DuPont’s recent proxy battle with hedge fund investor Nelson Peltz has been viewed as a major win for the chemical giant’s CEO, Ellen Kullman, and for corporate boards in general.
But the fight for DuPont was nearly lost. Peltz was actually much closer to winning a seat on the company’s board of directors than earlier thought.
According to a new vote tally DuPont released on Wednesday, Peltz received 46% of the votes cast in the proxy fight. The new filing showed that Peltz garnered roughly 27 million more votes than earlier thought. So did Kullman, though, who won re-election to the board by a very wide margin.
Peltz was seeking four board seats on DuPont’s board, including one for himself. The activist investor had argued publicly for more than six months that the company was underperforming and would be better off it were split into parts.
It was clear the vote was close. Peltz conceded defeat minutes before DuPont’s shareholder meeting took place in mid-May. But it wasn’t initially clear how close the vote was. Peltz would have needed 54 million more votes than he received to get on the board.
That may sound like a lot, but it isn’t. First of all, in a proxy vote, each share, not each shareholder, equals one vote. DuPont’s three largest shareholders, Capital Group, Blackrock and Vanguard, have 66 million, 56 million, and 52 million shares, respectively. Blackrock and Capital Group could have single-handedly delivered a victory for Peltz, and Vanguard certainly could have brought Peltz within an inch of the finish line.
Institutional shareholders don’t have to reveal how they voted. But it is believed, and has been reported, that Blackrock, Vanguard, and State Street, DuPont’s fourth largest shareholder, voted to keep the chemical giant’s board in place, and not add Peltz or his other nominees. Take those three shareholders out of the equation, and Peltz got 58% of the remaining vote.
Those three investment companies hold most of their shares as part of their index funds. Peltz contended that index funds weren’t as informed on the issues as active fund managers. An economics professor at the University of Michigan contends that index funds voted with DuPont because they thought Peltz’s changes would have made the company more competitive with rival Monsanto, another large holding of the index funds. Neither claim has been substantiated.
The fight between DuPont and Peltz was a heated one. You can read Fortune’s behind-the-scenes story of the battle here. These days, most companies settle with activists by either putting them on the board or agreeing to some of their demands. Kullman decided to stand her ground and fight back, and she won.
But it may be hard to call this a total loss for Peltz. He has held DuPont stock for nearly two years and, in that time, the company has made a number of changes, including cutting costs and announcing a spin-off of a division, all moves that are in line with what Peltz has been asking for. Kullman claims that nothing the company has done in the past two years has been motivated by Peltz. DuPont’s changes have been mostly cheered by the market. The stock is up 40% in the past two years, which is better than the market in general.
Peltz may have lost, but in the fight against shareholder activism, DuPont’s close victory may only count as a draw.