Challenged By Activists, Kohl’s Uses Active Communication

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Proactive strategies have convinced investors to scale back the number of board members they want to replace, from nine to five.

Some shareholders are calling for the replacement of corporate directors one year after the Covid-19 pandemic caused many companies to sustain significant losses. The board of retailer Kohl’s has been under attack by an activist investor group that has been trying to replace nine of its members since February. The investor group, which includes Macellum Advisors GP, Ancora Holdings, Legion Partners Asset Management and 4010 Capital, have stepped up their campaign to oust the Kohl’s directors more recently, and to its credit, Kohl’s has fought back. In fact, the company has implemented some communications strategies that convinced the investors to scale back the number of board members they want to replace from nine to five. Some of what Kohl’s has done may keep its current board in place and help other boards withstand activist pressure this year.

To be sure, Kohl’s shareholders have experienced a rocky ride over the last two years when the stock traded as high as $80 per share and then fell down below $15 per share. Now at about $57 per share, long-term investors want to see stability.

The activist investor group led by Macellum Advisors, which controls 9.5% of the company, recently trashed the Kohl’s board in a letter stating that the company “seems to be content performing just slightly better than the worst companies in retail.” Such an attack deserved a response, and here are some positive things Kohl’s has done in the wake of the criticism:

• The CEO has defended the company in the media. Kohl’s CEO Michelle Gass has given a number of interviews where she has given a full-throated defense of the company’s current strategy for growth. Gass has been publicizing what she calls “game changers” for the retailer, which include partnerships with Sephora and the FLX private brand, as well as a focus on activewear, casual and outdoor apparel for women shoppers. Getting the word out publicly about the company strategy gives other investors the opportunity to judge for themselves whether they believe it will work as the market analysts weigh in. Although Gass may have gone overboard by bragging that Kohl’s was “way ahead” of the activist investors in one report, having the CEO exude confidence publicly is important when engaging in board fights. Boards should consider having their CEO publicly address company performance during the pandemic — whether results were positive or negative — and give an update on what shareholders can expect over the next year. Kohl’s is outlining the positive things to come in the face of ongoing criticism of the past.

• Kohl’s has touted the skills and experience of its current board.  In a recent press release, the company reminded shareholders of the attributes of its current board members. Matching the skills and experience of the board with the challenges that the company is facing and the strategy that will be executed is a good way to show the board has what it takes to be successful. The company highlighted the fact that all 12 current directors have extensive retail or consumer-facing industry experience including four board members who are former retail CEOs. The release also noted that the board has changed 50% of its board members within the last five years, so claims that board members have served too long are questionable. And the company highlighted the technology, e-commerce and digital leadership experience of board members, which it argues is comparable or better than the alternate directors offered by the activists. Publicizing information like this can serve to give shareholders confidence in the members of the board.

• Kohl’s created a website to better communicate with shareholders. provides additional information to shareholders that counteracts the activist investor’s campaign. Statistics and favorable media articles are provided with detailed information about the company strategy to improve performance.

• Kohl’s CEO has indicated she is prepared to meet with activists. In a recent news report Gass has stated that she is willing to meet with the activists to discuss their concerns and that the board may meet with the activists after that. Having discussions with activist shareholders is generally a better course of action than waiting for a shareholder vote without any dialogue. The Kohl’s board has already gotten activists to reduce their request to replace board members from nine to five, so there may be more compromises to be made. But it’s generally better to talk things out than to be voted out.

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