Philly Inc: Urban Outfitters faces shareholder vote on board diversity

Urban Outfitters Inc. is facing three resolutions put forth by investors seeking to change corporate governance practices at the Philadelphia retail chain.

The first wants the board of directors (currently all white men) to commit to considering diversity when picking board candidates. The second urges the company to switch from a "plurality vote" to a "majority vote" standard. And the third seeks to "declassify" the board so all directors face election annually.

Naturally, Urban Outfitters' board recommends shareholders vote against all of those proposals when they gather at company headquarters at the Navy Yard at 10:30 a.m. Tuesday.

Though such shareholder-led proposals rarely win approval, Urban Outfitters isn't getting any support from independent proxy advisory firms, which can be very influential on the voting behavior of institutional investors who rely on them for guidance.

Institutional Shareholder Services Inc. and Glass, Lewis & Co. oppose the board's recommendations. Citing various concerns about the structure and independence of the board of the 429-store specialty retailer, both are in favor of the changes suggested by all three shareholder resolutions.

That doesn't mean things will change. Shareholders rarely vote in majorities large enough to overcome board recommendations. And all resolutions are nonbinding. Though the board can't be forced to change by losing a vote, corporate-governance experts say companies play with fire when they ignore the wishes of their shareholders. (That fire is generally a lower stock price.)

This is the second straight year Calvert Investment Management Inc., a socially responsible investment firm, has taken aim at the lack of diversity on Urban Outfitters' board. Last year, the measure failed with 77 percent of shares voted "against" and 23 percent voted "for."

In an interview, Aditi Mohapatra, senior sustainability analyst at Calvert, said she expected an increase in shareholder support this year, given the presence of the two other board issues on the ballot.

Since 2004, Calvert has sponsored 60 such resolutions regarding board diversity involving U.S. companies. Fifty of them were withdrawn after discussions between Calvert and the company satisfied the concerns, Mohapatra said.

Of the six diversity resolutions Calvert submitted this year, only the one involving Urban Outfitters — whose Anthropologie and Free People stores are targeted almost exclusively at women — will go to a vote. The fact that this is the second year the company will face the same resolution is very unusual, she said.

Board diversity matters to Calvert and the three other cosponsors of the resolution, who cite academic research that shows a positive link between the value of companies and the percentage of women and minorities on their boards.

"We think boardrooms need to shift around with the changing demographics of the United States," Mohapatra said.

Urban Outfitters' response, listed in its most recent proxy statement, is that the company's nominating process is designed to pick the best candidate "regardless of the nominee's gender, racial background, religion, or ethnicity." Diversity is already a part of the mix of factors that gets considered, the company writes.

"Normally, we believe a well-performing board and company is due a fair level of discretion in board affairs, particularly as it relates to the nomination of directors," Glass Lewis states. But not in the case of Urban Outfitters, which has financially underperformed other retailers of late and has four directors with tenures ranging from 22 to 35 years.

"We believe, especially as a company focused in the youth retail business, new and diverse perspectives could be beneficial to the company and its shareholders at this time," Glass Lewis writes.

Contact Mike Armstrong at 215-854-2980, marmstrong@phillynews.com, or follow @PhillyInc on Twitter. Read his blog, "PhillyInc," at www.phillyinc.biz.