April 10, 2014 2:19 pm

A&F under siege from investors fighting for shareholder democracy

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FILE PHOTO: U.K. PICTURE EDITORS' GUILD AWARDS 2012. One of the five photographs by Bloomberg photographer Simon Dawson shortlisted for the 'Bloomberg Business Photographer of the Year' category in the 2012 awards. Picture Shows: A group of tourists pause outside the site for the new Hollister Co. store, owned by Abercrombie & Fitch Co., as it undergoes development on Regent Street in London, U.K. on Wednesday, Feb. 29, 2012. Photographer: Simon Dawson/Bloomberg©Bloomberg

Disgruntled shareholders are urging Abercrombie & Fitch to curb executive compensation and improve shareholder democracy, adding to pressure on the clothing chain already under attack from an activist investor.

The retailer’s annual meeting will include proposals to limit “golden parachutes” for executives and to make it easier to unseat directors.

The resolutions, which the company is expected to oppose when it publishes its proxy statement, presage a potentially fiery meeting of investors, who have endured a 23 per cent fall in the share price over the past year.

One hedge fund, Engaged Capital, is seeking to add five of its representatives to the board to shake up strategy and limit the power of Abercrombie’s longstanding chief executive Mike Jeffries.

The Ohio-based chain – best known for its black and white advertising campaigns featuring scantily clad models – has stumbled in recent years. It has been hit by failed brand launches and an ill-timed and expensive international expansion, while critics say it has failed to keep up with the fast-paced trend shifts that govern the fickle teenage apparel market.

New York City’s public employees pension system, which owns 0.66 per cent of Abercrombie, has submitted a proposal for proxy access. If approved it would mean that shareholder groups holding more than 3 per cent could nominate their own directors for election on the official ballot rather than having to pay for a separate one.

New York’s resolution is also supported by public pension funds in Connecticut and Philadelphia. The trio say they are angry at shareholder returns that have trailed the S&P 500 for five years, and at compensation policies that were twice previously rejected by shareholders in the annual say-on-pay vote.

“Excessive chief executive pay disconnected from performance at a particular company is a problem in itself, but it can also be a symptom of a captive board,” said New York City Comptroller Scott Stringer. “Proxy access would give shareowners the ability to hold directors accountable and more easily elect genuinely independent directors.”

Abercrombie reacted to its critics in January by demoting Mr Jeffries, stripping him of the chairmanship and putting former Sears boss Arthur Martinez in that role. But the board still extended Mr Jeffries’ tenure as chief executive – and his base salary of $1.5m – for a further year, to February 2015.

This week the company said 2014 options grants to Mr Jeffries would be tied to earnings and shareholder returns.

In its most recent earnings report in February, which covered the critical holiday season, Abercrombie reported that net sales had slipped 11 per cent to $1.3bn, while net income had tumbled 58 per cent to $66m, or 85 cents per share.

In December the company also announced that it would close more than 30 per cent of its US stores within underperforming malls – which numbered about 1,000 at their peak – to focus on its ecommerce efforts.

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