What to expect when you're expecting ... more women on boards?
That was the key question amid an under-the-radar proxy battle at retailer Destination Maternity.
Shareholders were asked to decide whether prior board experience should preclude women from obtaining future board seats. They voted in favor of a dissident slate of board nominees on Wednesday, backed by investors Nathan Miller of NGM Capital and Peter O'Malley of Kenosis Capital. The winning slate had three women and one man nominee.
On the losing side was a slate backed by the company, which nominated three men and one woman, the interim CEO Melissa Payner-Gregor.
Earlier, the nominees by the dissidents, who together hold about 9 percent of Destination Maternity's stock, failed to obtain support from Institutional Shareholder Services, an influential proxy advisory firm, which makes voting recommendations for contested board nominations, among other subjects.
ISS wrote in a May 10 report that shareholders should avoid voting for the dissidents' slate due to concern over "the fact that none of the dissident's nominees have previously served on public company boards."
The dissidents fired back, pointing out the low proportion of women who currently hold that experience. As of the first quarter of 2018, the percentage of women on boards was 16.9 percent among Russell 3000 companies, according to Equilar. The dissidents say that if experience is a pre-determinant to board membership, then the gap between the number of women directors to male ones will never be closed.
"If the company's argument is this chauvinistic trope that women can't join the board because they've never been on as a director before, then this embarrassing situation in Corporate America will never be remedied," O'Malley, managing member of Kenosis Capital, a merchant bank, said in an interview with CNBC.
CNBC requested comment from Destination Maternity five times over the course of five days. The company did not return CNBC's calls or emails but sent shareholders a letter Monday evening.
After speaking with stockholders during the proxy season, Destination Maternity said the company reaffirms "our commitment to increasing gender diversity at the board level by identifying and appointing at least one additional highly qualified female director to the board as soon as possible." ISS declined to comment beyond its report.
After Wednesday's vote, the company share price was down 2.5 percent. Shares of Destination Maternity have slumped 75 percent over the last three years amid management upheaval, a failed takeover bid and dwindling mall traffic that has cut into sales and profitability. The market cap is currently a mere $40 million, and the dissident investors say that if a turnaround doesn't happen quickly, the company wouldn't have long to survive.
"I'd say a year is generous," said Marla Ryan, one of the dissident nominees and founder of Lola Advisors, a business consultancy for the apparel, beauty and wellness industry. Prior to her role there, she held senior positions at Lands' End and J. Crew. "This is a brand that's been around for such a long time and really has that brand equity and awareness. It shouldn't go away."
"But we fear it may," O'Malley said.
On the dissident slate, Ryan is joined by Holly Alden, the co-founder of Stance, a sock manufacturing company, and of Skullcandy, an audio accessory company. Also on the slate are Anne-Charlotte Windal, a retail consultant and former retail equity analyst, and Christopher Morgan, a senior retail analyst at the hedge fund Kingdon Capital Management.
Destination Maternity was founded in 1982 by Rebecca Matthias and her husband, Dan, who became the company's first chief executive officer. As of Feb. 3, the company operated 1,124 retail locations under the brands Motherhood Maternity, A Pea in the Pod and Destination Maternity. They also lease retail space in other stores like Macy's, BuyBuy Baby and Boscov's, according to company filings.
Recently, the company has faced tremendous challenges. It has not had a permanent CEO in eight months. Melissa Payner-Gregor is Destination Maternity's second interim CEO during that period. She's the company's first female CEO, albeit on a temporary basis.
In its report, ISS said "the company's severe stock underperformance, negative financial results and poor succession planning strongly suggests that additional board change is warranted." The proxy advisory firm urged investors to withhold votes for the chairman, Barry Erdos and CEO Payner-Gregor.
ISS recommended investors vote for Peter Longo, who was appointed in December and had previously run Macy's logistics and operations business, and Pierre-Andre Mestre, chairman of the French clothing retailer Orchestra-Premaman, who was appointed in April. (Orchestra-Premaman had been in a merger agreement with Destination Maternity, which fell through last July, causing further pressure on the shares).
ISS said its voting recommendation "would present an opening for two dissident nominees to be elected, while reducing the risk of the dissident obtaining outright control of the board."
Another proxy advisory firm, Glass Lewis, urged investors to vote for all four of management's nominees.
The company has had two other women directors, aside from Payner-Gregor in its history, but both left in February 2011, according to data compiled by Equilar. Since that period, shares of Destination Maternity have slumped 88 percent.
Slates made up of a majority women are incredibly rare. Only once in the three years starting in January 2015 has a management team or dissident put forth a slate in the U.S. that had a majority women nominees, according to Proxy Insight, which compiles details on shareholder votes. That was in 2016, when Chico's urged investors to vote for its five nominees, four of whom were women. After Chico's received support from ISS and Glass Lewis, the activist, Barington Capital, dropped its proxy fight.
"If you drink from the same bucket of water over time, you only know one taste," Ryan said in an interview with CNBC. "Some argue that there are not enough qualified women. So we need to equip them to get them up there and give them opportunities along the way to make that happen."