There are more than 5,000 exchange-traded companies in the United States, so you can be sure that in any given year there will be company governance gaffes aplenty. This year, retailer Urban Outfitters may have the early lead for worst corporate governance move of 2013. This headline from our friends at Corporate Secretary Magazine says it all: “Urban Outfitters names CEO’s wife to board to quiet diversity demands.”
Here are the details for those who are interested:
On 28 May, Margaret Hayne, the wife of Urban Outfitters’ CEO Richard Hayne, was elected to the Urban Outfitters board of directors.
The election follows efforts by Calvert Investment Management, the New York State Common Retirement Fund, and other investors to increase diversity on the Urban Outfitters board. These investors sponsored a shareholder resolution calling for more diversity on the Urban Outfitters board. (Read our previous blog post on board gender diversity.) Some of the language from the resolution is provided below.
That the board of directors consistent with their fiduciary duties:
1. Take every reasonable step to ensure that women and minority candidates are in the pool from which Board nominees are chosen;
2. Publicly commit itself to a policy of board inclusiveness to ensure that:
- Women and minority candidates are routinely sought as part of every board search the company undertakes;
- The board strives to obtain diverse candidates by expanding director searches to include nominees from both corporate positions beyond the executive suite and non-traditional environments such [as] government, academia, and non-profit organizations; and
- Board composition is reviewed periodically to ensure that the board reflects the knowledge, experience, skills, and diversity required for the board to fulfill its duties.
3. To report to shareholders, at reasonable expense and omitting proprietary information, its efforts to encourage diversified representation on the board.
The shareholder resolution asking for a commitment to diversity received about 27% of the votes cast, with about 73% of the votes rejecting the proposal. In a separate vote to approve board members, about 28% of the votes were cast against Ms. Hayne.
Mr. Hayne and his wife control about 21% of the company’s shares, so any opposition to their wishes would have to be rather strong to overcome such a substantial voting bloc.
Understandably, many investors and governance experts are less than ecstatic about the route Urban Outfitters has taken to quiet critics calling for more board diversity. Expect the issue to remain at the top of investor minds and for a similar resolution to appear on the Urban Outfitters proxy next year. As for Ms. Hayne, she is shielded from a shareholder vote until 2016 by Urban Outfitters, which only requires each director to face the vote of shareholders every three years.
Photo credit: iStockphoto/wdstock