A tug of war for control and the near-term and ultimate strategic direction of PulteGroup will come down to two important blocs of influence over a critical period of the next few weeks, through the company's annual shareholder meeting on May 4, 2016.
The two blocs are shareholders and employees. Whoever those two groups side with--the Pultes, or current executive management, fully supported by the current board of directors of the company--will win. Or, maybe, nobody wins.
The Bill Pultes--the 83-year-old founder of Pulte Homes and his 27-year-old grandson, who founded private equity firm Pulte Capital Partners LLC four years ago to use the Pulte family name, financial resources, and deep institutional knowledge to make housing-related acquisitions--believe their case against chairman and ceo Richard Dugas aligns with the interests of both blocs, and will sway their support.
Their reasons for believing so are both deeply personal, and, in their eyes, self-evident.
Grandson Bill Pulte has nothing whatsoever to do with running PulteGroup or its operations, nor, he asserts, has he any designs on a role or responsibilities in the residential development and home building empire his legendary grandfather started. Still, he has a directly vested interest in the fates and fortunes of the mothership brand and the value it spins off. The expertise and trust and currency of the Pulte brand name--as well as the hefty financial foundation of Pulte Capital Partners' funds--is young Bill's calling card in a very real way.
So, it would explain his keen interest and front-man role in a dynamic that has pitted he and his iconic grandfather, along with former Pulte Homes ceo James Grosfeld in dramatic opposition to the continued leadership of Richard Dugas.
As we mentioned yesterday, at the end of the day, the battle that is playing out at PulteGroup is unusual only insofar as it has not occurred in the public home building space before. We've hit an age where activist shareholders exert a powerful level of influence over corporate strategies, tactics, and decision-making. In this case, a founder whose name, reputation, brand-value, and organizational principles are deeply woven into, if not synonymous with the current enterprise that bears that name is the leading shareholder. But, the case could be cautionary. How many other publicly-traded home building enterprises have a founder's name as the brand nameplate, a legacy to defend, a financial empire to grow long after day-to-day involvement? Some big, important names come to mind.
In this case, as well, a former ceo of the company Jim Grosefeld, whose interests, philosophies, and ties with Bill Pulte run very deep, has been jettisoned from the current acting board of directors and line-up of nominees for the annual shareholder meeting vote on May 4. It's noteworthy, young Bill Pulte informed me in a conversation yesterday, that Jim Grosfeld also serves on the board of directors of Blackrock, which is PulteGroup's second largest shareholder.
"It causes us concern that we've seen so little growth during the recovery," Bill Pulte tells me. "The company missed out under Dugas' leadership." He compares Pulte's stock price--albeit already jarred by the turmoil around the leadership struggle--to that of D.R. Horton and Lennar, whose share prices have nearly doubled during the recovery trajectory of the past 24 months, while Pulte's has remained flat.
Some of the Pulte's grievances owe to their convictions and interests around the brand that is Pulte, and, while it would be a mistake to call them strictly personal, there's a subjectivity to them.
The fact of the matter is, the two Bill Pultes and their rather powerful ally in Jim Grosfeld, may exert enough populist sway with shareholders to create quite a dramatic showdown by annual shareholder meeting time. Here's the board of directors nominee line-up set for a shareholder vote that day:
- Brian P. Anderson, 65, Former CFO, OfficeMax, Inc.
- Bryce Blair, 57, Executive Chairman of the Board, Invitation Homes and former Chairman and CEO, AvalonBay Communities, Inc.
- Richard W. Dreiling, 62, Former Chairman and CEO of Dollar General Corporation
- Richard J. Dugas, Jr., 50, Chairman and CEO, PulteGroup, Inc.
- Thomas J. Folliard, 51, President and CEO of CarMax, Inc.
- Cheryl W. Grisé, 63, Former Executive Vice President of Northeast Utilities
- André J. Hawaux, 55, Executive Vice President and COO, Dick's Sporting Goods, Inc.
- Debra J. Kelly-Ennis, 59, Former President and CEO, Diageo Canada, Inc.
- Patrick J. O'Leary, 58, Former Executive Vice President and CFO of SPX Corporation
- James J. Postl, 70, Former President and CEO of Pennzoil-Quaker State Company
- As noted in the proxy statement, the Company's Board of Directors determined not to nominate James Grosfeld to stand for election as a Director at the Company's Annual Meeting of Shareholders 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.
Young Bill Pulte's present and future in business ties directly to how PulteGroup performs, financially, operationally, and the trust that it continues to generate among stakeholders. He and his grandfather are upset. They hasten to say that it's not with the organization, its associates, and its operational team, but rather, with an individual and his decision-making, his areas of focus, and his direction of the enterprise.
The Pultes, young Bill says, are prepared to go to great lengths to tell their story--that the company could and should be better run--even so far as visiting with current Pulte associates on the ground, in the field, to make their case.
"Richard Dugas has been one of the higher-paid ceos among his peers for the past several years, even as the company has showed flat growth," says grandson Bill Pulte. "The employees that own stock in the company haven't seen a lot of growth."
Young Bill Pulte notes that his grandfather is in touch with many, many current and former Pulte employees, and he believes his grievances with company management are shared deep and wide in the organization.
"My grandfather is beloved by hundreds of current Pulte folks who stay in touch with him," says young Bill. "He was out at a DiVosta Homes office recently, and it was amazing to see the level of support and love for him."
So, this is to say, as JP Morgan Chase home building analyst Michael Rehaut asserts, a "protracted and distracting" period ahead may be likely as current leadership and the Pulte family and allies seek to strengthen their base of support among the two most dominant blocs of influence right now: shareholders and employees.
"We hope to resolve this amicably with the board," says Bill of he and his father's crusade to alter PulteGroup leadership and strategy. "To the extent that we can get them to see the light on what needs to be done in the interests of shareholders and employees, we're going to do what it takes to get this change to happen."
As important as shareholders and employees are as a point of focus in this battle, another important area of influence--home buying customers--may have to wait for the focus they should be getting. That's unfortunate for everybody involved.