The Lumber Liquidators (LL) Annual Shareholder Meeting was held on May 22, 2019. There were 4 proposals up for vote. As I have stressed in my various articles, these proposals were unfavorable to shareholders and I actively recommended that all LL shareholders vote against them. Of special note was Proposal #4, which would dilute the share base by over 6% in order to give more stock based compensation to management and the board.
The votes have been tabulated. All of management’s proposals passed, but Proposal #4 was ratified by a very slim margin.
Poor Support For Proposal #4
Proposal #4 Equity Compensation Plan (Source)
Fundamentally, if only 680k votes (2.4% of outstanding shares) had swung from voting “Yes” on Prop #4 to voting “No”, the proposal would have failed. Looking at the results further, out of the 28.6 million outstanding shares in the company, only about 1/4 voted for Proposal #4. It’s a victory for the Board, but it’s hardly decisive.
Despite losing this battle, we consider the effort to make changes at the Board and management level well on track. So far, using minimal effort, my group has been able to generate a huge amount of interest in our plan to turn this company around. Holders of the 6.1 million shares which were voted against Proposal #4 recognized the egregious nature of the proposal. The Lumber Liquidators Value Committee (LLVC) played a central role in bringing awareness to its many flaws.
Poor Showing For Weak Director Candidates
Another proxy proposal, Proposal #1, was for the election of two Board directors at the company. These company-recommended directors were elected, but the withheld votes were the highest on recent record. Again, although the directors were elected, LLVC played an important role in rallying the dissenting votes as seen below:
Proposal #1 Director Candidates (Source)
|Terri Funk Graham
|Famous P. Rhodes
Typically, Director candidates at LL receive only 1 or 2 hundred thousand withheld votes. The dissenting vote count in the most recent proxy was much larger, increasing by over 1 million votes, clearly revealing shareholder frustration and support for our “Vote No” campaign.
Highest Against Vote Ever, Against Executive Compensation
As part of the LLVC “Vote No” campaign, we wanted shareholders to vote against excessive executive compensation. This has been a hot topic at Lumber Liquidators, as the company has been under-performing for years while the CEO and the executive team receive substantial bonuses, equity compensation and even base salary pay increases ostensibly based on “merit.” This advisory proposal was passed, but a record 2.8 million votes were cast against.
Proposal #3 Advisory Resolution on Executive Compensation (Source)
A Protest Vote
Another interesting voting result is shown for Proposal #2 concerning the selection of the auditor for the company. Normally speaking, the auditor selection is a simple procedural proposal for which hardly anybody should have reason to oppose. In order to show our strength I asked all LLVC members to vote against this proposal and many did just that. 1.3 million votes were cast against this mundane proposal, far higher than the usual “Against” votes of just a few thousand.
The Board Pays to Influence the Vote
It should also be noted that the degree of shareholder opposition to Proposal #4 as well as the other proposals on the proxy forced the board to hire an outside advisory firm in order to solicit favorable votes from shareholders. This was necessary in order to influence the proxy vote outcome.
The company used shareholder money to pay for this advisory firm. I believe this practice was unethical, considering the fact that Proposal #4 is substantially dilutive to the share base. Furthermore the director candidates which the company proposed have no experience in flooring sales, building material retailing or business turnarounds. It is difficult for me to see how these candidates will effect positive changes at the company, considering that they have only vague experience in retailing, and no work experience at any company like Lumber Liquidators.
Proxy Fight Continues
Confirmed members of LLVC presently control approximately 5% of the outstanding shares in the company, and I can confirm that our membership is increasing since the vote, as the stock price has careened lower, dipping into the single digits. We are reaching out to institutional investors as they will be helpful not only in future vote counts, but in order to influence management changes in the short term.
Progress in our proxy fight continues. Last week, LLVC proposed two new director candidates to the company as part of our demand for representation at the board level. We have asked that these candidates be integrated into the board via the board refreshment program. We are awaiting news on this progress.
We intend to make the names of these highly skilled candidates public shortly. One candidate has a deep history in flooring retailing with detailed expertise in low cost flooring sourcing in Asia and South America. This is obviously a qualification desperately needed in these times of increasing tariffs. Our other candidate has worked as an executive at some of the largest flooring companies in America and has specific expertise in turning around struggling businesses. He would play a pivotal role in any future turnaround at Lumber Liquidators.
Our hope is that we can engage with management and the Board in a meaningful way in the coming weeks in order to work towards changing the downward trajectory of Lumber Liquidators. LLVC continues to rally support among shareholders and we remain unwavering in our fight for the necessary changes to restore shareholder trust, create value and drive profits and growth at Lumber Liquidators.