Businesses and family names have worked as a double-helix of value and trust creation forever. In home building, it's the case that many companies bear the surname of their founder, and operate across generations under that name as a show of reputational strength, entrepreneurial spirit, and, in many instances, patriarchal care of an organization and its interests.
Bill Pulte built his first house and sold it as a teen-ager. Across the arc of a career that launched his eponymous company in the mid-late-1960s, he built homes in Michigan that he still enjoys driving past. He built a company whose culture insisted on innovation, on quality process, on securing an unimpeachable bond between the name, Pulte, and the experience of the home buyer. Bill Pulte built more than that. He built communities that live, and breathe, and contribute to the sinew of what is great and exceptional about America, and he built a thriving, sustaining ecosystem of scalable process, human capital, money, and land.
In March 2010, Bill Pulte retired from an active role--resigning from the board--in the company he started, took public, and engineered into one of the three most powerful residential, for-sale operators in the nation. He retained a major stake in the company, and today, it's reported owns 8.9% of the shares in PulteGroup, the single largest shareholder.
Yesterday, as the culmination of a month-long dust-up that positions the venerable Bill Pulte and his grandson Bill Pulte's interests--and, they assert, the interests of most shareholders--Bill Pulte submitted this letter to the board of directors of the PulteGroup:
April 4, 2016
Ladies and Gentlemen:
As the founder, former Chairman and CEO, and largest shareholder of PulteGroup, Inc., I am writing in light of the company’s public announcements this morning to reiterate my extreme disappointment in the leadership of CEO Richard Dugas and the lack of performance of PulteGroup under his watch.
I told Richard early on in his tenure that I intended to allow him to own and drive PulteGroup’s operations and strategy and not to insert myself into the day-to-day operations of the company. Unfortunately, Richard Dugas’ lack of performance and repeated bad decision-making has led me to conclude that the company needs new leadership.
Accordingly, I recently approached Richard Dugas and the Board and conveyed my disappointment in Richard Dugas’ leadership and the need for an immediate change. Based on ensuing discussions I had with members of the Board, I understood that the Board was seriously considering my concerns, and I hoped that they would take steps to implement a near-term change for the benefit of PulteGroup shareholders.
This morning, however, I learned that PulteGroup announced that Richard Dugas had informed the Board of his intention to retire over a year from now. This falls far short of the short-term leadership change that PulteGroup shareholders and PulteGroup employees need.
In addition, the company also disclosed this morning in its definitive proxy statement for the 2016 annual shareholder meeting that the Board had determined not to nominate James Grosfeld to continue as a director of PulteGroup “for a number of reasons, including as a result of differing points of view between Mr. Grosfeld and the other independent directors over succession planning and other business strategy matters.” The company had previously disclosed in its preliminary proxy statement for the 2016 annual shareholder meeting that Mr. Grosfeld was a nominee. The Board’s decision not to renominate Mr. Grosfeld reflects an attempt to stifle any differing views on management and business strategy matters, which is contrary to good corporate governance. Jim Grosfeld is highly regarded as one of the best homebuilding executives and homebuilding financial experts in the history of the U.S. homebuilding industry.
Specific examples of the leadership failures of Richard Dugas and the inadequate performance of PulteGroup under his watch include, but are not limited to, the following:
- Since Richard Dugas was appointed CEO almost 13 years ago, PulteGroup’s stock price has not appreciated significantly, even when many peers have performed strongly since the Great Recession.
- Richard Dugas laid off key and irreplaceable homebuilding talent that have left the Company.
- After many years of losses at PulteGroup, Richard Dugas moved the Company’s headquarters from suburban Detroit to Atlanta, which cost the shareholders tens of millions of dollars with no apparent benefit to shareholders. It is important to note that PulteGroup had become the largest homebuilder in the United States while headquartered in Michigan.
The shareholders and employees of PulteGroup deserve a strong and growing company, especially in today’s highly competitive and growing environment. The necessary management changes are long overdue, and the succession plan announced by the Board only serves to further delay these changes to the detriment of shareholders. PulteGroup has great assets and many loyal and talented employees, whose potential is waiting to be realized with effective leadership. This is not about going backward; this is about going forward with the right CEO and the right strategies.
Accordingly, I am asking the Board to significantly accelerate the announced succession plan for Richard Dugas, and recruit an experienced and seasoned homebuilding operator as CEO, one who truly understands the homebuilding business.
I stand ready to assist in identifying such a person and enabling a bright future for PulteGroup and my fellow shareholders.
Pulte Homes (PHM:NYSE)
This morning, lead independent director for the board of directors, James J. Postl, posted this response to Mr. Pulte's letter.
Now, here are a few thoughts.
One, is that Bill Pulte has a deserved reputation as one of home building's brightest lights, most intrepid souls, and has been an inspiration to some of the best professionals following in his path. That much is certain.
On the current matter of PulteGroup and its best interests, and whether they align with Bill Pulte's interests and his family's, all the rest of the issue qualifies as a classic case of an activist, powerful investor in disagreement with executive strategic management. The merits, opportunities, and risks that accompany Bill Pulte's initiatives and allegations of Dugas' failings now propel themselves into a time-continuum of uncertainty and limbo.
Uncertainty and limbo start a guessing game about who's in line as a Dugas successor? Is he or she ready? Will that person come from inside or outside the company? How will PulteGroup attract a top-flight ceo in the wake of a Dugas ouster? Is PulteGroup now in play, given the questions around its leadership, its ability to sustain and grow value?
PulteGroup is now in uncharted territory. A leading shareholder wants the current ceo out, and the current ceo has fiduciary responsibility to shareholders--90% of them--to do what is right by the overall interests of the organization.
A reality check here is this: Pulte closed 17,000-plus homes in 2015, with 13% pre-tax margins, and net income of $500 million on revenue of $5.8 billion. Richard Dugas, and his current team of innovators and operators, have nothing to be ashamed of in their performance.
We'll talk later this morning with Bill Pulte, the grandson, and hopefully, shed a little more light on this unhappy topic area.