Cuts start under new DuPont CEO

DuPont Co. removed the "interim" moniker from CEO Edward D. Breen's title on Monday, a move experts say could accelerate cuts at the venerable company.

Some of those cuts began last week. When Breen was tapped to replace Ellen Kullman, who abruptly retired last month, DuPont executives vowed to slash $1.6 billion from the company.

Last week, Breen eliminated jobs, consolidated divisions and halted projects.  While the specific cuts may have caught some off guard, no one is surprised Breen has started reducing costs. He earned a reputation for such cuts while he led Tyco International.

Upon being named CEO of Tyco in 2002, Breen cleaned house, phasing out factories, storage facilities and offices. He also initiated two splits, spinning off multiple units into separate companies.

"Tyco used to brag about how thin their corporate staff was, but Breen found plenty to cut," said Jeffrey Sonnenfeld, a business professor at the Yale School of Management.

Matt Arnold, an analyst with Edward Jones, said he expects the speed of DuPont's budget cuts to accelerate now that Breen will permanently lead the company.

"I would expect a pretty brisk news flow over the next year as every business is reviewed from cost to strategic perspective," he said.

DuPont's stock price reacted positively to Breen's appointment as CEO. The stock opened at $65.82, but moved up 66 cents to $66.77 by the end of trading Monday.

First round of cuts

Breen reportedly laid off 80 to 100 workers in DuPont's Sustainable Solutions business, including some in Wilmington. Layoffs were said to impact positions throughout the unit from production managers to administrative assistants.

The Sustainable Solutions business is part of the Safety & Technology unit and advises other companies on workplace safety and disposing of hazardous materials.

The cuts come at a time when the company’s safety record has been questioned by federal regulators and attorneys.

In July, DuPont was placed into the Occupational Safety and Health Administration’s severe violator program for companies it claims failed to address repeated safety infractions. The largest of the roughly 450 businesses in the program, DuPont entered the program for failing to address violations at its LaPorte, Texas plant were four workers died last November.

The LaPorte incident has generated $372,000 of OSHA fines and DuPont reached an undisclosed settlement with family members of one of the victims. Separately, DuPont paid $724,000 to settle allegations surrounding a 2010 fire and explosion that killed a worker at its Tonawanda, New York plant, near Buffalo. The U.S Environmental Protection Agency levied the fine.

DuPont does not release individual earnings for the Sustainable Solutions unit.

Breen also halted the Wilmington-based chemical company's "One DuPont" IT project, severing agreements with 300 contractual workers.

The three-year-old project was expected to upgrade the company's IT infrastructure.

Dan Turner, a company spokesman, said it is unclear how much the company will save by freezing the program.

"DuPont continues to take actions to reduce our cost structure to compete more effectively in 2016," Turner said. "Consistent with this effort, we will defer work on our 'One DuPont' program and will assess steps for future completion. We continue to be committed to the program to capture the value it will create for the company."

Breen also consolidated four DuPont businesses into two, effective Jan. 1. He merged DuPont's Packaging & Industrial Polymers unit with its Performance Polymers business and its Safety Protection Technologies business with Building Innovations.

The size and scope of job losses from these moves is not yet known. DuPont plans to evaluate the units for redundancies before the end of the year. Most of the employees in those units are at DuPont facilities in West Virginia, Virginia and South Carolina.

Arnold, with Edward Jones, said it was too early to determine where reductions could occur.

"The only thing everyone knows for sure is that every single business will be scrutinized for cost and strategic perspective," he said. "Beyond that, what happens and where is still unknown."

Sonnenfeld agreed that more cuts are in DuPont's immediate future.

"I don't know where the cuts will come, but he certainly discovered them at Tyco," he said.

Is Research safe?

Some in Delaware have expressed concern DuPont's research and development could be on the chopping block. Roughly half of DuPont's 7,000 Delaware employees work in some form of research.

Delaware is home to two of DuPont's most prolific research and development facilities. The Experimental Station in Alapocas employs 2,500 workers, including hundreds who hold a Ph.D, while the Stine Haskell Research Center, near Newark, has 600 employees.

Sonnenfeld said Breen told him that he understands the value of research to DuPont. However, Breen has never publicly stated if DuPont's research units are safe.

"He told me he respects the science-driven base of the business," Sonnenfeld said. "With a third of DuPont's products coming out of research, it is a really strong source of further revenue. It is good that he admires and respects that."

Newcomer to DuPont

Breen, 59, was named interim head of the Wilmington-based company after Kullman's retirement on Oct. 16. He joined DuPont's board in February while the company was locked in a bitter, costly proxy battle with activist investor Nelson Peltz, head of New York hedge fund Trian Fund Management.

What's left for DuPont, Trian to fight over?

Some media reports at the time said Peltz tried to recruit Breen to be one of Trian's four nominees for DuPont's 12-member board. Peltz has denied that claim.

A Trian spokeswoman declined to comment on Breen's appointment Monday.

During an analyst conference call earlier this year, Breen said the board tapped an executive search firm to spearhead the hunt for a new CEO to lead the company, valued at $66 billion, but declined to provide a timeline. He becomes the 20th executive in the history of the company that was founded in 1802.

Charles Elson, a professor of corporate governance at the University of Delaware, said it is not unusual for a CEO's interim tag to be removed in less than a month.

"He knows the company and the board," Elson said. "He is quite an experienced guy and you are not going to find talent that good out there. I don't know how they will do better."

Sonnenfeld concurred that Breen was a strong choice.

"You can't do better than Ed Breen," he said. "He is universally celebrated for his expertise across multiple industries."

Elson said a month would not be enough time to vet other candidates, but did give DuPont a window to consider other nominees and their potential cost. He added that becoming DuPont's CEO may not be as attractive a title as it might have been in the past.

"The fact that there was a proxy fight and a CEO termination makes it hard to recruit," he said. "The company has some issues."

Arnold said Breen's hiring was not surprising.

"He was not just 'babysitting' the company until a permanent CEO was identified," he said. "He was already engaged in what needed to be done. He made it abundantly clear he was the right person for the job."

DuPont appointment of outsider CEO marks company first

Delaware reaction 

Gov. Jack Markell congratulated Breen in a statement and said he looks forward to working with the CEO of a company employing 7,000 workers in Delaware.

"He impressed me as a solid leader who is committed to improving results at DuPont in the long-term," Markell said.

Delaware's U.S. senators did not release any statements or respond to requests for comment, in contrast to a lengthy statement U.S. Sen. Tom Carper issued after Kullman's departure.

Congressman John Carney, D-Del., offered a comment hours after Breen's appointment was announced.

"Since its inception, DuPont and its many Delaware employees have been central to the fabric of Delaware," he said. "I congratulate Mr. Breen on his new role and I look forward to working with him to ensure DuPont’s continued success."

Breen led Tyco International in the decade after the security systems company declared bankruptcy and former CEO L. Dennis Kozlowski was found guilty of embezzling about $600 million from the company. Under Breen's leadership, Tyco was split into three companies in 2006 and three more businesses in 2012. He currently serves as the chairman of Tyco's board.

“If I had to describe him in one word,” said fellow Tyco board member Herman E. Bulls, “that word would be, 'leader'.”

A real estate services executive with Jones Lang LaSalle and Bulls Advisory Group, Bulls met Breen before joining Tyco’s board in 2014.

“He’s a strategist, a phenomenal collaborator and a very good businessman,” he said. “He understands how to create value for shareholders given the market, economic conditions and capability of an organization.”

Bulls said he is not surprised DuPont’s board of directors chose Breen to take on the CEO job.

“I would have been more surprised if they didn’t notice his talent,” he said. “The question becomes is he ready for another challenge like that, but I think it’s a very logical conclusion given the current situation at DuPont.”

Bulls declined to comment when asked whether he thought Breen would remain chairman of Tyco’s board, given his new role heading DuPont.

A spokesperson for Tyco did not immediately respond to questions about whether Breen has indicated his future with that company.

Breen also serves on Comcast’s board of directors. He initially held a seat on the cable giant from 2005 to 2011, before returning in 2015. Today, he serves as the Philadelphia-based company’s lead independent director.

“My understanding is he won’t be resigning,” said Comcast spokesman John Demming.

Breen previously worked at Motorola, exiting in mid-2002 after seven months as chief operating officer. He also spent three years as chief executive officer of General Instrument Corp. after its split into three independent companies, one of which was later acquired by Motorola.

Delaware's dilemma: A fading DuPont

The new CEO said in a statement he will work closely with DuPont executives and directors to improve shareholder value.

"In the near-term, we are staying very close to our customers to deliver the value enhancing solutions they expect from DuPont innovation – even as we work with urgency to improve shareholder returns," he said.

Business reporter Scott Goss contributed this article.

Contact Jeff Mordock at (302) 324-2786, on Twitter @JeffMordockTNJ or jmordock@delawareonline.com.