New Faces for Dillard's Board

Following Barington Capital Group's proposal to nominate its own slate of candidates for Dillard's (NYSE: DDS  ) board (it has a 5.6% interest in the retailer) a few weeks ago, the company announced the names of four new candidates for its board of directors yesterday.

The new lineup looks promising, even though only one of the candidates was on Barington's original list. In fact, Barington has agreed to back the company's new candidates and will drop its threat of a proxy battle.

The candidate list includes a former chairman and CEO of Saks (NYSE: SKS  ) , a former Wal-Mart (NYSE: WMT  ) executive, and two others with valuable experience. The four sitting Class A directors have little or no background in retailing or apparel.

Pretty much any change to Dillard's board would be a positive move for its governance. The corporate watchdog, Institutional Investor Services, rates the board better than only 0.8% of S&P 500 companies. Mathematically, that means only four are worse. And the Dillard family controls nearly all the Class B shares electing eight board seats, which leaves only four for directors representing the Class A shares.

Dillard's has had a tough year; its stock has fallen nearly 40% in the past 52 weeks. While Fitch just reaffirmed its BB rating on the Dillard's senior debt, it also warned of a negative outlook. The rating service did mention the real estate as a positive factor in determining the default rating, but declining same-store sales and deteriorating operations were negatives.

Dillard's has announced that it intends to review its real estate strategy and possibly shut some underperforming stores. This shift in strategy was what investors were aiming for all along, so they can claim some victory for that. Dillard's share price jumped on the news; however, this strategy might be good for a short-term boost in operating results but isn't a long-term cure.

Customers don't care whether a store is leased or owned, who's on the board, or how much debt a company carries. Ultimately it's marketing and merchandising that will have the greatest impact on the retailer's turnaround, and that strategy is not set at the board level.

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