The proxy contest at DuPont has prompted all manner of debate. Investors see a bloated and confused company that has fallen behind more nimble competitors. Company apologists see a besieged leadership team that refuses to yield to an opportunistic and short-sighted shareholder.

One DuPont defender worries if investors like Trian have their way, investment in US R&D will suffer. The nation risks losing ground to other countries in the race for technology leadership. That message resonates with those who already fear competition from companies in Europe, Japan, China, India, and elsewhere.

Shareholders worry differently. We wonder how the level of R&D spending in the US becomes DuPont investors’ problem. We have a more immediate need, to assure that a portfolio company delivers decent returns.

Bill George has criticized activist investors before, and routinely accuses shareholders of neglecting needed investment. He’s a consummate corporate insider, who retired from a cushy Fortune 500 CEO job to join a few BoDs and teach at Harvard Business School.

Last week he tackled the situation at DuPont. He adds a new element to his standard accusation of short-term thinking, with a dire headline: “Peltz’s Attacks on DuPont Threaten America’s Research Edge”. He frets that activist investors will impoverish our country’s standing in the world economy:

1. The Peltz proposal is troubling because it mirrors a disturbing trend in which financiers are gutting American research labs that develop tomorrow’s innovations.
   

Investors and management can and should debate how much a portfolio company should spend on R&D. Companies confront a fine line between starving future sources of growth, and feeding useless science projects.

George escalates this important yet routine subject to a matter of US economic security. Investors do pressure many companies, not just DuPont, to justify R&D spending. When they cannot, investors insist they cut back. Trian makes this point clearly at DuPont, in one of its white papers (see p. 26).

In the aggregate, this effort may indeed lead to lower R&D spending in the US economy. Whether lower R&D spending represents a problem is a different question. More generally, the proper level of national R&D spending, and the risk-return tradeoff from various levels of national R&D spending, is a much more complicated question.

Further, we’ve not seen how in the aggregate investors deny companies needed R&D investment. We sure seem eager to spend money on speculative ventures, for example based on the high demand for tech IPOs.

More to the point, how did the level of R&D spending in the US economy become the specific concern of DuPont shareholders? Would Bill George have DuPont shareholders tolerate a stagnant share price just so that the company can pump money into the US tech sector?

Sounds like he advocates for an R&D tax on DuPont shareholders. We hope not.