Dow offices in Midland, Michigan. The chemical giant is said to be merging with Dupont in search of higher profits.
Dow offices in Midland, Michigan. The chemical giant is said to be merging with Dupont in search of higher profits. - 
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The chemical and agriculture titans Dow and Dupont are said to be on the verge of a merger. Both are under shareholder pressure to ditch older products they've made for generations.

Dupont no longer makes paint or Teflon. Dow is out of the business of Ziploc bags. Stockholders are pressuring them to focus on higher-growth ventures, including crop seeds and pesticides.

Now, the pressure is to potentially merge and restructure even more.

"What's striking about both of them, even before this merger announcement, is how much money they were paying out to shareholders," said economist J.W. Mason, assistant professor at the City University of New York and a fellow at the Roosevelt Institute.

Mason said shareholders have exercised outsize influence on corporate America since the "shareholder revolution" of the mid-1980s. Dow and Dupont have given stockholders $9 billion through share buybacks the last couple years, and Mason said they didn't do that in the past. In his view, the role of the stock market has flipped.

"Finance was a tool for getting money into the corporate sector," Mason said. "But now overwhelmingly finance is a tool for getting money out of the corporate sector."

By definition, money sent to shareholders is money not available for research, or technology or new products. There's been a trend in this non-investment generally, said Richard Sylla, professor of economics and the history of financial institutions at New York University's Stern School of Business.

"Investment is one of the drivers of economic growth," Sylla said. "But ever since the financial crisis, companies have been reluctant to make new investments. And that's partly responsible for our slow economic growth."

Sylla said investor pressure is particularly acute for manufacturing firms such as Dow and Dupont; they face global competition, in a way American tech companies don't.

Not surprisingly, shareholders see the future for these old-line chemical companies being in higher-tech products like genetically modified seeds. And in moving on from their old corporate DNA.

"Nothing is forever," said Charles Elson, professor of corporate governance at the University of Delaware. "That's what business is about. Dupont is not what it was 200 years ago. It was a gunpowder company. It moved from gunpower to nylon, you know, and nylon to housing materials. Good businesses constantly innovate."


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Follow Scott Tong at @tongscott