Otiose shareholder of the day, B&N edition

September 30, 2010
Steven Davidoff goes into lots of detail today on the close-run fight between Ron Burkle and Leonard Riggio for control of three board seats at Barnes & Noble.

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Steven Davidoff goes into lots of detail today on the close-run fight between Ron Burkle and Leonard Riggio for control of three board seats at Barnes & Noble. It was a nailbiter of a vote, and informed opinion had it that Riggio, B&N’s founder, was going to end up the loser, despite controlling a large chunk of the outstanding shares. After all, the most powerful shareholder advisory firm, Institutional Shareholder Services, favored Burkle — and big investors like Vanguard and BlackRock generally follow ISS’s lead.

This time around, however, they didn’t, which is interesting. But what’s absolutely astonishing, in a vote of this importance, is the pathetic showing from State Street, which controls about 1 million shares, or about 1.75% of the company. In a vote as close as this, that’s a massively important stake, which can easily tip the outcome one way or the other.

State Street somehow came to the conclusion that it wanted to vote for an unholy mixture of the two antagonists: for two of Burkle’s nominees, but against Burkle himself, and against Riggio’s poison-pill plan. It was a vote which would have satisfied no one — had it counted.

But then, just to add an element of utter farce to the proceedings, State Street contrived to vote its shares late, thereby ensuring that none of its votes were counted at all.

If State Street had simply intended to vote for one side or the other, the move could have been some kind of weird schoolyard attempt to curry favor with the winner had the vote gone the other way: State Street could always have said “I did vote for you”, or “I didn’t really vote against you”, or something annoying like that.

But since the attempted vote itself was so lily-livered, this looks to me like simple incompetence.

Maybe a shareholding worth $17 million or so is ultimately just not all that important to a firm the size of State Street. But it’s surely important to Burkle, Riggio, and B&N’s board, and these kind of antics come close to openly mocking the concept of shareholder democracy.

We hear a lot about the obligation that companies have to their shareholders. But equally, large shareholders have an obligation to the companies they own: to take their stake seriously, and not to play silly games by delaying borderline-incomprehensible votes until it’s too late to cast them. If this is how State Street treats the companies it owns, I wouldn’t want to entrust them with my heard-earned savings.

Update: Some good comments here, surrounding State’s Street’s status as a custodian and the difficulties it faces in learning from the shares’ beneficial owners how it should vote. But Davidoff made it sound as though State Street was going to vote all its shares the same way; is that not true? And the delay in voting seems to have been a matter of minutes, rather than days. In any case, it seems to me that voting shares is one of the few things that custodians are expected to do well, and that State Street obviously failed on that front, this time.


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