Corporate governance services firm Institutional Shareholder Services Inc. released a report supporting the election of new board members at Qualstar Corp., a Simi Valley data storage and power products manufacturer.
A June 20 special meeting will have shareholders voting to remove the current five directors of Qualstar and vote in a dissident slate named by BKF Capital Group Inc., the second largest investor in the company.
BKF Capital, headquartered in Boca Raton, Fla., and its controlling shareholder Steven N. Bronson, said Qualstar management team has failed to increase profitability and drive up the stock price. BKF and Bronson together hold more than 2.1 million shares, or a 17.3 percent stake.
In its report, ISS said that BKF made a compelling argument favoring change in the board.
“Consistently declining negative financials and (total shareholder return) have led to a shareholder loss of confidence in the board,” the report stated. “On a balance sheet basis, the board has maintained a significant level of under-utilized cash and securities and has not attempted to redeploy it to generate shareholder value.”
ISS said its recommendation was based on the experience of the three dissident board nominees – Bronson, Edward Fred, and David Wolenski – in turning around financially troubled companies.
The report recognized the strong industry experience of Qualstar’s directors, it also faulted them for standing by as the company declined. “Each director has been in office for at least six years,” the report said. “Consequently, the incumbent directors, aside from (Lawrence) Firestone, oversaw the company's persistent decline over the last several years.”
Firestone became CEO of Qualstar on June 1, replacing William Gervais, a co-founder of Qualstar, who retired. Gervais is the largest shareholder in the company, with 27 percent of the shares.
The existing board made Firestone chief executive two weeks earlier than planned and announced a new corporate strategy that includes installing a global sales leadership and strengthening the sales force; targeted marketing and promotional efforts, including increased trade show presence, joint selling, and private labeling; enhancement of recurring revenue stream from the growing tape library installed base; and geographic diversification and expansion of target markets.
“The board believes that executing these strategies will enhance long term shareholder value and prove the value of the Qualstar franchise is best realized with the company intact,” the company said in a prepared statement.
Mark R. Madler