ISS backs all four ValueAct director candidates in Seven & I boardroom fight

By Svea Herbst-Bayliss

NEW YORK (Reuters) -Proxy advisory firm Institutional Shareholder Services (ISS) on Tuesday backed ValueAct Capital’s boardroom challenge at Japanese convenience store operator Seven & i Holdings by recommending shareholders elect all four of the U.S. investment firm’s director candidates.

ValueAct, which owns 4.4% of Seven & i, has long criticized the company’s conglomerate structure and recently ratcheted up the pressure by publicly calling for its president and CEO, Ryuichi Isaka, to be among those replaced on the board.

“Incumbents Isaka, (Katsuhiro) Goto and (Toshiro) Yonemura should be held responsible for past underperformance,” the report said. “A vote AGAINST company nominees Isaka, Goto, Yonemura, (Shinji) Wada and (Fuminao) Hachiuma is warranted.”

ISS said ValueAct is calling for a deliberate succession process for the CEO.

Since March, ValueAct has publicly pushed for shareholders to replace four directors on the 14-member board with its nominees, including the firm’s sustainability chief, Brittni Levinson.

On Tuesday, ISS extended support for ValueAct’s campaign by endorsing all of its candidates and spelling out where the company has faltered.

“Based on the long-term track record of poor performance in several units and poor capital allocation, change in the board is warranted,” ISS wrote in its report, which was seen by Reuters. Insiders have created the strategic plan which leaves execution to the same management, ISS wrote, adding “this is not reassuring for investors.”

ValueAct said it welcomed the ISS recommendation. “A vote for ValueAct’s nominees will deliver what shareholders have requested for years – an objective Strategic Review, a careful President Succession process, strengthened governance practices, and the appointment of an independent Chair,” the firm said in a statement.

A spokesperson for Seven & i Holdings said the company was currently reviewing the report closely.

Investors will be able to vote on the dissident director candidates on May 25 unless the two sides settle their differences before then.

ValueAct and other investors had urged the company to undertake a strategic review and consider spinning off its 7-Eleven chain or selling the entire company. The company elected to close additional supermarket stores in Japan and fully exit its apparel business as part of a structural reform plan.

“The counterintuitive results of the latest strategic review raise questions about the current board’s ability to hold management accountable and instill a sense of urgency into reforms,” ISS wrote.

ISS said that ValueAct’s nominees bring board experience, capital allocation and executive experience, and Levinson would add a shareholder perspective.

ValueAct has experience on boards at Japanese companies, having won seats at Olympus and JSR Corp.