PulteGroup Founder Calls CEO Appointment His Biggest Mistakeby
Family trying to force immediate replacement of Richard Dugas
Pulte missed proxy-fight deadline, considering other options
PulteGroup Inc.’s founder and largest shareholder, who is calling for the immediate removal of Chief Executive Officer Richard Dugas, said that appointing him to the position was the “biggest mistake of my career.”
In a letter to board members Monday, Bill Pulte outlined concerns about Dugas, including departures of talented executives, overly aggressive land purchases before the crash that led to writedowns and losses, and the performance of the stock relative to some peers. Dugas’ announcement last week that he would resign in May 2017 isn’t enough, Pulte said.
“For the board of directors to even consider letting Richard Dugas stay another year as a lame-duck CEO puts the personal interests of Richard Dugas ahead of the interests of the company,” Pulte wrote. “With Richard’s uniquely disastrous track record of cumulatively losing so much money, the board is telling shareholders just how out of touch they are.”
Pulte’s 27-year-old grandson, who shares his name, said the family missed the deadline for a proxy fight ahead of next month’s shareholder meeting. The family is evaluating “other options,” he said in a phone interview.
“We’re hoping the board makes the right decisions so that we do not have to continue to look at all the options as PulteGroup’s largest shareholder,” the younger Bill Pulte said. He declined to discuss the options.
The shares of PulteGroup, the No. 3 U.S. homebuilder by revenue, have fallen 21 percent in the past year -- including a 3.9 drop since Bill Pulte’s demands were disclosed -- compared with a 7.1 percent decline in the Standard & Poor’s index of 13 homebuilders. D.R. Horton Inc., the largest U.S. homebuilder, has gained 6.7 percent in the same period, while shares of Lennar Corp., the second-biggest, have dropped 5.5 percent.
The greatest risk for investors is the “uncertainty and the potential that it creates a distraction to operations,” Drew Reading, a homebuilding analyst for Bloomberg Intelligence, said in an e-mail. While the board said it supports Dugas’s current strategy, “there is also a concern that a new CEO may come in with a strategy to lever the balance sheet and more heavily invest in growth at a point in time where the cycle is beginning to mature, which would put the company in an unfavorable position.”
PulteGroup said in a statement Monday that the Pulte family’s “attacks bear little resemblance to the facts.” The company’s leaders “have been responsible stewards of capital,” reducing the company’s debt-to-capital ratio and returning $559 million to shareholders through dividends and share repurchases in five years.
“The PulteGroup board and management team will continue to stay focused on delivering on the successful strategy it has been executing since 2011,” the company said.
Dugas, 50, has been with the company since 1994, served as CEO since 2003 and been chairman since 2009. The older Bill Pulte, who founded the company in 1950 at age 18, has cited disappointment that the headquarters was relocated to Atlanta from the Detroit suburb of Bloomfield Hills in 2014.
“I supported the appointment of Richard Dugas as CEO in 2003, which in hindsight was a mistake and perhaps the biggest mistake of my career,” Pulte said in Monday’s letter. He said he made suggestions in the past to “attract new types of customers and sales, while having a disciplined and conservative land-investment strategy,” but that Dugas never got back to him.
Pulte also said he was disappointed that PulteGroup’s board won’t renominate former CEO Jim Grosfeld, who was appointed a director at the behest of Pulte.
“I’m not sure what happened, but I suspect the other board members felt threatened by his experience in homebuilding and his ideas for Pulte, and maybe, resentful that Jim exposed the company’s leadership failures in recent years,” he said in the letter.
PulteGroup had fourth-quarter net income of $228 million, or 64 cents a share, up from $217 million, or 58 cents, a year earlier. The company’s gross margin on home sales was 23.5 percent, up from 23.1 percent.