As any good cowboy can tell you, it doesn’t matter if you get bucked off, the name of the game is getting back on the horse that threw you. This is exactly the opportunity currently presented to Roaring Blue Lion in its squabble with Homestreet (Nasdaq:HMST). While I have been pretty critical of Roaring Blue Lion’s attempts at a proxy contest at Homestreet, I think there is a chance for Roaring Blue Lion to salvage its broader campaign. With respect to the proxy contest, I just don’t think Homstreet’s issues will be solved by adding two new directors. Unlike Roaring Blue Lion, I think the best answer for Homestreet is not to work harder at transforming from a mortgage dominated institution to one more focused on commercial lending, but something much simpler and easy to execute: sell.
Nevertheless, I like seeing a little drama in the banking world, so I was disappointed (though not terribly surprised) to see that Roaring Blue Lion’s recent appeal to the courts was stymied. For anyone interested, Roaring Blue Lion’s putative director nominees had, with respect to their director nomination forms, among other things, violated one of the cardinal rules of all unprepared test takers: don’t leave anything blank. Without getting further into the details, it appears that Roaring Blue Lion’s proxy fight is stillborn.
Despite this not-unexpected setback, Roaring Blue Lion still has an opportunity to make its case to HomeStreet stockholders--one that I like a little better than a proxy contest--a withhold the vote campaign. At its essence, Roaring Blue Lion’s complaint with HomeStreet seems to be that they just don’t think that management has been doing a good job running the company. I personally don’t really see how electing two directors, who may or may not have the type of experience one would think is necessary to address the business issues at Homestreet, actually creates any value or augurs any likelihood of meaningful change—it seems more an indictment of the record of HomeStreet’s board and management in operating the business and an expression of no confidence in their ability to do so in the future. If that is the case, a withhold the vote campaign, if thoughtfully run, would have essentially the same impact as a proxy contest, but without all those confusing rules and forms.
As a tactical matter, Roaring Blue Lion should combine a withhold the vote campaign with a campaign urging Homestreet to adopt a director resignation policy. Director resignation policies have been widely adopted and are a cornerstone of good corporate governance for many stockholder advocacy groups, so this measure—to the extent not already included in Homestreet’s charter or by-laws—should receive widespread support.