financial community doesn't know how to do that. Hedge-fund managers know how to extract value from a company, and leave an empty shell, so they can build their houses in the Hamptons," he added.
"DuPont had one of the premier engineering units anywhere in the world. They knew the principles and how to apply them. Without people like that you can't develop, design, and start up plants. It's an enormous loss to science and engineering."
Yet veteran DuPont managers also say Breen is only doing, in a faster way, the changes that his predecessor, Ellen Kullman, and at least her three immediate predecessors considered, or partly enacted.
DuPont, they say, has long suffered from:
Complexity. The early success of DuPont explosives, nylon, and other lab products, and its alumni's Nobel Prizes, made space for a science-led culture that discouraged jumping to conclusions.
As the company got larger, DuPont professionals focused on more complicated, incremental problems, with endless appeals when they disagreed. Managers found it tougher to show impatient investors the bottom-line gains accruing to the $2 billion in yearly R&D spending.
Growth trap. As a cash-rich chemical manufacturer paying high dividends, DuPont used to attract patient investors, including many of its own employees.
But as DuPont bosses in the late 1900s sold, spun off, or shut aging commodity-chemical businesses and invested in drug, energy, and life-science products, the company attracted growth-oriented pension, mutual, and hedge funds - who demanded profits to match high-tech stocks like the big West Coast software companies.
The inevitable squeeze on DuPont's Wilmington headquarters "is very unpleasant, if you live here," says University of Delaware finance professor Charles Elson. "But I can't blame the investors. Nobody thinks Microsoft shouldn't cut jobs just because they are an important employer in Seattle."
Bigger deals. Some veteran DuPonters now wish the company had done more big, bold acquisitions instead of conservatively defending dividends and credit ratings. DuPont too often seemed to focus on ingenious but small acquisitions that were unlikely to boost profits enough.
Too much hometown. When Peltz ridiculed DuPont's golf courses, theater, and hotel, Kullman noted that the costs were minimal for a $35 billion company.
But paternalism had other costs: It was tough for CEOs to get senior officers to spend years abroad planting a corporate culture that might have coped better with the runaway engineers, unequal partnerships, and intellectual-property theft that has plagued DuPont in China, Korea, and other growth markets.
While cleaning house, Breen has appealed to DuPont's deep bench, adding responsibilities for executives such as ag boss James C. Collins, electronics leader Mark Doyle, and engineering chief Douglas Muzyka, at least into the Dow transition.
They might yet bring prosperity to a truncated DuPont, or at least sell its pieces at high prices, leaving a legacy of DuPont-named roads, schools, and hospital facilities. And also what one ex-DuPonter calls a "super-safe" culture of aging retirees who insist on wearing safety glasses when they walk outside to mow their suburban lawns.
Correction: The names of scholars Ignacio Grossman and Abraham Lenhoff were misspelled in earlier versions of this column