(Reuters) - Abercrombie & Fitch Co’s ANF.N board agreed to make governance changes to resolve a lawsuit objecting to its awarding longtime Chief Executive Officer Michael Jeffries more than $140 million of compensation since 2007.
The negotiated settlement, which requires court approval and includes no monetary payment to shareholders, was disclosed on Friday, less than an hour after the underlying lawsuit was filed in the U.S. District Court in Columbus, Ohio.
Abercrombie agreed to appoint a chief ethics and compliance officer, tie executive pay more closely to performance, bolster anti-corruption compliance training, and limit access to nonpublic data to Jeffries’ partner and other third parties, among other provisions, court papers show.
The accord would bind other shareholders with similar claims. It differs from most shareholder derivative litigation, in that settlements often occur months or years after lawsuits are filed. A Florida pension plan, the City of Plantation Police Officers’ Employees’ Retirement System, is the plaintiff.
“Many lawyers try to shoot first and ask questions later,” Mark Lebovitch, a partner at Bernstein, Litowitz, Berger & Grossmann representing the plaintiff, said in an interview. “The board deserves credit for recognizing the benefits that our settlement proposal would create for the company.”
Abercrombie directors denied wrongdoing in agreeing to settle. A spokesman for the New Albany, Ohio-based company had no immediate comment on Tuesday.
The changes came after Abercrombie had this year added seven new independent directors, including four to resolve a proxy battle with hedge fund Engaged Capital, and reduced Jeffries’ power by splitting the roles of chairman and chief executive.
Abercrombie has had 10 straight declines in quarterly same-store sales. It said on Aug. 28 it would reduce its logo-focused apparel business in North America to “practically nothing” while expanding other lines.
Jeffries’ pay was less than $140 million from 2008 to 2013, according to court papers, because some awards did not vest or were not granted.
In the court papers, Lebovitch said the plaintiff chose an “atypical strategy” of negotiating changes quietly, rather than risk a long court battle with Abercrombie’s “famously aggressive counsel” at Skadden, Arps, Slate, Meagher & Flom.
He also said the settlement was not collusive, and that courts in the federal circuit that includes Columbus have encouraged settlements in comparable cases.
“I don’t see the incentive to settle as being any different before or after a lawsuit is actually filed,” said Robert Daines, a professor at Stanford Law School and co-director of its Rock Center for Corporate Governance.
The plaintiff’s lawyers could receive up to $2.78 million in fees and expenses if the settlement were approved.
“We think the benefits are more significant than in virtually any derivative settlement you will find, and could justify a much larger award,” Lebovitch said.
The case is City of Plantation Police Officers’ Employees’ Retirement System v. Jefferies et al, U.S. District Court, Southern District of Ohio, No. 14-01380.
Reporting by Jonathan Stempel in New York; Editing by Tom Brown