Advisory board backs dissident slate for Buffalo Wild Wings board

One of the nation's leading proxy advisory services has backed a slate of three dissidents for election to the Buffalo Wild Wings board of directors.

The recommendation by Institutional Shareholder Services (ISS) that shareholders vote for board candidates put forward by activist shareholder Marcato Capital Management could change the balance of power at Golden Valley-based Buffalo Wild Wings and put its current management at risk.

Investors responded by sending the company's shares up 8 percent Wednesday, to $158.85.

Marcato already controls nearly 10 percent of Buffalo Wild Wings' shares. But the ISS endorsement significantly increases its leverage in a proxy fight that has included a Marcato call for longtime CEO Sally Smith to resign.

ISS said that while Buffalo Wild Wings outstripped its peers in the sports bar/restaurant business immediately after its initial public offering in 2003, it has underperformed recently.

ISS did not bless Marcato's suggestion that Buffalo Wild Wings change from a model where the company owns roughly half its restaurants to one where it franchises 90 percent of its outlets. But the proxy service analysis asserted the company had "lost its way," citing unwise price increases and other steps that cost it customers. New blood on the board could help reverse what ISS called "missteps."

The ISS endorsement "is a good sign for Marcato," said Paul Vaaler, a business and law professor at the University of Minnesota. "It doesn't matter for retail investors. But big institutional investors who sit with 8 percent, 10 percent, 12 percent of a company look to ISS."

McGuire, the managing partner of Marcato, said "ISS's independent recommendation further underscores our view that new voices and fresh perspectives are urgently required in the [Buffalo Wild Wings] boardroom."

The company, which has responded to Marcato's activism by backing Rovit for a board seat and agreeing to franchise some of its company-owned restaurants, stressed the good things ISS had to say about company. But it said company-backed board nominees Cynthia L. Davis, J. Oliver Maggard and Jerry R. Rose were better qualified than McGuire and Bergen.

"While ISS commended Buffalo Wild Wings for nearly 20 years of outperformance, it is recommending the removal of two of the three directors who have served for more than one year. We believe this is a mistake," the company said in a statement.

Even if Buffalo Wild Wings' current board and management prevail at the annual meeting, Vaaler said they are on thinning ice. The company's profit growth lags the market, he explained, and ISS backing of Marcato's nominees "sends a message that it is not just hedge fund investors who are upset with the company's performance."

"This is," he said, "a 'dis-endorsement' from the street."