A proxy advisory firm has recommended that Buffalo Wild Wings Inc. shareholders vote for a trio of board nominees recommended by an activist investor, potentially paving the way for major changes at the board and at the company.
Institutional Shareholder Services has recommended that the Minneapolis-based company’s shareholders vote for former Pizza Hut CEO Scott Bergren as well as Mick McGuire, managing partner of activist investor Marcato Capital Management.
ISS also recommended that shareholders put Sam Rovit, CEO of food maker CTI Foods, who both Marcato and Buffalo Wild Wings endorsed. And the service recommended former McDonald’s Corp. executive Janice Fields get a seat.
Rovit, Bergren and McGuire will give Marcato “a sufficient voice to continue to push for appropriate changes at the company,” ISS said.
Marcato “has presented a compelling case that additional change is warranted at this time,” ISS said in its report.
Buffalo Wild Wings stock rose 8 percent on Wednesday.
“We are pleased that ISS recognizes further change on Buffalo Wild Wings’ board is needed and greater shareholder oversight will help increase accountability and avoid any delays in the implementation of strategic projects,” McGuire said in a statement.
ISS’s recommendations would further a general overhaul of Buffalo Wild Wings’ board, and would remove two of three directors who have been on the board for more than a year.
“If shareholders follow ISS' recommendation, there will be only one independent director on the Buffalo Wild Wings Board that has served for longer than eight months,” the company said on Wednesday. “We are surprised that ISS did not even consider the fact that its recommendation would essentially empty the boardroom of all independent institutional knowledge.”
ISS the best known among proxy advisory firms, who make recommendations to shareholders over corporate governance issues. Many institutional investors rely on these recommendations, and so they can have a big impact on the results of board elections such as the proxy fight between Buffalo Wild Wings and Marcato.
Marcato recommended four people to the Buffalo Wild Wings board. One of those four includes one of the chain’s former executives, Lee Sanders, whose nomination has been subject to a particularly forceful challenge from the company.
Buffalo Wild Wings has argued Sanders has exaggerated his role at the company. And earlier this week, the company said Sanders has been sending emails and texts to the chain’s franchisees as recently as February, offering to buy their restaurants.
The proxy vote could have major implications for Buffalo Wild Wings’ future and its direction. Marcato has called for the resignation of the chain’s longtime CEO, Sally Smith.
It also believes that the company should rapidly refranchise the vast majority of its more than 600 company locations, and that sales of those locations would take two years or less. Buffalo Wild Wings has argued such a strategy is too aggressive. The company plans to refranchise 80 locations, or 13 percent of its 634 company locations.
Fast refranchising deals are not uncommon, especially these days. But ISS did warn in its report that such quick changes are rare in casual dining, with only Applebee’s having done so that quickly.
“It appears unwise [for Buffalo Wild Wings] to fully commit to such a specific level of franchising at this point,” the report said.
Mostly, however, the proxy fight has been over the company’s performance under current management, with Marcato arguing that the company has lost its way over the past two years. ISS agreed with Marcato that the company has underperformed other restaurants, in terms of returns to shareholders.
ISS argued that Buffalo Wild Wings aggressively increased costs in 2015 as it faced commodity pressure, which hurt traffic in the long run. It then says the company bought restaurants in 2016 to sustain topline growth. That hurt profit margins and the company’s returns on its investments.
ISS also argued that many of Buffalo Wild Wings’ recent decisions “have been driven by [Marcato’s] engagement with the company,” the report said.
Contact Jonathan Maze at [email protected]
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