Objective: Seek to influence change at this company by replacing Board members, including the Chairman, at this contested meeting.
Background: This US company owns, operates, and franchises casual dining restaurants. We have been top shareholders for at least three years, with the company held in our Small and Mid-Cap Growth strategies. We have been disappointed with the company’s execution of its business strategy:
Poor Allocation of Capital: The company’s franchisee organizations are more effectively run than the company-owned stores and produce a superior return on invested capital. Adding more franchisees would increase both revenue and operational efficiencies. Yet, the company remains focused on buying stores instead, a poor allocation of capital.
Uninspired Leadership: The search for a new CFO took far too long, and the company missed an opportunity to recruit a world-class executive who would be a strong CEO successor candidate, instead hiring a relatively unproven candidate. The company also failed to address the legitimate concerns of an activist shareholder who met with the company three times to express concerns over the company’s management.
Ineffective Board: The Board has made several missteps, including failure to properly engage the activist, missed opportunities with the CFO recruitment, and poor capital deployment.