What We Did and Didn’t Learn from the DuPont-Peltz Fight

Nelson Peltz was not successful in persuading DuPont shareholders to vote for his director candidates at DuPont’s annual meeting, and so the business press is eager to draw some conclusions about what this means for shareholder activism.

It is a mistake to try to extrapolate too much from the outcome in this one case. One significant difference from the usual hedge fund activist campaign was that in this case the target company was not making obvious mistakes. Bloomberg’s Matt Levine points out that DuPont is “a basically well-run company with good performance and shareholder-friendly policies” that “was targeted by a basically thoughtful, credible, long-term-oriented activist investor. There were no real villains.” DuPont responded to many of the concerns raised by Peltz by making changes and Peltz was not offering any clear alternate proposals for specific strategic initiatives. His argument to shareholders pretty much boiled down to “trust me.”

This outcome does prove — again — that the proxy advisory firms are just that: advisory. Despite claims that ISS and Glass-Lewis are not just influential but determinative, in this case, as has consistently been true of contested and controversial proxy votes, their clients read the analysis and drew their own conclusions. That is more clear than the market’s response. While shareholders voted for management, the stock took a dip on the results. And this proves — again — that traders are more short-term than holders.

It is always a mistake to assume that any one activist initiative is indicative of broader themes. An activist made an assessment about the difference between a company’s current value and its prospective value and tried to persuade management, the board, and other shareholders that change was needed. The company made some changed. The activist did not think it was enough but was unable to persuade the other shareholders. That tells us nothing about activism as a category. All it does is tell us what we already know: that if outside forces do not interfere, markets are, over the long term, efficient.