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Shareholder Advisory Firm Backs Genesco’s Board Picks as Activist Investor Refutes Recommendations

As the battle between Genesco and Legion Partners Asset Management rages on, a shareholder advisory firm has backed the footwear firm’s board picks.

Genesco said today that Institutional Shareholder Services (ISS) recommended that Genesco shareholders vote for all nine of the company’s director nominees at Genesco’s annual meeting, set for July 20.

“We are gratified that after a comprehensive review and analysis, ISS recommended that shareholders vote “for all” of Genesco’s highly qualified directors for reelection at our upcoming Annual Meeting,” said Mimi Vaughn, board chair, president and CEO of Genesco in a statement. “In its recommendation, ISS clearly recognizes that the skills and experience of our directors are essential to the continued execution of our footwear focused strategy, which is producing clear and positive results, and that Legion’s nominees would not bring anything new or additive to our Board. This endorsement from a leading proxy advisory firm underscores our strong belief that we have the right Board and strategy in place, and that we are well-positioned to succeed and enhance long-term shareholder value in a rapidly evolving retail landscape.”

Legion, the activist investor looking to place its own nominees on Genesco’s board, released a presentation last week detailing its case for a set of new directors and what it says is the footwear company’s ongoing underperformance and poor shareholder return.

In its report today, ISS said that given Genesco’s recent board and management shifts, Legion’s nominees “do not appear demonstrably superior” to the directors who they would replace. Genesco’s board additions, ISS noted, appear to be “appropriate” additions. “The dissident’s critique of interconnections among Genesco’s board members is creative but unconvincing,” the group said.

In May, the Nashville, Tenn.-based company named new independent directors: Angel Martinez, former chairman and CEO of Deckers Brands; Mary Meixelsperger, CFO of oil manufacturer Valvoline and former CFO of DSW; and Greg Sandfort, former CEO of Tractor Supply Company.

Legion, which owns 5.9% of Genesco’s shares, nominated Marjorie L. Bowen, Margenett Moore-Roberts, Dawn H. Robertson and Hobart P. Sichel to the Genesco board. In its report, ISS said the potential contribution of Legion’s nominees to the board would appear to be limited, given the nominees’ lack of experience. 

In a response today, Legion called ISS’s report contradictory, noting that the firm did acknowledge Genesco’s financial missteps and operational underperformance — but also recommended that shareholders vote to elect all of Genesco’s board choices.

“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,” wrote Chris Kiper and Ted White, Legion Partners’ managing directors. “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.”

Vaughn began in February 2020, and the company most recently posted quarterly earnings soared past analyst estimates, reversing a loss from the prior year.

Last week, Genesco unveiled a previously unreleased letter that it wrote to Legion on May 19 where the footwear company urged Legion to end its campaign and engage collaboratively with Genesco. Legion’s attacks, Genesco said, “threaten damage to our brands and businesses” but the footwear company said that together the two companies “can jointly strengthen the Genesco board.”

Genesco disclosed that it had tried to work collaboratively with Legion at the timing of the May letter for seven weeks toward “a constructive resolution.” Genesco wrote that Legion did not engage “in a meaningful dialog with us about board composition or refreshment prior to abruptly launching a public campaign,” and noted that Legion refused to share its board candidates with Genesco before sharing them with the media and the public.

Genesco representatives reiterated in a phone interview that its board “has consistently tried to engage with Legion in an attempt to work collaboratively and consider their concerns, notwithstanding Legion refusing to participate in a meaningful dialogue with Genesco.”

For its part, Legion’s Kiper and White, who are managing directors, said in a statement that Genesco “has once again validated our case for urgent change by disseminating blatant distortions and misrepresentations to its shareholders. Rather than try to comprehensively respond to the substantive presentations, Genesco released a six-week-old private letter that mischaracterizes settlement discussions in an attempt to imply a lack of engagement on our part.”

The statement from Legion added that the hedge fund has tried to engage in good faith and that “if a settlement framework were established,” it would be willing to make its board nominees available for interviews by Genesco.

Genesco’s May letter revealed that Legion had “repeatedly blocked” it or its search firm from interviewing Legion’s board nominees.

Genesco also asserted in the May 19 letter that “Legion had submitted false and misleading nomination material with respect to criminal charges brought against a Legion nominee for second degree assault against a minor last year” and expressed concern over Legion’s assertion “that the candidate nevertheless still had the qualifications to serve on Genesco’s Board and oversee youth-oriented brands.”

The proxy battle started in April when Legion informed Genesco of its intention to nominate a controlling slate of seven individuals for election to the board of directors.

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