As the board drama at Genesco unfolds, more firms that specialize in issuing voting recommendations have publicly divulged who they feel shareholders should vote for in the company’s upcoming board election on July 20.
In the days after independent proxy advisory Institutional Shareholder Services (ISS) officially recommended that Genesco shareholders vote in all nine of its current board members, two other firms have chimed in with their opinions: Glass, Lewis & Co., LLC (Glass Lewis) and Egan-Jones Proxy Services.
While one side is in favor of retaining Genesco’s full board, the other is siding with activist investor Legion Partners that multiple board members should be replaced.
Glass Lewis recommends board change
Glass Lewis has recommended that shareholders vote for boardroom change on the “white proxy card,” endorsing Legion nominees Dawn H. Robertson and Hobart P. Sichel for election.
Legion Partners wants to replace four of Genesco’s board members—Matthew Diamond, Thurgood Marshall, Jr., Joanna Barsh and Kevin McDermott—with four independent director candidates of its own. But Glass Lewis stopped short of four, nominating two directors and leaving off Legion’s other nominees, Marjorie Bowen and Margenett Moore-Roberts.
“Genesco’s defense of its longest serving directors quickly falters under the weight of the company’s dour metrics,” Glass Lewis said in its recommendation. “With this view in mind, we believe there is ample cause for Genesco to support an incremental degree of board change at this time.”
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In the recommendation, Glass Lewis blasted Genesco’s performance and returns as being “profoundly substandard by almost any benchmark over almost any period,” calling them a “serial underperformer with a fairly weak track record of execution and innovation.”
The advisory firm took the Journeys and Johnston & Murphy owner to task for routinely failing to reliably offer investors attractive value over the short-, medium- or long-term, all while underperforming its peers during the Covid-19 pandemic. When referencing the footwear seller’s deteriorating margins, Glass Lewis said “bloated costs and ineffective management” played “no small part.”
In particular, the firm singled out long-tenured director Matthew Diamond as presiding over a company in which relative returns have been “profoundly poor.” Legion already criticized Diamond for what they said was “excessive executive compensation, sustained underperformance and very questionable corporate governance decisions.”
Mimi Vaughn, board chair, president and CEO of Genesco, fired back in response to the Glass Lewis commentary in a statement.
“The Glass Lewis recommendation unfortunately ignores the series of decisive changes Genesco’s board has initiated and implemented across the company to sharpen our focus on our industry-leading footwear platform and the positive results these changes are producing for shareholders,” said Vaughn. “Genesco’s nine director nominees collectively bring a wealth of leadership experience, financial, strategic and retail expertise, and strong track records of building enduring brands and creating sustainable value for shareholders.”
Egan Jones recommends re-election
Days after the Glass Lewis recommendation, Egan-Jones came out in favor of the “blue proxy card,” saying that all nine of the footwear retailer’s nominees should stay.
Egan-Jones defended the Genesco board’s handling of the pandemic, saying that management “maneuvered the company into the right direction” given the challenges and uncertainty the crisis brought.
“We commend the board’s initiatives, mindful planning and strategies for value creation through board refreshment to ensure that the board is comprised of highly qualified, independent and experienced directors to deliver growth and progress in a challenging environment,” the firm said.
In particular, Egan-Jones was impressed at how Genesco “capitalized on its non-core assets,” and drove conversion rates and e-commerce profitability to offset the impacts of lower in-store profits.
The firm didn’t show faith in the Legion board nominees, saying they “lack the skills and experience needed,” and more specifically that they don’t “have the right mix of skills and experience in public companies, retail, footwear and e-commerce.”
As expected, Genesco’s Vaughn was “very pleased” with the Egan-Jones opinion.
“In their reports, ISS and Egan-Jones recognize that the skills and experience of our directors are key to the continued execution of our footwear focused strategy,” Vaughn said in a statement. “We encourage shareholders to follow the advice of these leading firms and allow Genesco to build on our strong progress and momentum for the benefit of all shareholders.”
Genesco: our board is “the most compelling choice”
Genesco, which also operates the Journeys Kidz, Little Burgundy, Schuh and Schuh Kids banners, sent a letter to shareholders recommending they vote for all Genesco director nominees. The company used its stock price to defend the board, noting that shares increased 99 percent year-to-date through July 6, significantly outperforming Genesco’s peer index (79 percent) and the Russell 2000 (17 percent) over the same period.
Genesco highlighted numbers from its most recent quarter and annual earnings report as examples of progress it has made under the current board.
The footwear manufacturer and retailer increased first-quarter revenue 9 percent on a two-year basis, while adjusted operating income jumped 125 percent in that span. For the full year, Genesco touted a record $450 million in e-commerce revenue, a 75 percent jump over prior-year totals. The company also promoted its record in-store conversion rates, partially offsetting reduced store traffic, after reopening its nearly 1,500 locations.
In the recommendation, Genesco highlighted commentary from ISS as well as other research analysts from investment banks like Baird and CL King, all of which support current Genesco initiatives and criticize Legion’s decision.
The shareholder letter called the current Genesco board “the most compelling choice to deliver long-term value creation to all shareholders” saying it was “fresh, independent and diverse.”
Since 2019, five board directors have been appointed (out of nine total), while four have stepped down.
“The board has effectively overseen and implemented a strategic transformation to address changes in retail, the increasing importance of digital, and the resultant need for scale and system efficiencies; deliberate changes have been made to support near- and long-term value creation,” Genesco said.