A sharply fought shareholder contest like the one that came to a head Friday at Buffalo Wild Wings is so rare it can be difficult to understand what’s going on. Attending the annual shareholder meeting in person, it turned out, didn’t help.

Upon walking out there were only questions, aside from the news that longtime CEO Sally Smith would soon retire. Only on the drive back to downtown Minneapolis, after a few minutes to think, did an understanding of what just happened form.

Smith didn’t get treated very well, that’s what happened. At a minimum, she deserved a round of applause, and maybe with the shareholders rising to their feet.

Smith is listed as 59 years old in the proxy statement and has worked her whole adult life, so she’s earned a chance to put her feet up. She got to Buffalo Wild Wings in 1994 and was put in charge as CEO in 1996, a year in which it had less than $15 million in revenue. As the official bio in the company’s proxy statement put it, as blandly as such things get, “Ms. Smith has led our company through significant growth and success.”

It’s now a $2 billion company. Investors who had the luck or good sense to put money into the initial public offering nearly 14 years ago would have earned a return approaching 1,700 percent, based on today’s price.

The activist investor who pushed an alternative slate of directors this year is Mick McGuire of Marcato Capital Management, a hedge fund manager. It’s hard to imagine a person more unlike Smith. His firm is based in downtown San Francisco, and one of its main funds listed the Cayman Islands under its “place of organization.”

The relationship between Marcato and Buffalo Wild Wings started with a routine e-mail exchange with Buffalo Wild Wings’ investor relations director a little over a year ago. By the summer the two sides were talking regularly, although maybe a better word is arguing.

A shareholder contest in some ways resembles an election for governor, with candidates tossing all sorts of claims at each other. The core of the Marcato argument, however, was its insistence that the company “refranchise” most of its company-owned restaurants. The proceeds from the sales to franchisees could be returned to shareholders.

The operating results of the company have also disappointed shareholders for several quarters, as the number of customers dropping by the restaurants started to slip. The company responded with deals and promotions that tended to cut into profit margins at the individual restaurant level.

Still, these were not the kind of problems that seemed to demand dramatic action. But in February Marcato announced in a securities filing that it intended to nominate four directors for election at the 2017 annual meeting.

Shareholders arriving at the Sheraton in Minnetonka Friday for the 11 a.m. meeting couldn’t help but notice what seemed to be more than a few security personnel on hand. Milling around the desk where shareholders were supposed to check in were staffers from public relations firms, investor relations firms, the proxy solicitor for the company, the Faegre Baker Daniels law firm and almost certainly the company’s investment banker.

Cameras, audio recorders and the like were strictly verboten. If a shareholder’s handwritten name tag fell off, someone associated with the company promptly asked about it.

Ordinary folks were only allowed into the ballroom just before the meeting was to start at 11 a.m., and at 11:01 a.m. board chairman Jerry Rose greeted everyone and then promptly adjourned the meeting for one hour.

A colleague and I then plopped down on chairs in the lobby to get on the hotel Wi-Fi system. We were not trying to stage a stakeout, but it turned out we had seated ourselves right in front of the Lakeview conference room that held the Marcato team. This group may have been just as large as all the advisers assembled by Buffalo Wild Wings.

The sign next to the door read “Turbanos Meeting,” whatever that could have meant to the Marcato folks.

When the chairman reconvened the meeting at noon, it didn’t last long. After the introduction of the officers and directors, the standard announcement that auditors were available for questions, and the like, Rose announced that Smith would be retiring as CEO during the year and that she was no longer a candidate for the board.

Then McGuire, seated in front on the opposite side of the ballroom from the Buffalo Wild Wings management team, received five minutes to speak.

He didn’t use all of his five minutes. When he sat down the room was as quiet as a Presbyterian church.

The company then said the results of the shareholder vote would be announced via news release. Rose asked for any shareholder questions, didn’t see any and the meeting was over.

On the way out, Smith, with a smile, said, “I had decided. I needed to tell the board.” A knock on the door of the “Turbanos Meeting” got a quick no comment from the Marcato team.

In that quick comment Smith didn’t come close to fully answering why she elected to announce her retirement the very day of the annual meeting, although maybe we already know. She lost. Her life’s work rewarded shareholders with a 1,700 percent return, and then at the end she still lost.

The shareholders did elect three of the Marcato nominees including Mick McGuire personally, although one of them had been nominated by the company, too. So round up to three votes on a nine-person board and McGuire is still far short of control. Yet Smith still lost.

The argument that the two sides been having via proxy materials is about to go inside the boardroom, so hanging around as CEO probably doesn’t sound like much fun to Smith anyway.

One thing for Smith to figure out soon is how she can get her ownership in Buffalo Wild Wings out as quickly as possible.

Shareholders are in for a wild ride. If Smith is as savvy as I think she is, she will be a seller.


lee.schafer@startribune.com 612-673-4302