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Barnes & Noble Proxy
Win Holds Lessons for Boards
Article published on
October 4, 2010
Barnes & Noble board’s
hard-fought win last month in its proxy battle against billionaire investor
Yucaipa Cos. highlights
strategies other corporate boardrooms can use in similar shareholder votes.
ISS had recommended that
investors support an alternate slate of three directors proposed by Burkle
and not management’s candidates, including Barnes & Noble’s chairman,
Leonard Riggio. Smaller proxy
advisory firms Glass Lewis,
Proxy Governance and
Egan-Jones backed management.
In the end, preliminary tallies cited by The Wall
Street Journal showed that while 39% of votes went for Burkle’s
nominees, 44% favored the company slate.
In a news release
conceding the loss, Yucaipa said management benefited from an
“insurmountable insider voting advantage.” However, Barnes & Noble’s proxy
victory also shows how other companies can prevail in shareholder votes by
knowing their own investor base and communicating a clear business strategy,
some analysts say. The win could also illustrate how ISS’ word, while
influential, is not inevitably a game-changer.
Whether facing a
proxy contest, a shareholder advisory vote on executive compensation or a
proxy access campaign, boards ought to identify what influences their
shareholders and develop a strategy for communicating effectively with them,
says Francis Byrd, senior vice
president of corporate governance and risk assessment at
The Laurel Hill Advisory Group.
He notes that as Barnes & Noble’s second largest shareholder, Yucaipa also
enjoyed significant voting power, but apparently was unable to persuade
enough uncommitted investors.
“We think it’s
important for boards and for senior management to know your shareholder base
and to know and understand whether or not that shareholder base is a strict
follower of ISS, [or] a strict follower of Glass Lewis, [or] a strict
follower of Proxy Governance,” Byrd says. “If you’re in a fight, it’s about
focusing on the most swayable shareholders.”
In Barnes &
Noble’s case, management may simply have better articulated a long-term
strategic plan than Yucaipa. The bookseller came out with a new strategy
earlier this year, naming William Lynch,
the head of its online division, as CEO in March. Lynch laid out a vision
for funding growth on the digital front while reiterating a commitment to
the company’s brick-and-mortar business,
Morningstar analyst Peter
“Even though Mr.
Burkle has built up a sizable stake in the company, I think the main
pushback from both the internal board members as well as senior management
has been that he hadn’t articulated his long-term strategy and how it
differs from or remains relatively similar to the existing strategy,”
Wahlstrom says. With existing shareholders “walking a fine line” between an
industry patriarch on one hand and an outsider with fresh perspective and an
aggressive approach on the other, the difference may have come down to that
long-term strategic clarity, he says. The outcome can also be seen as a blow
to ISS. A spokesman for the proxy advisor said in an e-mail that it would be
premature to comment, particularly before a final vote tally is available.
The New York Times’ DealBook blog has
called the election of Barnes & Noble’s slate of directors “an unusual
defeat” for ISS.
In its news
release, Yucaipa points out that Barnes & Noble’s chairman and other
insiders own 36% of outstanding shares and other employees own 2%, while
Yucaipa owns 19%. Preliminary voting tallies show that the chairman received
less than majority support, Yucaipa observes. The firm also cites changes
resulting from its efforts during the proxy contest, including Lynch’s
appointment as CEO.
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