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The article below was published in Agenda, a Financial Times private subscription service for corporate directors, and is presented with permission.

For previously reported views of the shareholder communications and voting influences addressed below, see


Agenda, October 4, 2010 article


The week's news from other boardrooms




Article published on October 4, 2010
By Marc Hogan

The Barnes & Noble board’s hard-fought win last month in its proxy battle against billionaire investor Ronald Burkle’s 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 Wahlstrom recalls.

“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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