Bed Bath & Beyond: Cleaning House
After initially filing for a potential proxy fight, in late April 2019, the activist campaign at Bed Bath & Beyond kicked off with a lengthy presentation from the above entities to the company’s investor base. This presentation criticized almost every facet of the company’s management; from executive pay to individual store design. The presentation focused particularly on their CEO Steven Temares’ compensation package, which totaled USD 14,605,042 in 2018, while the remaining Named Executive Officers collectively made USD 30,271,726. Temares, who had served in the role since 2003, resigned shortly thereafter.
In response to this campaign, the company’s board has recently seen a significant reshuffle. In May 2019 alone, nine new directors joined the board, five being appointed on May 1, 2019 : Harriet Edelman, Harsha Ramalingam, Andrea Weiss, Mary A. Winston and Ann Yerger. In addition to these new members, another four were appointed to the board effective May 29, 2019, pursuant to an agreement with the activist group: John E. Fleming, Sue E. Gove, Jeffrey A. Kirwan and Joshua E. Schechter. The addition of these new members results in an almost complete board turnover during the past two years, with 12 of the 13 members having joined within that timeframe. Moreover, former directors and co-founders, Warren Eisenberg and Leonard Feinstein were displaced from their positions as co-Chairmen of the board, and granted the status of co-Chairmen Emeriti, with no entitlement to attend board meetings and no voting powers at such meetings.
While the activist campaign calling for an increase in value creation is not new in the field of corporate governance, conflicting ideas about how to best create that value has been a core issue between boards, executive teams, and investors across the business world for years. So why, in this particular case, was the activist campaign successful?
We do note that the company reported its first decrease in sales in conjunction with its first net loss for the FY 2019. However, the company has been lagging behind the median of its own disclosed peer group in several key financial performance indicators such as net income, enterprise value, three-year TSR, and economic profit since at least 2016. Moreover, the CEO’s compensation has outpaced that of the median of the company’s peer group, as displayed in the graph below:
|Bed Bath and Beyond’s Disclosed Compensation Peer Group (2018)|
|Dillard’s, Inc.||AutoZone, Inc.|
|Burlington Stores, Inc.||Williams-Sonoma, Inc.|
|Dick’s Sporting Goods, Inc.||Nordstrom, Inc.|
|Big Lots, Inc.||Macy’s, Inc.|
|Advance Auto Parts, Inc.||L Brands, Inc.|
|Tractor Supply Company||Kohl’s Corporation|
|Ross Stores, Inc.||The Gap, Inc.|
|O’Reilly Automotive, Inc.||Foot Locker, Inc.|
|Dollar Tree||Dollar General Corporation|
|Office Depot, Inc.|
Moreover, we find that the activists’ criticisms of the CEO’s remuneration may have gained traction when comparing the company CEO’s Total Realized Pay versus its own disclosed peer group for FY 2018. Bed, Bath and Beyond’s Total Realised Pay appears to be out of alignment with the company’s performance.
The CGLytics research team has also taken a deeper look to evaluate the current board. Utilizing CGLytics’ governance and data analytics platform we find that after all changes recently undergone to the board, Bed Bath & Beyond scores extremely well in nearly every category, except for the Director Interlocks and Nationality Dispersion metrics. The board does have several director interlocks, and diversity of nationality also appears low, as 92% of the board is local to the US.
All other effectiveness attributes score high, with most of them having a score of 100, driving the overall health score of the company at 85 points (Excellent), 10 points above the sector average.
These metrics show that the board contains an age gender diverse group of directors with experience and expertise in all areas measured by the CGLytics platform.
The effectiveness attributes in the chart above are based on the company in question’s governance practices compared to the corporate governance code of the market in which it is primarily based (in this instance, the NYSE Governance Guidelines). The thresholds above are set by empirical research performed by CGLytics. Each attribute receives a score from 0 to 100, with a score of 100 reflecting the best governance practices
In summary, as Bed Bath & Beyond’s stock price has fallen approximately 80% over a five-year span due to potential mismanagement, ineffective business strategy, and a lack of innovation, the recent changes within the structure of the management and advisory team provide a potential clean slate for the company. Interim Chief Executive Officer, Mary Winston will be at the helm looking to captain the ship as the company searches for stability after an intense period of significant upheaval.
Corporate boards and executive teams increasingly require a broader range of analytical tools to identify potential areas of reputational risk, even for controlled companies, which could make them the target for activist campaigns. For more information regarding how CGLytics’ deep, global data set and unparalleled analytical screening tools can potentially help you identify these areas of risk, click here.
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