Legion Partners Urges Genesco Shareholders to Focus on the Need for Further Board Change Following Contradictory ISS Recommen...
July 06 2021 - 9:00AM
Business Wire
Applauds ISS’ Recognition of Genesco’s
Bloated Operations, Poor Financial Performance and Weak Governance
While Questioning the Incongruous Endorsement of Long-Tenured
Directors Primarily Responsible for Years of
Underperformance
Contends Voting for Genesco’s Long-Tenured
Directors Will Set a Dangerous Precedent by Enabling the Company’s
Insular Board to Avoid Accountability After it Rashly Enacted an
Incremental Refresh Following Our Nomination
Sees Significant Risk in Allowing
Ineffective and Underqualified Directors to Remain in Place as the
Footwear and Retail Industries Rapidly Evolve in Today’s
Highly-Competitive, Digital-First Environment
Urges Shareholders to Vote on the
WHITE Proxy Card to Elect Legion
Partners’ Full Slate, Which Possesses the Industry Experience,
Impartiality and Vision Lacking in Genesco’s Boardroom
Legion Partners Asset Management, LLC (together with its
affiliates, “Legion Partners” or “we”), which collectively with the
other participants in its solicitation beneficially owns
approximately 5.9% of the outstanding common shares of Genesco,
Inc. (NYSE: GCO) (“Genesco” or the “Company”), today issued the
below statement to urge fellow shareholders to focus on the need
for further change in the Company’s boardroom following
Institutional Shareholder Services, Inc.’s (“ISS”) puzzling
recommendation. As a reminder, Legion Partners is seeking to elect
four highly-qualified and independent director candidates –
Marjorie L. Bowen, Margenett Moore-Roberts, Dawn H. Robertson and
Hobart P. Sichel – to Genesco’s Board of Directors (the “Board”) at
the upcoming Annual Meeting of Shareholders on July 20, 2021. Learn
about how to vote on Legion Partners’ WHITE proxy card by visiting
www.GCOForward.com.
Chris Kiper and Ted White, Legion Partners’ Managing Directors,
commented:
“Legion Partners urges Genesco shareholders to continue to focus
on the need for further boardroom change following the
contradictory report issued by ISS. We question how ISS can
repeatedly acknowledge Genesco’s many years of financial and
operational underperformance, but then recommend shareholders vote
to elect all of the long-tenured directors on management’s card. We
contend this conflicting recommendation sends a terrible message:
an insular and underperforming board of directors can avoid
accountability when a sizable shareholder nominates by simply
enacting incremental, unilateral refreshments. We believe boards
should regularly refresh and improve their skill sets and
experience – not just wait to do the least necessary only under
pressure from shareholders. The fact that the Genesco Board has
been so stale despite years of deteriorating performance offers
strong evidence of an insular culture and lack of alignment with
shareholders. This is the essence of the risk the ISS
recommendation does not address. If shareholders allow this type of
entrenchment maneuver to become accepted precedent, we fear there
will be long-term negative consequences for the Company’s
investors, employees, consumers and other corporate
stakeholders.
We believe shareholders should seriously question the
inconsistency of ISS’s recommendation after it concluded the
following in its report:1
- “Prior to the pandemic, all segments
other than Journeys experienced lackluster or declining sales
growth and overall adjusted operating margin
deterioration between FY 2017 and FY 2020.”
- “The margin performance of each segment appears to lend
credence to the dissident's concern that the company's conglomerate structure is detrimental to
value creation.”
- “The company’s operating margins, while still positive,
have been deteriorating for
years.”
- “The company’s valuation multiple has
historically trailed that of its peers…there is no sign
of valuation convergence with peers.”
- “The results of [Genesco’s] six-pillar
strategy to date are unclear.”
- “In assessing the company's execution, it appears that it has
benefited from overall consumer spending shifts towards digital and
e-commerce as a result of the COVID-19 pandemic and still trails its peers in digital
penetration.”
- “Although disclosure on the smaller acquisitions and
divestitures is limited, it appears that
the dissident's concerns about capital allocation as it relates to
portfolio management are justified.”
- “Diamond's 20-year tenure should raise
eyebrows among shareholders following the refreshment of
the board.”
- “Shareholders may reasonably be concerned that lead independent director Diamond's 20 years on the board
could reduce his independence from the management team
he is charged with holding accountable.”
- “The dissident's request for a universal card, and the
company's decision to instead use a card that only has management's
nominees, lends support to the dissident's
concern that the incumbent board members are entrenched
[…].”
- “Legion's campaign should be credited
as a catalyst for the recent improvement in board composition, and
the dissident raises a reasonable question as to whether GCO's
self-refresh has been sufficient to address the company's
issues.”
It is notable that ISS appears to have overlooked the fact that
despite Genesco’s reactionary refresh, a majority of the Company’s
Board is still comprised of long-tenured individuals with
concerning interlocks and extremely poor track records. We believe
the four boardroom leaders we are seeking to replace – Matthew C.
Diamond (Lead Independent Director and Chair of Nominating and
Governance Committee), Thurgood Marshall, Jr. (Chair of the ESG
Subcommittee), Joanna Barsh (Chair of the Compensation Committee)
and Kevin P. McDermott (Chair of the Audit Committee) – should be
held to a higher level of accountability given their leadership
positions. We suggest that shareholders take a very close look at
these four incumbents before casting their votes. It is alarming to
us that a leading independent proxy advisory firm could endorse all
four of these individuals:
- Mr. Diamond has spent 20 years on the
Board presiding over excessive executive compensation, sustained
underperformance and very questionable corporate governance
decisions – such as the renominations of directors with clear
interlocks to insiders and one director with a history of making
offensive homophobic remarks. By the standards set by
leading institutions, Mr. Diamond is an extremely stale and
over-tenured director. Moreover, we feel his tenures as Lead
Independent Director, Chair of the Compensation Committee and Chair
of the Nominating and Governance Committee have failed to help
reverse Genesco’s chronic stagnation. Given Mr. Diamond’s
horrendous relative TSR of -3,446%
over his two decades, we see no legitimate justification for his
continued service.2
- Mr. Marshall, who has spent 9 years on
the Board, has a documented history of flouting corporate
governance best practices and an extremely concerning lobbying
background. Notably, a leading independent proxy
advisory firm recommended shareholders of CoreCivic, Inc. withhold
votes for Mr. Marshall for four straight years – from 2017 to 2020
– citing material governance failures. Mr. Marshall has served on
the CoreCivic board for 19 years with Genesco’s former Chairman and
Chief Executive Officer for several of those years – demonstrating
once again Mr. Marshall’s apparent disregard for fresh perspectives
and independent thought. Mr. Marshall also has a history of
lobbying for questionable organizations, including an asbestos
group and a paid militia, and sitting on boards of directors that
sent lucrative work to his former law firm. His selection as
co-leader of Genesco’s reactionary formation of the ESG
Subcommittee is highly questionable given his consistent disregard
of governance standards and apparent lack of topical
experience.
- Ms. Barsh, who has presided over
persistent share price underperformance during her 8-year tenure,
bears significant responsibility for the Company’s misaligned
executive compensation structure that rewards a number of her
fellow McKinsey alumni. Notably, Ms. Barsh (a long-time
McKinsey consultant who has no retail operational experience) is a
long-serving member and now the Chair of the Compensation
Committee, which has rubberstamped millions of dollars of payments
to Mimi Vaughn, Parag Desai and Robert Dennis (all McKinsey alumni)
during a period of extended underperformance at Genesco.
- Mr. McDermott, who has presided over
sizable share price underperformance during his 5-year tenure on
Genesco’s Board, has no relevant retail or footwear experience and
is perpetuating the culture of concerning interlocks at the
Company. Mr. McDermott was recently the Chief Audit
Executive at Pinnacle Financial Partners (NASDAQ: PNFP), where
Marty Dickens (a current Genesco director) is a Board member. Mr.
McDermott has also presided over similar stagnation while holding
leadership positions on the board of directors at Daktronics, Inc.
(NASDAQ: DAKT), indicating a pattern of poor corporate stewardship.
As a director of Daktronics, Inc. since 2015, and now the Lead
Independent Director, Mr. McDermott has overseen a TSR of
-33% during his tenure.3
Rather than continue to rebut every apparent error and oversight
in Friday’s ISS report, we want to ask our
fellow shareholders to consider the risk associated with leaving
the most ineffective, interconnected and long-serving members of
Genesco’s Board in place as leaders. Genesco has
underperformed peers and relevant indices over nearly every time
horizon over the past 20 years. The Company continues to pay
millions of dollars per year to insiders as corporate bloat
persists and margins remain weak. Moreover, the current Board seems
either unable or unwilling to help Genesco evolve in today’s
highly-competitive, digital-first retail environment and pursue the
massive opportunity with Journeys’ younger consumer base.
In contrast, Legion Partners’ four nominees – Marjorie L. Bowen,
Margenett Moore-Roberts, Dawn H. Robertson and Hobart P. Sichel –
are energized, engaged and expert operators with the vision to
pursue efficiencies, growth and value-enhancing stakeholder
engagement. Our slate also has exceptional diversity and
well-documented experience overseeing constructive ESG and DEI
initiatives at other consumer-facing businesses. We believe
shareholders should assess how the long-tenured incumbents we are
targeting stack up to our four-member slate when it comes to
industry experience, independence and value-enhancing ideas geared
toward Journeys’ customers, employees and communities.”
***
Please visit www.GCOForward.com to view
important materials.
If you have any needs or require assistance
as you consider how to vote, please contact Legion Partners’ proxy
solicitor Kingsdale Advisors at GCO@kingsdaleadvisors.com.
***
About Legion Partners
Legion Partners is a value-oriented investment manager based in
Los Angeles, with a satellite office in Sacramento, California.
Legion Partners seeks to invest in high-quality businesses that are
temporarily trading at a discount, utilizing deep fundamental
research and long-term shareholder engagement. Legion Partners
manages a concentrated portfolio of North American small-cap
equities on behalf of some of the world’s largest institutional and
high-net-worth investors. Learn more at www.LegionPartners.com.
1 Permission to quote ISS neither sought nor obtained; emphasis
added.
2 Relative TSR represents GCO’s Relative TSR over each incumbent
director’s tenure vs. Peer Group as of the unaffected date
(04/09/2021). Peer Group includes BOOT, DBI, FL, SCVL, CAL, DKS,
HIBB, WWW, CROX, DECK, SHOO, SKX. TSR data assumes that Diamond was
appointed on January 1st in his year of appointment due to lack of
detailed information.
3 TSR data from 06/01/2015, the date Mr. McDermott joined the
Daktronics, Inc. Board, to the unaffected date of 04/09/2021.
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For Investors: Kingsdale Advisors Michael Fein / Lydia Mulyk,
646-651-1640 mfein@kingsdaleadvisors.com /
lmulyk@kingsdaleadvisors.com For Media: MKA Greg Marose / Bela
Kirpalani, 646-386-0091 gmarose@mkacomms.com /
bkirpalani@mkacomms.com
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