Hedge fund calls for Sotheby’s chief executive to ‘step down’
Sotheby’s says now is not the time to debate "baseless" comments
By Melanie Gerlis. Web only
Published online: 02 October 2013
Daniel Loeb, the chief executive and founder of the hedge fund Third Point, has become the largest shareholder in Sotheby’s and made public a stinging letter calling for the resignation of the auction house’s chairman and chief executive, Bill Ruprecht. A core issue raised is Sotheby’s lack of an online sales strategy, particularly in relation to its rival Christie’s.
Loeb, who upped Third Point’s stake in Sotheby's from 5.7% to 9.3% today, describes the company as “like an Old Master painting in desperate need of restoration” in a letter submitted to the US Securities and Exchange Commission. He says that Sotheby’s recent announcements concerning a review of its business and the hire of a new chief financial officer were “belated” efforts and that Third Point's management remains “troubled” by Sotheby’s “chronically weak operating margins and deteriorating competitive position relative to Christie’s”.
Later in the letter, Loeb says that Sotheby’s decision to focus only on high-end clients and works, and “shun the lower value lots”, enabled Christie’s to capture market share “by leveraging new technologies”. This, says Loeb, is “just one of many examples where a lack of leadership by a sleepy Board and overpaid executive team has resulted in missed new opportunities”. He writes: “our research suggests Sotheby’s crisis of leadership has created dysfunctional divisions and a fractured culture. There is a demoralising recognition among employees that Sotheby’s is not at the cutting edge—demonstrated by the Company’s inability to even develop a coherent plan for an internet sales strategy, much less implement one.”
Turning to Ruprecht personally, the letter talks of his “generous pay package” (his total compensation in 2012 was $6.3m), particularly relative to his own holding of Sotheby’s stock (0.22% of the business). Loeb writes that “a review of the company’s proxy statement reveals a perquisite package that invokes the long-gone era of imperial CEOs: a car allowance, coverage of tax planning costs, and reimbursement for membership fees and dues to elite country clubs.”
Also highlighted are “numerous anecdotes of waste” that Loeb says his company heard about “in the course of our investigation”. These include “a recent offsite meeting consisting of an extravagant lunch and dinner at a famous ‘farm-to-table’ New York area restaurant where Sotheby’s senior management feasted on organic delicacies and imbibed vintage wines at a cost to shareholders of multiple hundreds of thousands of dollars.”
While acknowledging that Ruprecht was an “able steward” following both the price-fixing scandal that engulfed both Sotheby’s and Christie’s in 2000, and through the global financial crisis in 2008, the letter calls for him to “step down from your positions as chairman, president and chief executive”, and for the roles of chairman and chief executive to be separated for his successor (this is recommended best practise in the UK). Loeb says he is “willing to join the board immediately” to “help recruit several new directors who have experience [in] increasing shareholder value, share a passion for art, understand technology and expanding geographic footprint.”
Ruprecht joined Sotheby’s in 1980 and has been its chief executive since 2000. A Sotheby’s statement says that “rather than debating incendiary and baseless comments, we are focused on serving our clients’ needs during this critical autumn sales season, including this week in Hong Kong, where our offerings are 77% higher than the same series last year—the highest estimate of any Sotheby’s sale in Asia.” The group says that it has produced “superior results—including a share price increase exceeding the Standard & Poor’s Midcap index over the one, five and ten year periods” and that its “comprehensive capital allocation review already underway demonstrates” its efforts to “optimise the balance sheet, improve the cost of capital and manage financial policies in a way that supports Sotheby’s strategy and delivers outstanding value to shareholders.” The auction house says that it will respond to the Third Point letter “at the appropriate time”.
In morning trading, Sotheby's shares remained flat at $49.93.
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