NEW YORK: DGB Investments founder Douglas Bergeron has built a stake in Ethan Allen Interiors Inc and is pushing to replace the furniture company’s entire board of directors.
Bergeron believes Ethan Allen, despite its strong foundation, has failed to grow due to an outdated strategy and an over-tenured management and board, the investor said in a regulatory filing and letter to shareholders on Wednesday.
As a result, he contends, the company has lost market share over the past two decades and trails competitors in annual revenue.
Bergeron said he believed Ethan Allen has the potential to triple shareholder value over the next three years but the obstacle is the company’s leadership and governance.
“We’ve had some discussions with the company,” Bergeron said. “It’s very clear that they were dismissive.”
Ethan Allen should also replace chief executive officer (CEO) Farooq Kathwari, who has held that position and served as chairman since 1988, Bergeron said.
A former public company executive with a track record of turning around businesses, Bergeron has nominated himself and five others to replace the board.
The others include former executives at eBay Inc, Wayfair Inc and Neiman Marcus Group, who would bring expertise on retail technology, store operations, digital marketplaces and brand building, he said.
“The last thing I want to do is transform myself from a frustrated shareholder to a frustrated single member on a board,” Bergeron said, explaining his reasons for wanting to replace the entire board.
A representative for Ethan Allen didn’t respond to a request for comment. Kathwari, who hasn’t disclosed a succession plan, also didn’t respond to a request for comment.
Ethan Allen last week reported a 5.7% year-over-year decline in net sales for the fiscal year ended June 30.
The Danbury, Connecticut-based company offers free interior design service to clients and sells a range of home furnishings, including dressers, sofas and wall decor.
The company’s shares, which had fallen 18% over the past year, closed up 1% to US$24.13 yesterday in New York trading, giving Ethan Allen a market value of US$614mil.
DGB Investments, which is Bergeron’s family office, and his family trusts hold 5% of the shares, the filing shows.
Bergeron believes that Ethan Allen has a good brand, deep manufacturing capabilities in North America and a national retail footprint, but its strategy failed to focus on digital initiatives as online sales continue to grow in the furniture industry, he said in the letter.
He added that the company’s management team and board are unprepared to implement the changes.
“I’ve seen it firsthand: companies fall behind when leadership is complacent, resistant to changing strategy and unwilling to make the difficult decisions necessary to drive growth,” he wrote.
The company’s board is currently composed of five members after the sixth director, John Dooner Jr, died in January.
Bergeron, based in Park City, Utah, previously served as a co-managing partner at Hudson Executive Capital.
In that role, he ran a successful proxy fight in 2020 at self-service payment technology firm Cantaloupe Inc that led to a full board turnover, with him serving as the company’s chairman.
Cantaloupe was sold this year for US$848mil to retail technology firm 365 Retail Markets.
Bergeron was previously CEO and chairman of payment processing company VeriFone, after it was spun off from Hewlett-Packard Co in 2001. — Bloomberg
