Ellen Kullman, chair of the board and chief executive officer of DuPont, joins Alan S. Murray, editor at Fortune magazine, to discuss global competitiveness. Kullman describes Dupont’s deep portfolio strategy, and innovations ranging from drought-resistant cultivars to biofuel to golf ball materials.
Ellen Kullman on Dupont’s expansion from a chemical company to a science company:
“…we call ourselves a science company because chemistry is very important, but the most interesting things today are happening at the intersection of sciences, taking it to a nano scale, or adding biology to chemistry, and material science and engineering. Because science itself is interesting, but it's only relevant if you can take it to a scale at a cost that your customers then benefit from it.”
Ellen Kullman on a long-term innovation strategy:
“…the present management is greatly enabled by decisions that were made ten and twenty years ago by our predecessors, the places they put the investment. …we're benefiting from that long-term view, and I take very seriously my role in creating that for the future. …it is an innovation ecosystem that has to continue to have a pipeline that delivers but invests in the longterm to create that for the longterm.”
Ellen Kullman on U.S. tax and trade policies:
“…for American companies like mine to be competitive we need a tax policy that's relevant. We need trade policies that enable.”
MURRAY: Thank you all for coming. This is going to be a very interesting discussion this morning. I can -- I can tell you already, I think you've all been told to turn off your cell phones. I think would add to that the warning that if -- if you -- if you're thinking of writing any e-mails, assume they will be hacked someday and shown on the Jumbotron at Times Square. So, be careful -- be careful what you put in electronic communications.
Ellen Kullman has been CEO of DuPont since 2009.
MURRAY: DuPont has been around for 212 years.
MURRAY: You had a long and distinguished career at the company, serving as president, executive vice president. You started a life sciences -- Industrial Biosciences. And also the Sustainability Solutions. So, you know the company inside out. We used to think of DuPont as a chemical company. You refer to it as an innovation company. Tell us what you mean.
KULLMAN: Well, we call it a science company, and so, innovation, I think, another company has the corner on that, but...
MURRAY: Oh, really? Can you -- can you trademark something like that?
KULLMAN: I don't know, I don't know...
... we just don't want the confusion factor. You know, it's interesting. I've been with the company twenty-six years. Came mid-career, and fell in love with the company wandering around the laboratories, and understanding the science and how powerful the science is. And really have had a great time over the last twenty-six years connecting that science to the marketplace.
So, we call ourselves a science company because chemistry is very important, but the most interesting things today are happening at the intersection of sciences, taking it to a nano scale, or adding biology to chemistry, and material science and engineering. Because science itself is interesting, but it's only relevant if you can take it to a scale at a cost that your customers then benefit from it. So, we -- we, you know, are very proud of our chemical heritage, but are moving forward because of where the most fundamental and exciting innovation is occurring today.
MURRAY: There's a tendency today to think the most exciting innovation occurs in garages, you know? It happens in Silicon Valley, it gets funded by venture capital companies, and that -- that big companies somehow can't do that. You obviously don't buy that.
KULLMAN: Well, I think that entrepreneurism, starting in a garage, is an important part of a total innovation ecosystem, but in itself is not sufficient, because what we find -- and we are very active, our innovation model has changed greatly over the last twenty years -- and as we're out working in the marketplace -- excuse me -- there -- they focus on individual aspects of it. But, to get it to market, it has to be integrated into more of a system approach.
And so we're finding that small, innovative companies need to partner many times, not always, but because that scale and cost, and market access are very important parts of it. So, we've evolved where we innovate locally, not just as we did twenty years ago in a big center in Wilmington, Delaware, or in the agriculture area in Des Moines -- Des Moines, Iowa. But we innovate locally and, you know, over a hundred different smaller research centers around the world, and then connect them together globally through our processes that we use to connect to the customer.
MURRAY: So, give us a few examples of great scientific innovations that have come out of DuPont labs recently.
KULLMAN: So, if you think about large product innovations, so we -- we talk about innovation in three areas. There's small, incremental, or, you know, medium-sized that you have to do every day just to be in the game. So, it's that next application of Kevlar. It's putting Surlyn in the Nike golf ball. It's putting Kevlar on the, you know, Goodyear Blimp. It -- there's thousands of those that occur every year. The larger product category, if you think about three in the last few years, Rynaxypyr, a novel crop protection -- it's an insecticide that paralyzes the bug. That's it's mode of action, and it is low toxicity, human friendly. And it has been accepted by regulatory regimes around the world. Went from zero in revenues to $1 billion in revenues in five years. Probably took us fifteen years to get to where it is today, and because, you know, regulator environments, the testing you need to do make sure of where it resides in the whole ecosystem. I mean, that's been a tremendous success. If you look at Solamet paste. Back when I started with the photovoltaics industry...
KULLMAN: ... we were thinking crystal and silicone 12 percent was great. OK? Now, it's 19 approaching 20. A good part of that is the metalized paste that's used to collect the energy from the cell. And DuPont that's called Solamet paste. You think about, you know, everybody talks biotech as the big thing in ag, and it's very important, but we came up with a native, drought tolerant tree. So, AQUAmax, it's on 10 percent of the total corn acres in the United States. Not just our acres, the total corn acres in the United States, and it yields 9 percent more in drought stressed areas than other varieties, and it's not a yield drag if it's not drought stressed. So, I mean those are the types of product innovations come out.
Then there's the large innovations. New, new, so think cellulosic ethanol. Think about being able to break down stover and cob and being able to translate that into ethanol. And our plant in Nevada, Iowa is finalizing mechanical completion, will be up and running in the first, second quarter of next year. It's a 30 million gallon plant. So, we -- you have to -- we work in all three aspects of innovation in order to be able to create growth.
MURRAY: Well, let's talk about a couple of those. The ethanol piece, I mean, there was this bubble of interest in ethanol five or six years ago, but then it pulled back because a lot of it was being made with corn, and the stress on the food system and so forth. Do you still think ethanol is a big part of the answer to the energy problem?
KULLMAN: I think it's going to be second or third generation biofuels that are going to the first, not the first generation. So, yes...
MURRAY: So, it'll take a while.
KULLMAN: ... right. So, well, there's actually three cellulosic ethanol plants that are in the process of coming up and running. It'll be running by the second quarter of next year. Three scale plants in the United States. We're one of them. We're working on butanol with B.P. Butanol's a different molecule. It doesn't have the energy degradation. It -- you can move it. It doesn't absorb water. You can move it, and in the transportation system, it doesn't have to be moved separately. It doesn't have the vapor pressure issues in the summer, gas caps popping off, things like that. You know, it's a little behind cellulosic ethanol.
But these major transitions, you know, you know, it takes partnership. It takes government support, like the renewable fuel standard. And, you know, we're going to get there. And, you know, I think we as a country, regardless of the price of oil today, have to continue to think about energy independence. All countries are doing that. And, you know, Brazil, China, those types of places who have large biomass are looking to how they use that biomass to create economic growth.
MURRAY: Is your corporate interest in alternative fuels affected at all by the oil price?
KULLMAN: Well, obviously, the economics are always affected by the oil price, right? You always have to take a look and see where that comes out. You know, the interesting thing about the -- the price of oil right now is that it is, you know, a lot of the research reports we see say it's going to drive miles up. People are going to drive more because the price of -- of gas is low. When they have to drive more, based on the renewable fuel standard, there's going to be more ethanol in the system. And, so, actually the ethanol producers are thinking, short-term, that's good. Now, if you can tell me, based on all your research, where oil's going to, you know, end up in a year's time, it'd be really helpful.
MURRAY: Unfortunately, I don't have the answer to that question, but you have to make assumptions about answers to questions like that, in order to decide...
KULLMAN: Every day this...
MURRAY: ... where to place your bets.
KULLMAN: ... yes, every day this week I'm asking, I'm getting a different answer.
So, I'm hoping in a couple weeks it'll settle down.
MURRAY: It'll settle out at some point.
KULLMAN: I'm hoping.
MURRAY: I mean, the other interesting issue you -- you talked about the -- the new strain of corn that yields 9 percent more in drought circumstances. But you've got this public backlash, in some places at least, in Europe, in Vermont, in California, against genetically modified food. How do you deal with that at DuPont?
KULLMAN: So, AQUAmax is a native trait, so it's not genetically modified...
MURRAY: So, it's not a problem.
KULLMAN: ... but we do sell a tremendous amount of genetically modified corn and soy out there. And, you know, the interesting thing is that if you think about how the grain industry has grown over the last sixty, seventy years, hybridization, and the continued picking the winners and breeding, and creating strength over time. Genetic modification, think about it as doing on that steroids, a little bit. Now, no reference to any kind of, you know, sporting events, but...
KULLMAN: ...and imparting the ability for it to utilize less crop protection products, and protecting it from weeds, insects, fungus, things like that. Our country, we have a hard frost every year. So, you kind of get the bugs out of the system. In a place like Brazil, there's no hard frost in the main growing areas, and the insect pressure is huge. And, you know, you have to balance many things, but in the facts of a growing world, from a population standpoint, we're going to need more food, more grains, and we're going to have to grow it in the same amount of land we have now. I mean, there's tremendous pressure on land use. And, so, we need to get the most out of that. Now, genetic modification's been around for fifteen years. It has been studied tremendously. There are no known health effects. And...
MURRAY: You're saying it's basically no different than the natural selection processes you used before that? It's faster.
KULLMAN: You know, it's -- it's studied. Right, it is faster, and you can utilize less crop protection products, things like that, because the seed's better protected. Now, there's new science that's coming up that aren't genetically-modified biologicals. So, naturally dry products, that maybe you coat a seed or you intergress into a seed that creates protection. So, science keeps moving forward. And, so, you know, how we think about, you know -- I was told one time by, you know, a member of Congress that we just had a branding problem. That if we just didn't call it GMOs, it'd be OK. Genetic modification...
... was the thing. And, so, I'm not sure how you...
KULLMAN: ... I'm not sure I'd change it now, but I think part of the issue is that we need to better, as industry, we need to better educate populations around, in a very open, transparent, scientifically-based framework, about the realities of what science brings, and the risks it brings as well. You know, you take a risk crossing the street in New York City and getting hit by a bus, or a cab. And, so, what risks do we as -- as humans take on. And I don't think we're doing a good enough job educating our kids about (inaudible)...
MURRAY: But when you said we need to educate, you're not talking about DuPont, because, obviously, that's a challenge for DuPont to go out there and say these things, you're talking about generally speaking.
KULLMAN: Well, I think it's both. I think we need to make sure that we're doing a good job, in a very transparent way talking about what it is. But I also am passionate about increasing and creating modern engagement of our youngsters, starting at a very young age in terms of science and math, and agronomy and talking about it in a positive way, and talking about it in a way that builds economic growth and creates a better future for--
MURRAY: I want to come back to that, and talk about education, but what strikes me in the GMO debate is that many of the people who raise these questions are, in fact, at least on paper, very well educated. You know, it happens in highly educated...
MURRAY: ... it happens in the cities in California, it happens among -- and it happens in highly educated populations in Europe.
KULLMAN: So, I think it depends on how you define your world. Right? If you define your world as your state or your country, the answer may be one thing. If you define your world as the world, as the globe, and you understand what the differences are in agricultural productivity around the world, about access to safe and reliable food sources around the world, you might have a different attitude.
MURRAY: Look at -- and can you deal -- as a company, can you deal with those differences in attitudes with different products?
KULLMAN: You know, we're very -- we create not only genetically modified seeds, we have hybrids, and we are -- have large opportunities in Europe. We participate very strongly in Europe with non-GMO products, because that is what their regulatory environment has put forward. That's what we will respond to...
MURRAY: But you can't meet the...
KULLMAN: ... as an opportunity.
MURRAY: ... needs of the developing world without --
KULLMAN: Well, you've -- well, the developing world is interesting, because you've got -- they're still in many areas in open pollination. You know, think scattering seeds type of thing, and we're moving them into modern agronomy techniques, hybrids moving first. And then yet they have to work up that food chain. It's hard to take populations that have subsistence farming experience and move them into modern agriculture. You've got -- you've got to do a lot of training, education, you've got to work with aid organizations and governments. You've got to cultivate locally because, you know, corn, soy, very locally oriented. They've got to withstand the local conditions, soil, weather, things like that. So, you -- you've got to work your way up there, but I think if holistically, you know, if our population growth continues, that you're going to need science, and aspects of science, to get us there.
MURRAY: It's not just -- it's population growth and it's the affluence of the population...
MURRAY: ... that's -- it's the growing middle class.
KULLMAN: Growing middle class.
MURRAY: People want to eat...
MURRAY: ... like they're in the middle class.
MURRAY: Change -- change the subject a little bit. DuPont is coming under attack from an activist investor, Nelson Peltz. I -- I think your proxy submissions have to be made sometime next month. Hear there's at least a possibility, you know, he'll go after a couple of board seats. How -- what -- how do you feel about that?
KULLMAN: Well, so we are -- we are very active with our investors. We talk to them. You know, we work with them, understand their points of view. You know, what happens there we'll -- we'll see -- we'll all see. But...
MURRAY: But his -- his view is the company needs to split in two. That the agricultural businesses should be separated from the rest.
KULLMAN: You know, it's interesting because the company I entered twenty-five years ago is very different than the company today. We've been a very active portfolio manager. Just in the last six years, we've sold off our coatings business. We're spinning our chemicals business. We've had six different small dispositions this year, small product lines that had kind of peaked out on where innovation and science could drive growth, and there's consolidation in those areas, glass laminating solutions is, you know, one of the latest swans and -- and that's going in that direction with Kuraray, a Japanese company. So, we're very active portfolio managers.
We've done deep portfolio now since -- you know the interesting part about starting my job, when I did in the beginning of '09, was that we saw very clearly how each product line -- excuse me -- reacted to a difficult economic situation. We saw their -- where they were strong, where they were weak, their competiveness, and we took action. You know, improved the business, drive science into it to create new products, new enterprise, portfolio actions to change the portfolio. And we've done that tremendously.
What we have found through that is the leveraging of the science, adding biology, material science, engineering, chemistry, together, and using our global reach, value chain knowledge, creates opportunities for our company, differential to our competition in areas of ag and nutrition, advanced materials, and industrial biosciences. And, now that's ours to prove, but we see -- we have actively managed the portfolio and we see the connectiveness and the growth capability of what is there now.
MURRAY: So, trade in, trade out, but don't chop it in half?
KULLMAN: Well, we think there's -- we think that there's-- that deleveraging that you get that is -- has a negative impact on the whole. And I think that that's something that we as, you know, as management and the board of directors take very seriously, and we actively work.
MURRAY: I assume you've had this conversation with Nelson Peltz?
KULLMAN: We're actively involved with all our shareholders...
MURRAY: The other -- the other criticism he's making is that you have -- that your costs are too high. I mean, it's -- I'd be interested -- people will always say that and you can always make the argument, but the interesting thing about DuPont is it has this long history, and so it's been through these very different eras of -- of the corporate sense of responsibility. I mean, I was up there in -- and toured the original powder-making plants...
MURRAY: ... when you provided housing -- your -- your workers lived right there.
MURRAY: They were on the site. He's saying get rid of the hotel, get rid of the theater, get rid of some of the legacy of that tradition to save the company money.
KULLMAN: Well, you know, look, hospitality, all that is a business unit; it breaks even plus or minus, right?
MURRAY: It doesn't --
KULLMAN: So, it's not a burden to the company, so that's sort of a -- an interesting argument, but it's not relevant to the...
MURRAY: But, now there's no...
KULLMAN: ... return to the shareholders.
MURRAY: ... there's no real portfolio value to having a big hotel, now is it?
KULLMAN: No. No, and if it -- and, you know, now we are constantly looking at options. But, you know...
KULLMAN: ... we're in Wilmington, Delaware, and...
MURRAY: They -- they care about you, and you care about them.
KULLMAN: Well, no what I mean is it's not necessarily one of those cities that large hotel chains are flocking to, but, you know...
KULLMAN: ... so, yes.
MURRAY: Got it.
KULLMAN: But, you know, so yes.
You know, we have to call it for what it is. But -- but, let's, you know, talk about the legacy of DuPont because I think that's an interesting place to go. You know, we change as a company constantly. you know, a -- a hundred years ago, three cousins when the -- when the head of the company died, about 106 years ago, three cousins did one of the largest leveraged buyouts, well, back then, I think ever. But, and took the company -- the family took that, right? And converted the stock, and they started it on its course of modern chemistry. And they built the experimental station. They built laboratories. They invented things like nylon, and, you know, Kevlar, and Nomex, and Tyvek, and, you know, you know, floor chemicals for refrigerants. I mean, we came up with the fast bake for automotive paints, enabling mass manufacturing of automobiles back in the 1920s type of thing.
And, so, you know, they started that innovation engine, but that innovation engine's changed a lot. And it has to change. And, so, as we came through and literally are moving 30 percent of the company outside in the last six years, we said, you know, we've got to rethink who we are as a corporate center, and we have to make sure that we're not holding onto history.
KULLMAN: And that we are modernizing it. And so, it's something we announced, I don't know, six months ago. We call it Fresh Start.
KULLMAN: And we, you know, used outside help to bring benchmarks and hold the mirror up to say, you know, why are you doing this? And recasting the corporate center. Taking $1 billion of cost out over the next few years. We've got to modernize some systems. We're going to -- we need to invest in a -- a modern, transactional backbone -- standardized backbone, and things like that, which is in process. But I very much believe that, you know, you have to honor the history, but you've got to always look forward. And, you have to balance. I mean, I -- I'm a big believer that we only operate in the communities where we operate because we're a good citizen, and being a good citizen's part of it. But that has more to do with the volunteerism of my people, right? And -- and the employees at DuPont are tremendously generous with their time in the communities that we operate in and we're very proud of that, and -- and work with community organizations. And, so, it has to all work together to create that stability to go forward. But -- but we're very much not thinking there's things that are sacred cows, or things that can't change.
MURRAY: One more question about Nelson Peltz, and then I promise I'll stop.
Before he went after you, he went after Indra Nooyi at Pepsi, before he went after Indra Nooyi at Pepsi, he went after Irene Rosenfeld at Kraft. What do the three of you have in common?
KULLMAN: Well, they're not all engineers, so I have to stop there.
Well, you're the -- no, you're the -- no.
MURRAY: Well, if you're in the food business.
KULLMAN: No, I wouldn't go there. But, I -- you know, it is what it is, right? I'm a realist. I'm somebody that says that you just, you know, understand what the world is, and you address it.
MURRAY: Well, how about look at it more -- more broadly, because I realize it's complicated talking about this -- this specific case. But look at it more broadly. Are activist investors playing a -- a useful role in our business and economic system?
KULLMAN: You know the interesting this that, you know, historically big business wasn't very transparent. Go back decades. Now, there's much more transparency in the system. Everything we do is under a microscope. If you think about the kind of information we have to file for regulatory standpoint, if you think about, you know, anything that gets in the news today, right, type of thing. I think the world's changed. I -- I think the days when you had boards that were insular and weren't actively engaged in the -- creating a strong future and shareholder value. I mean, I -- I think today -- that's not the world I live in.
The world I live in is a very active board. It's very focused on creating value. It's active engagement around that stuff. So, you know, I -- I understand that shareholders, many aren't -- who aren't as public with their comments, they have strong views. And I learn from that, and I'm always open to listening to it, because the interesting thing is is when you, you know, sit inside a company and you live and breathe it every day, you know, the question is, what aren't you seeing? And my job is to make sure that we're seeing things. And I travel a lot, I spend a lot of time with customers, with governments. I spend a lot of time up and down our value chain, understanding their world to understand how it can impact mine.
KULLMAN: I spend a lot of time with shareholders. The same thing. And that informs, you know, us, our leadership, our board, into how we can create more value, and it challenges us to think in different ways.
MURRAY: How -- how about the kind of short-term, long-term issues? I mean, one of the interesting things as an observer of the business scene about where we are today is that in the kind of East Coast companies like yours, or an IBM, there's this enormous pressure to provide returns to shareholders in the short-term. And then you go to the West Coast, and you find companies that aren't even thinking about making money.
KULLMAN: Does that mean I should move my headquarters to the West Coast?
MURRAY: Well, maybe, I don't know. So I hadn't...
KULLMAN: I thought...
MURRAY: You -- you --
KULLMAN: I hadn't thought about that. I can -- I can put that in my...
MURRAY: How do you explain that?
MURRAY: I mean, you're a technology company, and yet you seem to be -- be forced by shareholders to operate under different rules than Amazon has to operate under.
KULLMAN: Interesting question. I'm sure you can wax philanthropically on that. But I believe it's an and equation, not an or equation. I think, you know, you've got to make short-term commitments, yet, you know, the environment is what it is, and it's all about beating the competition. And, when I started 2014 I didn't understand fully where the ag economy was going. So, am I, you know, where I wanted to be with ag? No. But, how am I doing versus the Syngenta, or a Monsanto, or others in that area is how the external world should judge us or them from that standpoint, because the environment's the same for everybody.
KULLMAN: But I'm -- I, you know, I see that I am, and our company, you know, is, the present management is greatly enabled by decisions that were made ten and twenty years ago by our predecessors, the places they put the investment. The things that they, I mean, whether it was opening up China, or whether it was an investment in a certain research area. Because of those decisions, not all perfect by any stretch of the imagination, we're -- we're -- we've got a hand and a set of opportunities that's ours to play out. Without those, if they hadn't invested in the fundamental research capability in -- in insecticides -- we were the herbicide company. You know, twenty years ago, we didn't have, you know, much in the insecticide world. They made those decisions to branch out into that area. We invented Rnaxypyr, right? I mean, so we're benefiting from that long-term view, and I take very seriously my role in creating that for the future. My shareholders want a long-term perspective on DuPont. And they -- and so it is an innovation ecosystem that has to continue to have a pipeline that delivers but invests in the longterm to create that for the longterm.
MURRAY: I want to go back to education, because you referred to that earlier, and I know it's something you're very passionate about and you devote some of your time and energy to. Can you -- can you talk a little bit about not just what you see as the problem, but what you think the solution might be that you can contribute to?
KULLMAN: So, you know, the problem is broad. When I watched my kids coming up through, you know, elementary school, middle school, and they're making volcanoes. You know, the baking soda thing, right?
KULLMAN: OK. How many volcanoes do you and I deal with on a daily basis?
Not many. So, why aren't they teaching them mechanics? Why aren't they showing them how an internal combustion engine works? How -- why aren't they showing them, you know, the world around them? You know, the science curriculum in schools, you know, it's the same curriculum that I grew up with.
MURRAY: It's broke.
KULLMAN: And the world is a very different place today. And there are a lot of people who are doing good things there. I mean, the -- the Boston Museum of Science, and -- and, you know, has a whole series of engagements for young children around, you know, multicultural, multiscientific discipline, real world problems. How do you get clean water in a rural area in India? And -- and engaging children on that level. And that's what we need. Our kids need to understand that science isn't scary. Science can help you build a better world, but we have to be engaged in it. And I think we talk about to our kids that science and math are hard. You know, life's hard, right? I'm not sure, I mean, writing a good paper is -- was hard for my sons, but they're doing well in engineering school, right? But we have to engage our children in a way that lets them understand that they're part of building that future, but it comes from embracing science and math, and agronomy, as opposed to saying, well, I'm just, you know, going to go in a different direction.
MURRAY: And how do you make that happen?
KULLMAN: It's part of our world.
MURRAY: Particularly in a decentralized education system like the one we have?
KULLMAN: Teacher education. Starting in preschool. I mean, there are a lot of fundamentals, you know, that -- that come into it that are leverageable, right, across the whole. I mean, you know, I just met with a -- a young man that graduated from high school with my daughter, in Teach for America. Now, he's moving from -- after his second year at Teach for America, he's working now on figuring out how to help the state get better principals in place, because there's a clear correlation between inner city schools, the quality of the principals, it's not about tenure, it's about capability, and increasing test scores increasing, you know, the learning environment for these kids. And, so, you know, you have to start locally, but the question is then how do we leverage it across the country. Because you go into China, you go into India, their kids are studying stuff our kids need to be studying.
KULLMAN: And I think for the U.S., from a U.S. competitiveness standpoint, I think that's a critical part of it.
MURRAY: DuPont is a global company, but you took over at CEO at a -- at a time when global trade was shrinking, stagnating, not -- not growing the way it had been before. How does that affect you?
KULLMAN: Yes, so I think that for American companies like mine to be competitive we need a tax policy that's relevant. We need trade policies that enable. There's a lot of work going on in -- in...
MURRAY: "Tax policy that's relevant" meaning a tax policy that allows freer movement of money, and lower rates of U.S. tax.
KULLMAN: Yes, most of my competitors aren't U.S. based companies. Most of my competitors are Japanese, they're German, they're Brazilian, a lot of them coming up in China, in Korea.
MURRAY: And do they all have a tax advantage over you?
KULLMAN: Not all. Many. But it is -- it's -- that shouldn't be the differentiator in competitiveness. And, you know, it's not like that much of the U.S. budget comes from corporations. A little bit does, but not a lot. But I would think that the U.S. would want to create strong companies, at whatever size, to be able to create, you know, strong business globally, and that's going to create employment, it's going to create economic growth. It's going to create investment. And I think that we can be part of that solution.
MURRAY: How -- how about trade? Trade barriers? Are you seeing that as an issue?
KULLMAN: So everybody wants their companies and their country to win. You've got some very powerful governments, who are focused on making sure that they get theirs for their companies because they've got issues. Whether it's employment and -- and making sure that their people have a future. And, you know, the rise of -- you see a little bit of protectionism rising in places. We work, you know, with our government very clearly, pointing to places, engaging them. They've been very helpful. They, you know -- they -- they're working towards that. There's a lot going on, you know, from a, you know, a bilateral investment treaty, I think, is very important from what's going on in Chicago now with China, and things like that. And we just have to continue to work it. But, I think, you know, I do manufacture a lot in the United States. I do export quite a bit. And, so, that is important to me.
MURRAY: Good. Why don't we open it up to the group here? I'm sure there are a lot of questions. People came armed with questions. So, we have some microphones. And, please, identify yourself before you ask your question. We'll start there in the back.
QUESTION: My name is Andrew Gundlach, First Eagle Investment Management. A question of long-term innovation. Your companies, industrial companies, have long product life cycles, unlike the Amazons, which are much shorter. And Wall Street hates science projects.
And long-term innovation takes a lot of long -- a lot of time, obviously, and I wonder whether or not the solution, it's not only for DuPont, but also for Dow and others, where they seem to have lost this spirit of long-term innovation because Wall Street won't tolerate it. And whether or not the -- the basic research that we do in the United States, financed in the 501(c)(3)s, usually, the schools, is superb, but whether or not it need to be extended, and therefore your companies can appease Wall Street, and do the -- do the R&D in -- in the 501(c)(3) model.
MURRAY: Nonprofit. Nonprofit subsidiaries.
KULLMAN: So, we spend about 10 percent. We spend about $2.2 billion a year on research and development. We spend about 10 percent of it on long-term research in our -- in two centers in the United States. Those centers actively work outside with universities in other areas to extend. But the one thing about long-term research is if you're consistent in it, it's not a burden, it's part of the infrastructure. And you test it and you understand what it delivers into the businesses, the twelve businesses in our company, that -- that draw from it. but, I, you know, we have a great -- in the scientific community we have a great brand at the experimental station, and the Johnston research centers, and we draw people into that.
And that's important for an innovation ecosystem. But we've expanded it out to include those kinds of connections because not everything happens within our walls by any stretch of the imagination, and we have to have that connectedness. Whether it's in the government laboratories, university laboratories, small companies. And so that ecosystem has changed a lot in the last ten years, but it still does represent about 10 percent of our research dollars.
MURRAY: That's been steady for -- for a long time?
KULLMAN: It has been.
MURRAY: Question back there.
QUESTION: I'm a journalist. Coming back to education...
MURRAY: I'm sorry, a journalist with?
QUESTION: I -- I work for El Pais, the Spanish daily. Sorry. My name is Sandro Pozzi. Coming back to education, basically the young people they want to do apps for, like, WhatsApp and to be millionaires, no? How difficult is it for you to find engineers? I mean, they are vital for the survival of your company. Do you have to look them here in the United States, or more abroad? Because they are more into science, not into coding.
KULLMAN: You know, it's -- it's interesting to me that music and arts, and engineering aren't that far apart in the brain. And you get the right teachers at the right level they can connect it and make the engineering fun. Geometry's a big part of art, things like that. you know, one of my sons is the -- well, I have two sons that are in engineering school, but one of them is -- taught himself the piano, and believe me, I -- I don't have a musical bone in my body, and I'm phenomenally impressed at how he's connected the two.
But, we look everywhere for talent. You know, we look in the United States. We have relationships with great universities. I have large laboratories in China, in India, in Brazil. Got smaller laboratories dotted around the world. And we look, you know, everywhere for talent. And, you know, it is -- there is in the United States, you know, that's more of an issue for us, and we have to work it harder. But I think there's, you know, there's a, you know, if you -- if we teach kids that engineering is not about tough science, it's about problem solving. It's about creativity, in a disciplined way, to really get at some of these problems. You can really spark an -- an interest and a drive there.
But I tend to think of it, you know, I call a lot of things 'either or equations' or 'and equations', and this is an 'and equation'. You know, we have to have strong engineering and scientific focus in the United States. I also need it elsewhere in the world, because it is, you know, when you -- the biggest part of growth for our company comes from localizing the science to the needs of the local community. And, so, you might be able to invent a new molecule in Wilmington, but in order to apply it in sub-Saharan Africa, you got to work locally in terms of creating that.
MURRAY: But, you know, both these questions have -- do raise a -- a -- a really interesting, broad business question. I mean, the interesting innovations that have dramatically changed our lives over the last two decades have been coding innovations, right? Mostly IT. It has to be true that in the next two decades that the life science innovations will have as much or bigger effect on our lives as coding innovations have in the last...
KULLMAN: So, coding innovations has affected my life greatly, not personally; professionally. You think about a molecule, finding a -- a reaction in millions of possibilities. You can do that without coding a system to run through it, and to tell you what are the ten or 100 that are the most reasonable prospects to get there. So, we use computers and science, and coding, and -- and intelligence -- artificial intelligence to really point us in the direction of -- of what is the highest probability to get to a Rnaxypyr.
KULLMAN: And those high throughput screening is absolutely imperative, right? And so that -- that's an enabler.
MURRAY: So, they're -- they're coming together?
KULLMAN: It's coming together. So, that's an enabler. But I do think that in -- in -- that biology offers tremendous opportunity. We've seen it in pharmaceuticals. We've seen it in agriculture. We're starting to see it in things like personal care. Maybe it's not the most exciting innovation, but, you know, I love it. Tide detergents, our enzymes, cold water. So, you can get the same cleaning in cold water, save energy. You couldn't do that five years ago. So, and so, in that personal care, home care industry.
You know, when I got talk to automotive manufacturers, you know, this -- this Prius generation, they want, you know, the highest energy efficiency, but they want renewable materials. And, so, there's coming together in this way that I think's going to create a very (inaudible).
MURRAY: I guess the question is how do you get the -- the financiers and the kids as excited about that as they are about the latest social sharing app?
KULLMAN: Well, I am the chief recruiting officer for my company, too.
MURRAY: And I love it actually. You know, I -- you know, I get my energy by going out into the world and understanding what's going on. And I hit universities when I'm in these countries, or these towns in the United States, and, you know, I'll do a fireside chat with the head of a business school, or a head of an engineering school. I'll go in and do small group meetings. I'll walk their laboratories with them. I'll spend a few hours there. And I'm talking to these kids about what DuPont is and what they can do if they come to work for us, or come to an internship.
So, you know, because what they think about DuPont they think about the chemical company that you mentioned when we started the conversation. They don't think about nutritious food ingredients. They don't think about enzymes and what they can do. They don't think about advanced materials, and using Kevlar not only to protect people, but, you know -- you know, Kevlar's under the hood of your car. Kevlar's in sails. Kevlar's in airframes to lightweight them. You know, Kevlar's in your kid's hockey helmet. So, you know, it's -- it's just everywhere, and those kind of application developments, very exciting. But, most people want to work on the Nike golf ball account, I can tell you that one.
Yes, sir. Wait for the microphone, yes.
QUESTION: William Hazeltine, Access Health. You work in science, you work in biology, you work in materials. One of the biggest applications for those is the health care industry.
QUESTION: Whether it's pharmaceuticals, whether it's new materials for rebuilding organs, a whole series of applications. I wonder what your thoughts are of applying your set of technologies to this enormous sector of business.
KULLMAN: Yes, we had a large life sciences health care sector about a decade and a half ago. It's -- it seemed like the company back then got to a point where they had to make a choice, you know? We were growing agriculture and food. We were growing advanced materials, and we sold that off to Bristol-Meyers-Squibb. And then we benefited from a relationship with Merck. Cozaar Hyzaar was one of our inventions, and -- and we benefited that. It was a very sad patent expiration that happened on April 10, of the year 2010. And, but we do in -- what we do is work with other companies who are absolutely have the value chain knowledge and the -- the knowledge of -- of, you know, the human body in ways, and we provide them with some materials that they can then test and things like that. But, we don't have that value chain, that, you know, information and intensity that we had, say, fifteen years ago. So, we're more back in the value chain and working from that aspect of it, but there's a lot going on in that area as well.
QUESTION: Bryon Wien, Blackstone. What percentage of your sales is from products that have been developed by your company in the last ten years? And if I asked you that question ten years from now, what would the number be?
KULLMAN: Well, I can't tell you ten years, but I can tell you five years, because we measure that actually, and we just -- so, what we've been driving is, you know, how do you get a new a product up that -- up that curve as quick as you can? So, one of our measurements is revenue from products that didn't exist five years ago, and that number last year was $10 billion, out of the $36 billion in revenue for our company. So, we have Rnaxypyr was one of those, right, and that's falling out, because it's now over five years old. So, we're -- we constantly look at that from a pipeline standpoint, and we want to grow it, because the facts are that there are some that are replacements, and there's some that growth, and you're constantly looking to see where that line is. Because we have to defend our territory. I mean, in our world price goes down, not up, without innovation. And, you've got lots of competitors that are out there, looking to knock it off. So, the minimum's about ten. It means that as we grow as a company it will get larger from that. That's a very important metric for us.
MURRAY: And is that -- does that ten include, you talked about the three different kinds of innovations, and the first kind was sort of incremental changes.
KULLMAN: Right. Includes all of it.
MURRAY: Includes that as well.
KULLMAN: Yes, and that's a very -- for our businesses, and we look at that, and the chief technology officer reports directly to me, and, you know, he -- he has, we look every quarter at his metrics around what each of the businesses are doing. And he helps the businesses by deploying some of the leveraged resources to help them get it done faster, right? And, so that's really important for us, because that's how -- that's -- we live and die by that.
MURRAY: Right here, and then over here.
QUESTION: Aaron Kinnari, the Partnership for a New American Economy. DuPont was founded by an immigrant. It's part of the 40 percent of Fortune 500 companies founded by immigrants with their children. You now sit at the center of several industries which rely on foreign talent at all skill levels. What would you say to folks in Washington where the issue seems to have stalled?
KULLMAN: Well, stapling a green card to every advanced degree or Ph.D. would be a real help, but you know, so, you know, I -- I'm not a native American. My husband comes from Native American roots, I don't. Right? So, I came over in the potato famine kind of days. And, you know, families, you know, just tremendous what a lot of hard work, focus, education can do for kids here. So, you know, the model, it's been challenged, but why are we changing it now? I think it's an important part of who we are as a country, is the melting pot. And I -- I think that we need to -- to address it. Immigration. I think we need to do it a way that's very respectful, and -- and understanding that talent, you know, I want them to come here and get educated. I'd like them to stay, you know, and work in our laboratories. Now, we're kind of lucky, because if somebody comes here and gets educated, and wants to go home, we may just have a big laboratory in that -- in that country and do that. But I think it's part of who we are as a nation, and we have to get after it.
MURRAY: Here and then here.
QUESTION: Eric Levengood with Citigroup. I want to go back to a theme, I think, Byron was just touching on, and some others. You mentioned that innovation or technology is getting more local, so local applications for local problems. But, also talked about the benefits of scale, go to market. What -- what's your process for taking raw innovation and then actually spreading it through the organization, and then being able to get it so local. I -- I go back to the Wall Street question, right, that inability to see the -- see how R&D investment translates into revenue X years from. What -- how do you handle that internally?
QUESTION: How do you populate it?
KULLMAN: You know, I want to tell you that's -- that's sort of like the holy grail, right? And you can't -- you just can't schedule it, is the problem. And what you're counting is creating the venues for people to work together. So, we've got -- in the last five years, we've put innovation centers around the world to connect our people to customers to get, in a way that enables them to see all of what DuPont has. They may have -- their entry into our company may be, you know, cultures for food ingredients, but they come in and we can talk to them about how grain's grown, and -- and protect it. We can talk to them about packaging materials. We can talk to them about their plants, and solar, and alternate energy, and we can engage them in ways that allow them -- that helps them understand and create project for us, but informs us as well. And those innovation centers are connected virtually to our 10,000 engineers and scientists around the world.
And, so, we run competency centers. So, our technical side of our company is run off of competency centers, and then we pool people on projects to create that growth. And, by doing that, we can leverage that knowledge. You know, but it is -- it is something -- we work hard. We have what we call TechCon every year. It's -- the first day we bring in four or five global companies, and they talk to us in different breakout rooms for a full day about different aspects of their business and where opportunities are coming from. We then spend the rest of the week, it's just us, and it's our scientists and researchers, our engineers, our marketers, our business leaders.
And I mean, as a young marketer in the company, back in the, you know, late '80s, early '90s, I got some of my best ideas wandering through TechCon in poster sessions, and seeing what other businesses were doing with interesting applications. And I -- I'd come back with ten ideas. I'd drive my poor head of research crazy, but it enabled us to then get in a room and talk about how could -- how can we use these ideas to better, you know, would our customers be better served if we had these types of things in.
So, there's, you know, I don't know what you'd call it, it's an innovation ecosystem that we absolutely work very hard at creating that connectedness, that leveragability, but for the most part measure it about what it delivers to the customers.
MURRAY: Right here.
QUESTION: Thank you. Ronnie Heyman, GAF Corporation. I just -- we talked about corporate tax policy in the U.S. and you are a global company, and I just wonder whether you'd comment on government regulation. What you've seen with EPA, DPs, and so forth over the last five to ten years, and how that informs your decisions whether to build a plant abroad, or in the U.S. How do you feel about changes in -- in regulatory policy?
KULLMAN: Regulatory -- you know -- you know, regulatory is increasing across the world in many different industries and historically it's been it. I mean, it's always been around food, and -- and drugs, and agriculture, and things like that. Now, it's -- it's getting much broader. And so when we look to site a plant, we look at a lot of things. We look at the availability of talent. We look at the ability to protect our intellectual property, and a lot of the time that's manufacturing process technology. It's just not the -- the molecule that's being -- being worked on through the process. You know, we look at what -- the taxing authorities, how they feel about that employment, and what they're willing to bring to the table. And, so, all of those things come together.
We look at the regulatory environment, and the regulatory environment's very different everywhere you go. And, so, we do have a pretty thorough analysis that comes down, and even if we say, OK, this plant's going to be in the United States because that's where it needs to be from an IP standpoint, state by state it's very different. And there are lot of states out there who are actively engaged in saying pick me. And there are others -- others that aren't.
QUESTION: (OFF-MIKE) I was really asking you about (inaudible).
QUESTION: (OFF-MIKE) I mean, I was well aware, but at the same level but I just wondered how felt about federal regulations and how they (inaudible).
KULLMAN: Yes, I know, I think it's interesting because measurement technology has moved to the point where you can measure anything at any level. And, so, can you ever say that -- that -- can you ever use the word never? And you can't anymore, you know? And, so, I think we are very active in working around, like even on -- in the chemical side, TSCA reform. And how do you get it in a place where it serves the nation? It serves the population? But allows us to manufacture things that are important or our economy.
And, so, that has changed. It's gotten stricter over the years, and I think that -- that we continue to work there. It's not all bad. It's not all good. But it's a constant, I think, and -- and the most important part about it is the engagement. You know, I -- I -- we need to engage with them to have them understand the impacts of certain things that they're considering. At the same time, they need to help us understand it from their point of view. And, so it is a lot more intense today than it ever has been.
QUESTION: (OFF-MIKE) But do you feel it's good or bad? Do you feel it's rational?
KULLMAN: Well, you know, the interesting thing is is that no matter where I operate in the world, I'm held to a U.S. standard. If I have an issue that occurs in China, it's not the Chinese standard they use. It's the U.S. standard they use. So, I'm a believer I have to operate at that standard anyway, right? So, I don't think -- I think it's not a matter of place.
MURRAY: But does your competition -- does your competition have to operate at that?
KULLMAN: No, they don't. No, it's clear. Now, the big competition, people that are more multinationals, do.
KULLMAN: But the local competition does not. But even in places like China we see that they're focused on, you know, cleaning up...
KULLMAN: ... some of -- of that, and I think that's important for the world.
MURRAY: Other questions? Anyone want to take one last? Yes, go ahead. Right over there.
QUESTION: (inaudible), New York Times. Sorry. I just -- listening to you I'm -- I think you're describing a positive role for government in the operation of -- of big corporations. And the innovation centers, for example, that government is -- that the federal government is setting up around the country might be an example. But I'm just wondering to what extent -- forget the politics of it, or the competition with China and so forth, to what extent can any major innovative manufacturing company operate without some form of public subsidies, if you will, or support? And I mean that in a positive sense...
QUESTION: ... not a negative sense.
KULLMAN: Yes, I'm not sure about subsidies, but look at infrastructure. It's important. I've got to move goods, and I need a strong rail, I need, you know, strong highway infrastructure to move stuff in and out of my plant. I need an electric grid, access to natural gas, low cost energy, is all a positive. So, that whole infrastructure thing is supportive of building out strong industry. You know, and we need to make sure.
I -- I believe in a level playing field, so if the rules are the same for everybody, then I think we've got a great chance at winning. And, so, helping create that level playing field on the regulatory side, or things like that. So, I do think that we benefit from it. I think some of the research that comes out of the government laboratories is -- is very helpful. Very informative. Because they -- they, you know, we do spend on long-term research. They spend on even longer-term research, and it really does help inform even some of the areas that we're working on -- on -- on the mid-term, you know? Mid-term being, you know, ten to twenty years type of thing. So, I think it's an important part of an industrial ecosystem that we have to continue to -- to -- to focus on, and be very vocal about what the needs are to create, you know, strong competitive U.S. industry.
MURRAY: So, before we close, I -- I want to highlight the session coming up on January 16, the Outlook for 2015, at which Byron Wien is going to tell us everything important that's going to happen next year.
MURRAY: And I don't know if you want to, you know, give us a head start on any of those. We'll wait until January 16. Ellen, great conversation. Fascinating and important set of issues. Thank you very much. Let's give her a round of applause.
KULLMAN: Great, thank you. Thank you.