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UPDATE 2-Deckers wins proxy contest against hedge fund Marcato

(Adds update stock price, details from Deckers,)

BOSTON, Dec 14 (Reuters) - Deckers Outdoor Corp beat back a challenge from activist hedge fund Marcato Capital Management, but shares of the maker of UGG boots fell more than 4 percent on news that all its directors had been re-elected.

Shareholders voted to return all nine board members to their positions, the company said in a statement. They rebuffed Marcato's effort to replace the three most senior directors with the hedge fund's own candidates.

Thursday's result caps a 10-month long battle between Deckers and Marcato, which has been prodding management to consider spinoffs, cut costs, and allocate capital more wisely.

"Todays outcome reaffirms that we are on the right track," the company's statement said on Thursday. A week ago the company warned investors that Marcato's candidates "lack the relevant skills and experience to continue our successful transformation."

Marcato owns 8.5 percent of the company and had won votes from many other active investors, including other hedge funds. However passive investors, BlackRock Inc and Vanguard, which both run big index funds and rank among Deckers' top five investors, voted to back management's directors, two people familiar with the situation said on Thursday.

Proxy advisory firms, Glass Lewis and Egan-Jones threw their weight behind management while ISS backed the hedge fund. Late last week ISS took an unusual step by reversing its recommendation after Marcato slimmed its slate to three directors after having initially campaigned to throw out all nine.

In its report, Glass Lewis said positive changes made both before and after Marcato arrived on the scene were beginning to take hold, suggesting stronger earnings lie ahead.

Deckers shares had climbed 71.4 percent since Marcato disclosed its stake in the company on Feb. 8, but on Thursday they dropped more than 4 percent.

Several Deckers investors, who said they had backed the hedge fund's slate, wondered whether Marcato might now exit the stock to focus on other targets. Its main portfolio has returned 24 percent this year, beating the average hedge fund's roughly 8 percent gain.

Marcato founder Mick McGuire on Thursday said his involvement had already benefited shareholders but warned that more work lay ahead.

"We continue to believe that the status quo at Deckers is unacceptable," he said in a statement, "and the Board must take meaningful steps to avoid repeating its many historical failures."

In November Deckers said it plans to refresh its board by appointing at least two independent directors by September 2018.

(Reporting by Svea Herbst-Bayliss; editing by Chizu Nomiyama)