By Khadeeja Safdar
For decades, Leslie Wexner has run Victoria's Secret and his
retail empire with a close-knit group of directors. But amid
scrutiny of the board's ties to the 81-year-old billionaire, the
company is preparing to bring in some fresh blood.
L Brands Inc. has retained a search firm to look for three new
board candidates, according to people familiar with the matter. The
company is looking to increase its board diversity and aiming to
replace some directors at its May annual meeting, they said.
The change would come after an activist hedge fund raised
concerns about the Columbus, Ohio, company's board this month,
saying its members lack the independence or skills needed to
navigate the drastic changes in the lingerie market.
Mr. Wexner built L Brands, which also owns Bath & Body
Works, into a global powerhouse from a single store in Columbus,
Ohio, in 1963. Mr. Wexner, who is chairman and CEO, has drawn
heavily from his local ties to populate the retailer's 12-person
board, whose average tenure is 20 years.
But sales have declined in its lingerie business and the
company's stock price has tumbled by a third from a year ago.
Barington Capital Group LP, a New York hedge fund that has a
stake valued at less than 1%, urged the company to add more women
and younger directors who are outside of Mr. Wexner's business and
social circles. It also called on L Brands to consider breaking
itself apart.
"It is unclear that the board as currently comprised has the
independence to effectively oversee you as chief executive
officer," James A. Mitarotonda, chief executive of Barington, wrote
in a March 5 letter to Mr. Wexner.
Mr. Wexner remains the company's largest individual shareholder,
with a 17% stake. His wife, Abigail, is also on the board, and
neither is independent under the rules of the New York Stock
Exchange. Two additional directors also don't meet the
requirements, including one who acts as a business adviser to the
Wexners.
Though the company classifies the remaining eight directors as
independent, most of them have close ties to the Wexners, Barington
argues. One headed a university to which Mr. Wexner promised $100
million. Another runs a charity that partners with an organization
founded by Mrs. Wexner. One director was formerly employed by Mr.
Wexner at his retail company.
"It's an old-style board with the kinds of interrelationships
you saw many years ago, particularly in certain localities," said
Charles Elson, director of the Weinberg Center for Corporate
Governance at the University of Delaware. "It's surprising that
this kind of board continues to exist in today's climate."
A spokeswoman for L Brands said Mr. Wexner and the other board
members weren't available to comment.
In last year's proxy filing, L Brands said the eight directors
were independent because they hadn't worked for the company in the
past three years, weren't related to top executives, hadn't
received more than $120,000 from the company within the past three
years and fulfill other criteria. L Brands said it evaluates
whether a director is independent on a case-by-case basis.
At L Brands, the average age of its directors is 71 years old,
and seven of them have been on the board for more than a dozen
years. Three are women, and the youngest is 57. The median age of a
director at S&P 500 firms is 63.3, while the median tenure is
7.8 years.
"When more than a third of directors have served for more than
nine years, that's when we start to have a little bit of concern,"
said John Roe, head of ISS Analytics, the data intelligence arm of
Institutional Shareholder Services. "The danger is groupthink, or
the reluctance to consider new opinions."
Mr. Wexner, who was behind other mall staples such as the
Limited, Abercrombie & Fitch and Lane Bryant, bought Victoria's
Secret, consisting of six stores and a catalog, in 1982 for $1
million. He opened hundreds of stores and bet on high-profile
fashion shows featuring supermodels in push-up bras. The formula
served him well. Victoria's Secret, with more than $7 billion in
annual revenue, is the leader in the women's underwear market.
But in 2016, the brand began losing steam as shoppers gravitated
toward more unstructured styles, such as bralettes and sports bras.
Competitors capitalized on the natural trend by emphasizing
untouched ads and featuring models of different shapes and sizes.
Victoria's Secret tried to adjust by hiring new leaders and
changing its products, but some of Mr. Wexner's decisions -- such
as eliminating swimwear from stores and continuing to rely on
Edward Razek, his 70-year-old marketing chief -- have emboldened
critics.
Shares, which have fallen about 30% over the past year, closed
Wednesday at $28.18. The stock traded near $100 in late 2015.
--Theo Francis and Elisa Cho contributed to this article.
Write to Khadeeja Safdar at khadeeja.safdar@wsj.com
(END) Dow Jones Newswires
March 21, 2019 08:44 ET (12:44 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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