BOSTON 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" to avoid potential missteps, according to 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 leading up to the departures of directors from much bigger companies such as JPMorgan Chase & Co (JPM.N) and Hewlett-Packard Co (HPQ.N).
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, calling for changes ahead of its annual meeting later this spring.
It said better oversight could have helped Skechers avoid problems like one 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.
By its count, six of the company's directors have served at least 12 years and only five of them are independent.
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.
Skechers share price has more than doubled in two years, a faster pace than rivals, with some analysts enthusiastic about its growth prospects. In October the company reported third-quarter sales of $515.8 million, up from sales of $429.4 million in the same period a year earlier.
CtW Executive Director Dieter Waizenegger said if Skechers does not act CtW 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, to guard against directors slacking off as they grow comfortable in their roles.
"The longer you are on the board, the less obvious it is you can be independent," he said.
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, such as 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.
John Core, a professor at the Massachusetts Institute of Technology, said a problem for would-be reformers, however, is that changes to securities rules have increased directors' responsibilities. That has made the job more appealing for retired executives with more time to give to the role and possibly less appealing to other potential candidates.
Among those suited for the job, "The pool of people has shrunk," he said.
MAKING A DEAL
CtW advises union pension funds with about $250 billion under management including those owning about 108,500 Skechers shares. Although it has been at the center of some of the noisiest corporate elections in recent years, in other cases it has struck deals like one with Goldman Sachs Group Inc (GS.N) last year that gave the bank's lead independent director new powers.
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 such as 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 such as Kim Kardashian and Mark Cuban.
(Reporting by Ross Kerber; Editing by Richard Valdmanis, Tom Brown and Lisa Shumaker)