How Powerful are Proxy Advisors?

October 28th, 2010
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Contributed by: Michael R. Levin, The Activist Investor
Anyone else catch this interesting artifact of the recent tiff between Len Riggio and Ron Burkle?

So, what made the difference [in the election]? ... Vanguard, which holds about one million shares, and BlackRock, which holds about 250,000 to 350,000 shares, normally follow recommendations from Institutional Shareholder Services. But in this case they went against I.S.S.’s recommendation, which favored the Burkle slate, and backed Mr. Riggio instead.

Len Riggio is of course the CEO and Chairman of Barnes & Noble (BKS). Ron Burkle, one of the original FOBs (Friends of Bill, Clinton) runs Yucaipa Companies, which owns about 20% of Barnes & Noble. Ron dislikes how Len runs the company, challenged Len to an election last month, and lost.

Steven Davidoff, who writes the superb Deal Professor blog in the New York Times Deal Book, uncovered the interesting vote in his insightful analysis (excerpted above) of how Len snatched victory from the jaws of defeat. Vanguard and BlackRock apparently made the difference.

ISS came down hard on BKS:

...based on BKS’ deteriorating operating performance, poor shareholder return, less-than-enthusiastic analyst recommendations, inadequate transparency into and disclosure on a very large related-party [college bookstores] transaction which appears to have exacerbated performance problems, and significant concerns about unusual pay practices, we believe [Yucaipa has] demonstrated a compelling case that change in the BKS board is warranted.

Notably, other proxy advisors (Glass Lewis, Egan Jones, and ProxyGovernance) supported the company.

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For Detailed Investor Profiles on these Investors, click below:
Related People: Laurence D. Fink
Related Entities: Barclays Global Investors; Merrill Lynch Investment Managers; PNC Financial Services; State Street Research & Management; Bank of America; BlackRock Equity Funds; Blackstone Group*
Related Article Tags: Shareholder Activists, Corporate Raiders and Proxy Battles; Hedge Fund Resources and Featured Partner News

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