A Well-Tailored Story of Shareholder Activism
Chico’s FAS, parent company of the Chico’s, White House Black Market, and Soma brands, made headlines in 2016 when an activist investor dropped its bid for board seats at the company. Chico’s FAS was one of the largest U.S. companies targeted in a 2016 proxy contest. The company’s victory was credited to a number of factors, including the new CEO’s clear vision and the board’s preemptive work on governance.
NACD’s Florida Chapter recently convened a program at the Chico’s FAS headquarters in Fort Myers, hearing insights from NACD Florida Chapter Board member and Chico’s FAS Chair David Walker; Jan Fields, chair of the company’s corporate governance and nominating committee; and Chief Executive Officer and President Shelley Broader.
To set the stage for the discussion, the group shared details about the company’s situation in 2015, prior to hearing from the activist:
- In the spring of 2015, the company was coming off a weak earnings announcement. The stock was languishing.
- Fields recognized the situation and began to put together a plan in her new role as head of the company’s corporate governance and nominating committee.
- Walker became the chair of the Chico’s FAS board.
- As the prior CEO retired, Broader was identified and slated to join in December of 2015.
- She quickly assessed and provided the company with a four-pillar strategy that was underpinned by the philosophy that the customer is looking for an excellent experience.
Based on the actions the board took during this period, the panelists shared key steps that every company should consider—not just to fend off activists but, more importantly, to ensure the board and management are looking after all of the company’s shareholders:
- Ask the question, “What makes us so appealing to an activist?” Think about operations, capital allocation, governance, etc.
- Know your shareholders. The stock of Chico’s FAS is widely held, so having a strong and engaged investor relations group is a critical element in the company’s success.
- Identify a team to help point out weaknesses and prepare for challenges. This team could include legal, public relations, proxy advisors, investment banks, etc.
- Use the newly-formed team to help you look at the company like an activist shareholder might, and be willing to make tough decisions when performance lags. Look at your company against its peers and review what analysts are saying.
- Utilize a skills and experience matrix to ensure the board has the talent it needs to provide oversight to the company. To avoid directors rating themselves as expert in all areas of the skills matrix, ask each director to rate his or her top three areas of strength. Consider term and age limits. Recruit “rock stars” when you need new board members and make sure they are filling any gaps identified in your matrix.
When the activist challenge arose, the Chico’s FAS board agreed on the key members who would focus on the issue, and management did the same thing, ensuring that all but a small group at the company would continue to devote themselves entirely to advancing the company’s four-pillar strategy and running the day-to-day business during the proxy fight.
For those tasked with meeting personally with an activist, Broader repeatedly stressed the need to actively listen to the activist. Be sure to understand the activist’s point of view without reacting or prejudging any ideas or suggestions.
Though settling with an activist can sometimes be in the best interest of shareholders, leadership at Chico’s FAS determined that a fight to the proxy stage was warranted. A select group went on a roadshow, visiting significant investors, and creating tailored presentations based on the investor’s particular interests. The group also met with proxy advisory firms by phone.
The meetings proved highly valuable, with these firms ultimately siding with the company. In all of its meetings, the company articulated its strategic plan, introduced its slate of board candidates, and explained in detail why both were better options than those being proposed by the activist.
Lessons learned from Chico’s brush with an activist investor follow.
- Shareholder relationships are like a vaccine. Maintain robust, ongoing engagement.
- Be open to change after a vulnerability review. Taking action to address vulnerabilities can result in a stronger defense if one is needed.
- Be willing to consider settlement but don’t settle if it is not in the company’s best interests.
- Adopt corporate governance best practices. For example, director independence both by definition and in thinking is critical, and executive pay should be tied to performance. A board must continually hold itself accountable. (It is worth noting that Chico’s FAS is a full board member of NACD.)
What does the future hold for the company? Broader says that interesting times are ahead for retail in general, and innovation and design will be important drivers of her company’s success. While others are taking resources away from brick and mortar stores, Chico’s FAS recognizes the storefront as a key component of its omni-channel approach. No matter the path, the company’s board and management team have now learned a great deal about staying ahead of activists.
NACD Florida would like to thank the team at Chico’s FAS, for hosting the program and the panelists for sharing their experiences with attendees.
Kimberly Simpson is an NACD regional director, providing strategic support to NACD chapters in the Capital Area, Atlanta, Florida, the Carolinas, North Texas and the Research Triangle. Simpson, a former general counsel, was a U.S. Marshall Memorial Fellow to Europe in 2005.