Arkansas Business

Under Pressure

Shareholders watched as Dillard's sales fell from $8.68 billion in 1999 to $6.1 billion in 2009. Dillard's managers "let this company languish," Davidowitz said.

But shareholders couldn't do much about the performance or about the leadership of CEO William Dillard II, whose late father founded the company in 1938. Dillard's operates under a dual-class stock structure that allows the Dillard family, as Class B shareholders, to elect eight of the 12 directors on the board. That makes it difficult for investors outside the company to effect change.

But they have tried. Activist shareholders, led by Barington Capital Group's James Mitarotonda, started a campaign to improve Dillard's and remove Dillard from the company in 2008.

The activists did score a victory when they placed four members on the board in May 2008. But the campaign to remove Dillard fizzled in 2009, when the activist shareholders sold their shares in the company.

Also in 2009, one of the new directors chosen by the activists left the board and was replaced by former U.S. Rep. J.C. Watts, R-Okla., who had previously sat on Dillard's board.

Other shareholders have filed lawsuits against the company accusing Dillard's directors of mismanagement and breach of fiduciary duty for allowing Dillard's to lag behind other retailers while paying above-average salaries to company executives.

In February, Pulaski County Circuit Court Judge Chris Piazza dismissed one lawsuit because the shareholder, Billy K. Berry, a retired pharmacist from Yell County, didn't complain to the Dillard's board of directors first. Berry has appealed that decision to the Arkansas Supreme Court.

Another shareholder, Steven Harben of Georgia, filed his derivative lawsuit in U.S. District Court in Little Rock in May 2009. That case is pending.

Davidowitz said last week that the pressure from the outside investors might have led to the changes at Dillard's.

Dreher, the analyst with Deutsche Bank, said the changes were being made behind the scene.