Urban Outfitters Board Slammed by Group for `Extreme Insularity'
(Bloomberg) -- An Urban Outfitters Inc. investor group is urging shareholders to vote against the re-election of two directors, saying the board’s “extreme insularity” has contributed to its weak performance.
CtW Investment Group, a union-affiliated firm that often takes up corporate-governance issues, is making the recommendation in a letter to investors on Monday. The nine-member Urban Outfitters board has only two women, one of whom is Chief Executive Officer Richard Hayne’s wife, Margaret. The directors also have an average tenure of 19 years, compared with an average of 9.4 years for the S&P mid-cap index, according to the letter.
To shake up the board, the group is recommending voting against the two longest-serving members of its nominating and governance committee: Robert Strouse and Harry Cherken Jr. They’re up for re-election at the company’s annual meeting on May 23.
“Given the company’s failure to address growing concerns regarding the diversity of the board and changes in consumer spending habits, the nominating committee has largely failed to recognize the necessary director qualifications required during this very critical juncture,” CtW Executive Director Dieter Waizenegger wrote in the letter.
In responding to the criticisms, Urban Outfitters said in a statement that it has a “longstanding record of engaging with shareholders and responding to their suggestions.”
Since 2011, the company has adopted a lead independent director and added two female board members. Three of the past four directors also are independent, Urban Outfitters said.
“Changing the composition of a board is not something that can or should take place overnight,” the company said. Instead, Urban Outfitters has been “taking targeted, strategic steps to alter the makeup of the board over time.”
The company also has retained an independent search firm to help find additional candidates.
Urban Outfitters is struggling with a broader retail slowdown, characterized by heavy discounts, slower foot traffic at many malls and a shift of purchasing online. The holiday season was particularly disappointing for the company, with earnings falling short of estimates in the fourth quarter.
Some of Urban Outfitters’ troubles can be traced back to its stagnant board, said CtW, which represents funds that have $250 billion in assets under management and are “substantial” holders of Urban Outfitters, according to the letter.
Hayne and his co-founder Scott Belair have sat on the board for decades, and Urban Outfitters is “run as a family business,” CtW said. That includes rewarding family members and affiliates of the board, the group said. It cited the appointing of Hayne’s son as chief digital officer and the acquisition of a pizza chain founded by Hayne’s friend Marc Vetri.
In defending its record, Philadelphia-based Urban Outfitters said it’s better positioned to deal with retail headwinds than competitors, in part because it avoided opening too many stores and has pushed more aggressively into e-commence.
“This relatively strong position is the result of the stewardship of our board and the remarkable talents and creativity of our employees,” the company said.
Still, its shares have underperformed their retail peers, falling 44 percent in the past two years. That compares with a 31 percent increase for the S&P 500 Retailing Index in the same period.
“For a company that is so reliant on global sourcing and focused on women, it is surprising that the board consists of largely Caucasian males with law and finance backgrounds,” the CtW letter said.