Proxy advisor ISS backs Chico's director slate, in blow to activist

A proxy advisor has backed the board nominees proposed by women's apparel retailer Chico's FAS Inc, dealing a blow to a hedge fund that offered two nominees of its own.

Barington Capital, a New York-based activist hedge fund that owns 1.5 percent of Chico's shares, nominated its founder, James Mitarotonda, who began his career at Bloomingdale's, and Janet Grove, a former Macy's executive, to serve on the company's board.

But ISS, a proxy advisor to institutional shareholders, recommended Chico's directors' slate, in a research note published late on Friday, saying that Barington has not made a compelling case that additional change at the board level is warranted.

"The strength of all four management nominees suggests they are likely the best candidates to continue driving the necessary change to improve the company's performance," ISS said in its note.

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Chico's new nominees are Bonnie Brooks, vice chairman of Canadian retailer Hudson's Bay Co, which owns department stores Lord & Taylor and Saks Fifth Avenue, and Bill Simon, a former Wal-Mart executive. The slate also includes incumbent Janice Fields and Chief Executive Shelley Broader, who took over the post in December.

ISS said it recognized Chico's underperformance - with total shareholder returns having underperforming peers over three- and five-year periods, as expenses increased and profits fell. But ISS said it is too early to judge the changes being made by the existing management team to turn the business around

Barington, which in its campaign has cited Chico's underperformance, could not immediately be reached for comment on Saturday.

Chico's has a market value of about $1.5 billion.

The fate of the company's new board nominees will be in shareholder's hands when they vote at Chico's annual meeting on July 21, unless an agreement is reached with Barington beforehand.