Ideas would help Burkle’s Barnes & Noble crusade

September 1, 2010

Uppity investor Ron Burkle has articulated what Barnes & Noble  shouldn’t be doing — but not what it should. The activist, who owns nearly 20 percent of the book retailer, may merit board representation. But Burkle’s lack of a blueprint for growth undermines his demand to take three of the company’s nine board seats.

The Los Angeles grocery billionaire makes a good case to “throw the bums out.” Barnes & Noble’s governance has left it exposed. Conflicts, however transparent, abound with the company’s architect, chairman and biggest shareholder, Leonard Riggio, and his relatives. The bookseller leases space, buys textbooks and uses freight services from entities in which the family has an interest. Riggio’s brother, Stephen, remains on the payroll after stepping down as chief executive to babysit his replacement. And many directors have stuck around despite an options backdating scandal three years ago.

Burkle’s needling has prompted change. Barnes & Noble installed a new CEO, refocused growth efforts on its Nook reading device and has put the company up for sale. What’s more, Barnes & Noble responded to Burkle’s proxy fight by replacing two long-term incumbents with close ties to Leonard Riggio seeking board re-election with nominees who don’t appear to have such conflicts.

Yet more needs to be done. The company’s shares have fallen a quarter over the past year, badly underperforming fellow specialty retailers as well as the S&P 500. Trouble is Burkle’s retail experience hasn’t inspired him to lay out a coherent vision for Barnes & Noble. And it isn’t obvious his fellow board candidates have any bright ideas for a business facing structural decline.

Absent a strategy — even simplistic steps like halting the dividend and closing more stores — Burkle doesn’t deserve a third of the board’s seats. Moreover, splitting the baby — by partially supporting him but not his other nominees — would have the perverse effect of improving chances for his whole slate.

That’s because dividing a vote requires doing so in person at the annual shareholders’ meeting. Using the proxy card to pick one of Burkle’s candidates would divert all support from the company’s. So unless he comes up with a plan, better to let Burkle keep railing from the sidelines against Barnes & Noble — or force him to pay a premium for control, and let him figure it out from there.

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