Urban Outfitters Shop Front, Covent Garden, London, England, BritainLondon, Britain - 03 Apr 2013

Urban Outfitters seems to have gotten itself a new activist investor.

CtW Investment Group, a Washington, D.C.-based investor that works exclusively with union-sponsored pension funds, called out Urban for “persistent board composition issues” and urged shareholders to vote against two of the retailer’s longest-serving board directors, Robert Strouse and Harry Cherken Jr., at a general meeting set for later this month.

Strouse, president of private equity firm Wind River Holdings LP, has served as a lead director of Urban since 2002, while Cherken, a partner with Drinker Biddle & Reath LLP, has been a director since 1989. The company went public in 1993.

In a letter to shareholders, CtW executive director Dieter Waizenegger said a “clear message” needs to be sent to Urban leadership that investors are “exasperated by the boar’s insular composition and lack of independence” and that the longest-serving board members should be held responsible.

Waizenegger pointed to years of “stagnant revenue growth and a slumping stock price” that he said, despite industrywide problems, has fallen more dramatically than peers being down about 34 percent since April 2014.

Shares of Urban stood at $35.79 at the end of April 2014 and peaked at $47.01 in March 2015. Since 2016, shares have mostly hovered between $20 and $30, and closed on Monday at $22.82.

He also noted that other outside shareholders have “for years voiced their concerns” on the board’s composition, but Urban has only added directors instead of asking those with supposedly low support to step down.

“The board is so insular that it has led to a broken nomination process,” Waizenegger wrote. “Improving the diversity of the board is needed to disrupt the echo chamber and redirect the company’s strategies to improve Urban’s performance.”

Beyond taking issue with Strouse and Cherken continuing to serve on the board, Waizenegger said Urban’s board generally lacks diversity with only two female members on an all-white, nine-member board, few of which have any background in retail.

One of the female members, Margaret Hayne, is also the wife of board chairman and Urban chief executive officer Richard Hayne.

She was appointed to the board in 2013, after investors such as Calvert Investment Management derided Urban’s then entirely male board. Margaret Hayne also serves as the chief creative officer of Urban and ceo of Urban’s Free People brand.

The other female board member is Elizabeth Ann Lambert, the founder and principal of Bunkhouse Management Group LLC, a hospitality management company. She became an independent member of the Urban board in 2014.

Waizenegger went on to detail the various affiliations that a majority of Urban’s other board members and executives have, like general counsel and corporate secretary Azeez Hayne, who is Richard Hayne’s nephew and his son, David Hayne, who was recently appointed as chief digital officer.

“The company’s history of rewarding family members and affiliates of board members suggests that Urban continues to be run as a family business, rather than a $2.6 billion dollar publicly traded company with a large majority of outside investors,” Waizenegger wrote. “Board independence is one of the most critical and basic tenets of good governance.”

He added that the failure by the board and its nominating members to change is “indicative of complacency” and a vote against Strouse and Cherken is needed.

Urban disagreed with CtW’s characterization entirely and pointed out that since 2011 it has made a number of changes, including declassifying the board, adding female members and adopting a proxy process.

“As several of our larger, long-term shareholders have pointed out during our routine shareholder engagement efforts, changing the composition of a board is not something that can or should take place overnight,” a company spokeswoman said. “Instead, [Urban] has been taking targeted, strategic steps to alter the makeup of the board over time.”

The spokeswoman said efforts to “further diversify” the board include retaining an independent search firm to work with the nominating committee to find “additional candidates with relevant expertise” to join.

Urban also pushed back against CtW’s claim that the current board is to blame for a decline in stock price, arguing “the entire sector is facing structural headwinds” and pointed to board leadership as the reason Urban has avoided becoming overstored and been able to effectively penetrate the e-commerce market.

“This relatively strong position is the result of the stewardship of our board and the remarkable talents and creativity of our employees,” the spokeswoman added.

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