By Jacob M. Schlesinger
To see what President-elect Joe Biden thinks is wrong with the economy today and how he would try to fix it, look to his relationship with DuPont Co. For much of his life the company was the largest employer and philanthropist in his home state of Delaware, funding schools, libraries and theaters.
At age 29, Mr. Biden staffed his first Senate bid with DuPont employees, who opened a campaign office on the highway built by and named for the chemical giant. While bashing other big companies for tax avoidance, Mr. Biden singled out DuPont as a "conscientious corporation" for paying a higher rate. He celebrated his long-shot 1972 victory in the Gold Ballroom of the Hotel du Pont.
More than four decades later Mr. Biden, by then Barack Obama's vice president, watched with concern as DuPont, struggling to boost profits, was targeted by an activist shareholder, sold the hotel, eased out its chief executive, merged with another company, split into three pieces and cut its Delaware workforce by one-fourth.
Mr. Biden seldom publicly discusses DuPont by name, but in private, according to aides, he regularly cites its restructuring and downsizing as Exhibit A of modern capitalism gone awry. He often bemoans what he believes to be corporate America's prioritization of investors over workers and their communities.
His platform during this year's campaign was thick with policies aimed at altering corporate behavior: a minimum corporate tax to curb tax avoidance, penalties for shipping jobs overseas, measures that make it easier for unions to form. "It's way past time we put an end to this era of shareholder capitalism," he declared in a July speech.
Mr. Biden can expect a backlash from many economists and business leaders, who argue that his gauzy view of history overlooks the inefficiencies of the old corporate titans -- which ultimately harmed their workers and communities -- and ignores the pressures of globalization and the dynamism of a modern economy that allows healthier upstarts to replacing slumping behemoths.
"I don't think corporate America has very much to apologize for," says John Engler, who was head of the Business Roundtable, a trade group of the nation's largest companies, in 2016, when he attended one of a series of meetings Mr. Biden hosted with CEOs and economists during his vice presidency to try to hone a new corporate-governance agenda.
"If companies get top-rated on other measures, if they're very woke, it won't save them if they don't make money for investors," Mr. Engler, a former Republican governor of Michigan. "I don't think there's a role for government in that."
Despite his criticism of corporate behavior, Mr. Biden is in some ways closer to Mr. Engler than to the Democratic Party's left wing, which wants to require big companies to obtain a federal charter imposing a new list of requirements on executives such as putting workers on boards. Mr. Biden often indicates he'd rather change corporate America not through regulatory fiat but moral suasion by persuading executives to take a broader view.
A career politician, Mr. Biden has no direct business experience. But he often says his perspective is shaped by his roots in Delaware, its business-friendly laws and its long history as the preferred incorporation locale for large U.S. companies.
DuPont's looming presence there has been a major influence. "He views DuPont as a proxy for a responsible corporate citizen, for a lot of American corporations in the '50s, '60s, and into the '70s," says Don Graves, who was Mr. Biden's policy adviser during the Obama administration and now works on his transition team. "He felt that over time DuPont and others began shifting away from that framing, because of the focus on quick shareholder returns."
There are parallels between Mr. Biden's outlook on commerce and politics, both worlds he often portrays as more benign in his youth -- sometimes glossing over the turmoil, or the dominance of white men -- as an era when CEOs had a stake in their communities, and lawmakers compromised across party lines. He often suggests that a calming, compromising leader such as himself could revive a more genteel age, a view some critics consider naive.
"It used to be that corporate America had a sense of responsibility beyond just CEO salaries and shareholders -- corporate America has to change its ways," Mr. Biden told a group of donors at a July fundraiser. He then added: "It's not going to require legislation. I'm not proposing any."
Mr. Biden is swimming against a tide of American business orthodoxy that is often traced to an influential 1970 essay by the late Nobel laureate economist Milton Friedman, "The Social Responsibility of Business Is to Increase its Profits." Like many on the left, Mr. Biden blames it for ushering in an era when executives purportedly sacrificed workers and communities for the sake of next quarter's bottom line -- breaking what he calls the "basic bargain" of shared prosperity. "We act like Milton Friedman is still alive and well on dealing with corporate policy," he told a group of Indiana donors in June.
"DuPont is a classic example of what Milton Friedman did," said Ted Kaufman, a former DuPont engineer who helped develop Corian countertop material, joined Mr. Biden's staff in 1972, and now co-chairs his transition team. For Mr. Biden, he added, DuPont's battle with activist investor Nelson Peltz and his Trian Fund Management LP "was an epiphany."
Trian says Mr. Biden's diagnosis is wrong. DuPont's "underperforming relative to its peers...negatively impacted all stakeholders including employees, customers, and communities," a Trian spokesperson said. Trian's goal was "returning the company to best-in-class status...for the benefit of all its constituents, not just its shareholders."
The smaller DuPont left after all the restructuring takes a similar view. "Over its 200-year history DuPont has evolved," says spokesman Dan Turner. "The one constant has been deploying our science and innovation to remain a leader...committed to delivering sustainable value to all the customers, employees, shareholders and communities we serve."
Many academic economists and corporate-governance experts say Mr. Friedman is still mostly correct, although the debate has evolved in recent years, with more executives saying they now look beyond shareholders, and more shareholders saying they look beyond short-term profits.
The rise in so-called ESG investing -- in which funds rate companies by environmental, social, and governance benchmarks in addition to profitability -- suggests the market may be moving past the ostensible focus that Mr. Biden and other critics decry.
The Business Roundtable last year issued a statement declaring that CEOs should "lead their companies for the benefit of all stakeholders -- customers, employees, communities and shareholders." That replaced a 1997 directive that a company's "paramount duty...is to the corporation's stockholders."
Yet for all the talk of change, most companies still give priority to shareholder returns, an emphasis most analysts consider inevitable. "What's changed over time is that there's a view that a lot of customers care about the environment and care about social issues, and companies need to respond to that," says Steven N. Kaplan, an economist at the University of Chicago, Mr. Friedman's academic home when he published his essay. "That said, if you do all of that without maximizing shareholder value, you're going to be uncompetitive." Those forces are driven in by part by the spread of globalization that intensified after DuPont's heyday, says Mr. Kaplan, and can't be reversed "unless the whole world does it."
Charles Elson, a University of Delaware finance professor, agrees. "If you're accountable to everyone, you're accountable to no one, and you create a mess," he said. "Some would argue that's where DuPont found itself."
Mr. Elson made that point to Mr. Biden when the two appeared on a panel discussion at the university's newly created Biden Institute in 2017 titled "Win-Win: How Taking the Long View Works for Business and the Middle Class." Activist shareholders like Mr. Peltz were often "a symptom of problematic management," and gave the economy its dynamism by using their profits "to create new companies, to create new ideas," Mr. Elson said.
A skeptical Mr. Biden replied: "What evidence is there of that?"
Delaware itself offers evidence of how capital and labor can be reallocated from declining to productive sectors. As DuPont shrank, Delaware developed a thriving financial sector. A study by the Economic Innovation Group, a think tank, shows Delaware's new business startup rate outpaces the national average -- in part from ventures by former DuPont executives and scientists. Over the past three decades, total employment in Delaware has grown about 25%, even as the share of employment from manufacturers like DuPont has fallen in half, to about 6%. At the same time, however, income growth has slumped, according to Moody's Analytics, underscoring the Biden argument that workers have lost out from those changes.
Mr. Biden's father moved his family from struggling Scranton, Pa., to Delaware in 1953, where he ultimately ran a used-car dealership, attracted by prosperity attributable in good part to DuPont. Founded in 1802 as a gunpowder maker, its products such as nylon, Teflon, Freon, Lucite, Mylar and Kevlar revolutionized consumer and commercial life. At its peak in 1990, DuPont employed 27,000 in Delaware -- one of every 10 workers.
The company was affectionately dubbed "Uncle Dupie," and family members funded schools and hospitals, ran dozens of charitable foundations, made up their own bloc of lawmakers in the state legislature and periodically were elected governor. It built and ran a country club for employees, and a theater and hotel for Wilmington.
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