An activist shareholder battling with iRobot’s management just won a big victory in his campaign to get on iRobot’s board: an endorsement from an influential shareholder advisory firm.
Institutional Shareholder Services this week endorsed Red Mountain Capital’s slate of two candidates for the iRobot board of directors, picking them over management’s choice. The investor advisory firm also chided iRobot in a report about the fight, accusing the Bedford company and its board of not taking key steps to improve corporate governance until Red Mountain started agitating for changes last year.
The report could influence shareholders as iRobot -- led by CEO and cofounder Colin Angle and independent director Deborah Ellinger -- and Red Mountain -- led by founder Will Mesdag -- court votes for their respective slates. The election will conclude at the company’s annual meeting on May 25.
The ISS report underscores an ongoing theme in the fight: iRobot’s management considers the maker of the Roomba and other vacuuming robots to be more of a high-tech company, while Red Mountain and ISS argue that iRobot should be treated more like a high-end consumer products business.
Ben Branch, finance professor at UMass Amherst’s Isenberg School of Management, said most individual investors don’t usually rely on ISS for guidance. But the company’s input is often important for mutual fund and pension fund managers when they’re weighing how to vote in a proxy contest. “If you were an institutional investor, and want to have some comfort, voting the way [ISS] recommended is a way of getting that comfort,’’ Branch said.
ISS wrote that iRobot shareholders would benefit from a board that’s more attentive to issues of “cost management and capital allocation.’’ ISS said it’s supporting former Clorox chief operating officer Larry Peiros for his consumer products experience, and Mesdag for his “dogged advocacy’’ on behalf of iRobot’s shareholders.
Peiros and Mesdag are up against two management-backed candidates: Carbonite chief executive Mohamad Ali and Silver Spring Networks chief executive Michael Bell. Both joined the board within the past year and are up for election this month.
The report also endorsed getting rid of staggered elections of board members. After initially resisting it, the company’s board is moving ahead with those plans following a shareholder vote pushing for that change last year. The move will eventually mean that director seats come up for a vote annually.
Red Mountain first invested in iRobot last year. The Los Angeles investment firm is now iRobot’s third-largest shareholder, with a 6.5 percent stake. Almost from the outset, Mesdag has been agitating for changes. He claims frustration with the long-term performance of iRobot’s stock since it went public in 2005 because the shares have lagged considerably behind the Nasdaq composite index’s performance over that time.
Mesdag argues that the company can be run more efficiently. But iRobot executives worry that Mesdag wants to gut the company’s research and development operations.
That fear was again evident in iRobot’s response on Tuesday to the ISS report: “We believe long-term shareholder value would be put at risk if iRobot were to substantially cut R&D spending, as suggested by ISS and Red Mountain.’’
The company has already made one major change to its operations by selling its military robot business. Mesdag had pushed to sell the business for months. While iRobot announced the sale in February, the company argues that the plan was in the works since well before Mesdag showed up.
Charles Elson, a finance professor at the University of Delaware who specializes in corporate governance, said it can be challenging for a founder to balance the needs of shareholders with his or her personal vision for a company after it becomes publicly traded.
“It’s very hard,’’ Elson said. “It’s your creation. But that’s the price for taking on public capital.’’
Jon Chesto can be reached at jon.chesto@globe.com. Follow him on Twitter @jonchesto.
