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The Cleaner

ISS in favor of Marathon Partners at Shutterfly

There's been a war of word (or letters if you will) between Shutterfly and its activist investor Marathon Partners of late. Here's the latest letter from Marathon [letter]. As for the news, ISS says vote for Marathon Partners' BLUE proxy card to elect two (of its three) Marathon Partners' nominees, Mario Cibelli and Tom Hughes.

ISS cited executive compensation and lack of responsiveness to shareholder concerns as its reason.

Here are some of ISS' thoughts: "It is unfortunate that any long-term shareholder has to initiate a proxy contest to fully raise these issues, much less resolve them: a well-functioning board, shareholders have to believe, would have addressed them long before a contest became necessary, else what is the point of electing a board to begin with? Instead, as the evidence the dissidents have presented that years of poor stewardship by the incumbent board have led to an untenable situation in which the interests of shareholders collectively hold little sway in compensation, incentives, and strategy, it appears that significant change at the board level is warranted."

"There are several aspects of the board oversight that could be improved, particularly the areas relating to executive compensation and shareholder responsiveness. The board could also be improved by having a stronger shareholder voice, as many decisions of the current board appears to have too little regard for this perspective. Cibelli's significant holdings – approximately four times the aggregate ownership of the incumbent board, we reiterate – as well as his extensive knowledge as a long-term investor in the company and the sector, and his evident strength of conviction and willingness to challenge board actions which suboptimize shareholder interests, suggest that he may be a necessary addition to the board."

"Hughes' operational experience in photo merchandizing and manufacturing also appears particularly well-suited to this company's strategy and outlook. Hughes has launched two photo book companies in the past and has experience of the operation from both revenue generation and manufacturing and supply chain management perspectives. The dissident also believes that Hughes could step in an operational role at the company if needed, which may be a critical strength for the independent directors generally."

Here's what Mario Cibelli, Marathon founder, had to say: "ISS' strong showing of support for our nominees provides significant validation that changes to the composition of the Shutterfly Board are needed at this time to ensure that the best interests of shareholders are looked after at all times.  If elected, Marwan Fawaz, Tom Hughes, and I are firmly committed to working constructively with the other Board members and Shutterfly employees to achieve the best possible success for Shutterfly while representing the best interests of all shareholders."