Exclusive: At hip Skechers, activist wants shakeup of stodgy board

BOSTON Fri Feb 7, 2014 3:44pm EST

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BOSTON (Reuters) - Footwear maker Skechers USA Inc (SKX.N) cultivates a hip and diverse image, but its all-male board of directors is insular and needs a "complete and immediate overhaul," according to influential shareholder CtW Investment Group.

The criticism marks an early salvo in the 2014 proxy season from CtW, an adviser to union pension funds that has helped foster investor revolts at much bigger companies like JPMorgan Chase & Co and Hewlett Packard Co. CtW's focus on Skechers shows how firms of all sizes may now be fair game for activists attuned to governance issues.

In a letter to the board of California-based Skechers on Wednesday, CtW said the company's nine-member board "suffers from lengthy tenures and a lack of gender diversity" and that some directors may have conflicts of interest that raise questions about their independence.

"The CtW Investment Group urges a complete and immediate overhaul of Skechers U.S.A., Inc's board of directors in light of several serious governance risks," it said, urging changes ahead of its annual meeting later this spring.

CtW executive director Dieter Waizenegger said if Skechers doesn't act it may campaign against some or all of the directors. CtW said it was in talks with other companies about similar issues but declined to name them. Long director tenures often need review, Waizenegger said.

"The longer you are on the board, the less obvious it is you can be independent," he said.

A Skechers spokeswoman, Jennifer Clay, said via email that executives and directors would not comment. The company is in a quiet period ahead of earnings due out next week, she said.

DIVERSITY PUSH

CtW's effort tracks a broader push by institutional investors to bring more diversity to corporate boards, which have been criticized by some governance specialists as being too 'male, pale and stale.

The Council of Institutional Investors, whose members include public pension funds, endowments and some asset managers, in the fall adopted a policy that could make it harder for long-serving directors to be considered "independent" of management. That could set the stage for more tough votes against directors in the spring proxy season.

Stephen Brown, senior director of corporate governance for New York asset manager TIAA-CREF, said some of the issues CtW is raising at Skechers, like getting women on its board, are likely to draw shareholder support at many companies as investors take a hard look at board oversight and composition.

"Shareholders want to have that conversation," Brown said.

CtW advises union pension funds with about $250 billion under management including those owning about 108,500 Skechers shares. In the past it has struck deals without triggering proxy battles, like one with Goldman Sachs Group Inc last year that gave the bank's lead independent director new powers.

STILL IN CONTROL

Skechers was founded in 1992 by Robert Greenberg, who remains its chairman and chief executive, and his son Michael Greenberg, who is president and also a director. The family controls most shareholder decisions through a class of stock with more voting rights.

With 2012 sales of $1.56 billion, Skechers is dwarfed by rivals like Nike Inc (NKE.N) and Adidas AG (ADSGn.DE). But it has carved out a niche with fashionable shoes and ads featuring well-known figures like Kim Kardashian and Mark Cuban.

One misstep came in 2012 when it paid $40 million to settle Federal Trade Commission charges it made unfounded claims its "Shape-up" line of shoes with curved soles would help wearers lose weight and tone their muscles. Adidas unit Reebok reached a similar settlement over its own version of the shoes.

In its letter, CtW cited the Shape-up issue and other problems it said showed Skechers needs strong oversight. By its count, six of the company's nine directors have served at least 12 years and only five of them are independent.

It also questioned the independence of some of the five including Richard Rappaport, who was once managing director of the underwriter of a Skechers subsidiary.

CtW also noted that Rappaport and another director who joined the Skechers board in 2010 have not joined any committees, leaving only the other three independent board members to fill out the roles. Rappaport declined to comment.

(Reporting By Ross Kerber; Editing by Richard Valdmanis and Tom Brown)

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