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ASSIGNMENT

OF
ETHICS, RESPONSIBILITY AND
GOVERNANCE
SESSION 23:
BARNES & NOBLE, INC.: THE YUCAIPA
PROXY CHALLENGE





Submitted By:
Gaurav Verma
Shubham Grover
Anuvesh Maheshwari
Kritika Jain
Balerao Likhitha
Prakash Thakur
Rohit Mukherjee
1. Who should determine Barnes and Nobles strategy?
Strategy of a person depends upon the vision with which it came into the business, so let us
compare the strategy of Riggio and buckle:
Leonard Riggio Ronald buckle

Vison:
He started his company from BN store in fifth
avenue in New York and brought it to a
bookstore chain operated in two segment with
720 and 637 retail stores respectively. He also
recognized for his comment by Forbes
magazine that captured his strategy succinctly.
Strategy:
1. With change in bookselling industry
BN venture on a multi retail channel
strategy i.e concentrate on the internet
and digital ecommerce. They launched
an e book store and digital newsstand
which contain more than a million of e
book, newspaper and magazine to sale
i.e providing single platform to
customer to buy.
2. They also started selling there nook e
book reader on bestbuy.com in addition
to their own retail store and website.
Effects:
1. Achieve 20 % of market share in the e-
book market in less than 1 year.
2. Also from exhibit 2 it is clear that the
net earning is increased.
Vision:
While on the other hand buckle founded
his company Yucaipa in order to invest in
underperforming businesses and create
value through acquisition merging and
strategic repositioning.
Strategy:
Buckle suggest two strategies
1. Cede ground to the amazon and its
kindle e book reader, Do forge
alliance with Microsoft and HP to
offer there electronic in there retail
store and to print paperback book
on demand without maintaining
large inventory.
2. Acquired a Borders a book store
chain that was rumoured to be
closed to bankruptcy.
Possible Outcomes:
1. In changing market scenario when
every business is going toward e
business, so strategy to concentrate
only on retail store might not be
helpful.
By comparing both strategy we will recommended Riggio strategy is better for the company
interest.
2. What corporate governance issues are involved in the Yucapia proxy fight?
Yucapia proxy fight arises due to the two incidences that happened in the company:
Firstly: Yucaipa raised questions about the companys deal-making, including the purchase of a
college bookstore business owned by Mr. Riggio and his wife. When buckle suggested the
strategy of acquiring Borders a book store chain that was rumored to be closed to bankruptcy
,Riggio responded that he didnt want to sink his money in brick & mortar retail , especially not
when the book business was going in a sweep change. So acquiring his owned company (college
bookstore) puts question mark on his interests and strategy. Even after these transactions BN
stock was down by 20 percent and many institutional stockholders filed the suit.
Secondly: Yucaipa dramatically increased its stake in Barnes & Noble first to 16.8% and
then 20% and made a Schedule 13D filing that criticized Barnes & Nobles management on
corporate governance policies. In response Barnes & Noble board convened a meeting with its
advisors, many of whom had past ties to Riggio, to consider the adoption of a rights plan. The
board included Riggio in all of its discussions and deliberations, notwithstanding his unique
position as the company's largest shareholder and the chairman of its board. At that meeting,
Riggio indicated that he believed that if left unchecked, Yucaipa would increase its holding to
more than 20 percent and launch a proxy contest for board seats at the next election of Barnes &
Noble's directors, either by itself or with others. The board ultimately decided to adopt a rights
plan with a 20 percent triggering threshold. Riggio's holdings were grandfathered from the
operation of the plan, but the plan prohibited him from further increasing his stake.
Corporate Governance Failure Issue raised by the Yucaipa are:
Failure in fiduciary duties of the board of director.
No strong and independent element on the Board which is able to exercise objective
judgment on corporate affairs independently from management and substantial
shareholders.
There should be a formal and transparent process for the appointment of new directors to
the Board.
From Exhibit 4 its seem compensation committee is not consist of independent director
which is too.
3. What options are open to Riggio? How should he respond?
Option open to Riggio are:
Firstly:
He can defend the poison pill in court paper as the company board, reasonably fearing a hostile
attack and so after legal advice they set up poison pill after realizing how buckle had bought up
almost 18 percent of the stock and his previous acquisition history and by Unocal law of
Delaware court (In unocal law, the Court held that a board of directors may only try to prevent a
take-over where it can be shown that there was a threat to corporate policy and the defensive
measure adopted was proportional and reasonable given the nature of the threat) the decision of
court may go in favor of Riggio.
Secondly:
In coming meeting with stockholders, he has to convince them and communicate his decision to
them and if any concern arises from their side, he should take that in consideration which will
increase the trust of stockholder in the company. Also he has to start working on the genuine
issues related to their corporate governance like No independent director and decision of
acquiring BN college store is not justifiable, so Riggio have to work upon the corporate
governance issue and work in the best interest of the shareholders.
These are the listed corporate governance issues on which he have to work:
No strong and independent element on the Board which is able to exercise objective
judgment on corporate affairs independently from management and substantial
shareholders.
There should be a formal and transparent process for the appointment of new directors to
the Board.
From Exhibit 4 its seem compensation committee is not consist of independent director
which is to be for good corporate governance.
He can up hold with the option first and start working on option second which increase the trust
of the shareholder in his company and at the time of non-confidence motion if arises they vote
in his favor.