Activist Investor Wants To Wash Narrow-Moat Bath & Body Works Board Structure Clean

On Dec. 8, New York-based hedge fund manager and activist investor Daniel Loeb of Third Point Management disclosed that his stake in narrow-moat Bath & Body Works, or BBW, had risen to 6%. In regulatory filings, Loeb expresses concern with how the board of directors has structured executive compensation, financial discipline, and investor communication. Specifically, Loeb complains that incentive-based pay to the firm’s executives fails to consider “important performance metrics” and recommends a refresh of the board. We suspect Loeb’s grievance may be with how BBW’s performance-based pay is partly linked to revenue growth relative to a designated peer group. In our view, while targets could be better refined to focus on long-term profitability (not revenue-based and relative to peers due to the focus on growth over profitability and ambiguity associated with defining a peer set), we see no existential issue with BBW’s overall governance. With respect to tenure, we believe the board is relatively fresh, with only two of its nine members having served for over five years.