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Crisis of the Week: Fight For Control at PulteGroup – April 12, 2016

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Crisis of the Week: Fight For Control at PulteGroup – April 12, 2016

Halsey Knapp was quoted in the Wall Street Journal’s ‘Crisis of the Week: Fight For Control at PulteGroup’ on April 12, 2016.

PulteGroup is under the crisis microscope this week, as the home-building company’s board chairman published a letter to shareholders criticizing the company’s founder, his grandson and another board director for their efforts to try to oust Chief Executive Richard Dugas Jr. Chairman James Postl called the effort to remove Mr. Dugas “misguided,” though the company announced Mr. Dugas would step down next year to “avoid a contested public battle” that would hurt shareholders.

The grandson, also named William Pulte, told the Wall Street Journal he blamed Mr. Dugas for “missed opportunities” regarding investments in land and personnel. The comments followed an effort by founder William Pulte, his grandson and board member James Grosfeld, to seek “an immediate CEO change and a different direction for the company.” In addition, the company said the board chose not to nominate Mr. Grosfeld for re-election, citing differences between him and other board members regarding “succession planning and other strategy matters.”

Using solely the comments made by Mr. Postl in his letter and the company’s comments in its press releases, the crisis experts assess how well the company has managed this crisis and communicated its side of the story. Where did the company excel? Where did its messaging fall short?

Halsey Knapp, partner, Krevolin Horst: “In the American Bar Association’s publication, entitled ‘The Role of the Independent Directors in Corporate Governance,’ Bruce Dravis describes independent directors as decision makers ‘with integrity, who evaluate facts without bias and make judgments without favoritism.’ We should commend corporate directors who faithfully discharge their duties in this manner.

“At PulteGroup, Mr. Bill Pulte, PulteGroup’s founder and largest shareholder, recently challenged the independence of its board of directors. Mr. Pulte and a sitting board member, Jim Grosfeld, a one-time Pulte CEO, sought to force CEO Richard Dugas into immediate retirement and hijack the board’s nominating authority. Messrs. Pulte and Grosfeld privately hot-boxed independent director James Postl and the CEO and threatened ‘war’ if their management-restructuring plan wasn’t adopted immediately.

“Mr. Dugas and the board did not yield and released proxy statements announcing a slate of board nominees devoid of Mr. Grosfeld. At the same time, Mr. Dugas announced his resignation effective May 2017, allowing the board to adopt an orderly and professionally guided process to identify a successor CEO, rather than Mr. Pulte’s chosen favorite.

“In a risky maneuver, Mr. Pulte elected to argue his case; however his reasoning was underwhelming and his comments produced the unintended consequence of opening the door for the independent board to reply in its own public letter to shareholders. The board’s letter exposed Mr. Pulte’s tactics and provided a well-supported rebuttal of the merits of his cause. The PulteGroup board’s public actions merit recognition.”

 

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