by As DGB wins control of board, the work of change begins
DANBURY, Conn. — Much like the newly elected Democratic majorities in the U.S. House and Senate, Doug Bergeron and at least part of his slate of board nominees won their elections, which means now comes the challenge of governance.
In a proxy fight for control of Ethan Allen Interiors, Bergeron and his board nominees, Kristine Miller and Stephan Oblak, were victorious, according to preliminary voting results released early afternoon Wednesday. Shareholders also voted to return Maria Eugenia Casar and Tara Stacom to the boardroom. Not elected from DGB’s slate were Anna Brockway or Stefanie Tsen Ward.
If certified, these votes mean that the tenures of both Farooq Kathwari, chairman and CEO, and independent board director David Sable will be coming to an end. Kathwari’s last day could come on June 30 next year, when his contract expires, according to an 8K Ethan Allen filed Wednesday. It could also come a lot sooner. Bergeron, reacting to the board wins Wednesday in a press release, seemed to offer Kathwari a peace offering or fig leaf.
“We look forward to working constructively with our fellow directors to create lasting value at this iconic American brand,” Bergeron stated. “We will also work with Mr. Kathwari to ensure an orderly transition for Ethan Allen’s employees, customers and partners. We recognize and appreciate his decades of service to the Company and the role he has played in building Ethan Allen into the brand it is today.”
In September, Bergeron described the possibility of a special adviser role for Kathwari, but Kathwari has neither accepted nor commented on the possibility, at least not yet.
Replacing Kathwari could be Stefanie Tsen Ward, who Bergeron identified as the intended interim CEO were he and his slate of nominees to win the proxy fight. With three seats, the Bergeron bloc has a majority. But, Ward was one of the two Bergeron nominees who did not win a board seat.
Ward most recently was chief integrated retail and customer officer at Neiman Marcus.
The proxy fight kicked off on Aug. 5 when Bergeron nominated his alternative slate and began campaigning for a leadership change. He argued that the changes he proposed could triple shareholder value within three years.
Controversially, Kathwari withheld first-quarter results until after the elections. With the votes concluded, those results now are expected Monday. On news of the leadership changes, Ethan Allen’s stock price climbed $1.12 to $21.38 by the closing bell on Wednesday, a 5.5% increase.
“We will bring a high level of energy and determination to the boardroom, and we expect to be judged by our results,” Bergeron stated Wednesday afternoon, addressing Ethan Allen employees. “We are ready to get to work.”
Let’s go to court
To dramatize the chief points each side made during what seemed like a heavyweight fight, a punchfest that lasted from Aug. 5 up to the votes on Wednesday, let’s envision a court case that pits the plaintiff, Doug Bergeron, against the defendant, the EA Board, a case centered on the economic “crime” of “melting like an ice cube.” This is the description Bergeron used on Aug. 5 to describe the shrinking retail presence, style leadership and, perhaps most importantly, sales volume of the company in launching his campaign to sweep out leadership.
Presented here are only the hypothetical closing arguments before the jury of Ethan Allen shareholders. This is purely a dramatization; no one was or is actually on trial. Here goes:
IN THE COURT OF SHAREHOLDER OPINION, the Annual Meeting of Stockholders, Ethan Allen, Nov. 4, 2026
COUNSEL FOR DGB: Members of the jury, thank you for your patience. The defense has shown you a beautiful piece of furniture. Hand-finished. Dovetailed joints. Made in Vermont. And we agree. It is beautiful. Our client said so on national TV. But this case was never about the chair. It is about the fact that fewer and fewer people walk into the store to sit in the beautiful chair. And it is about who kept the door locked.
Count One: The company has been shrinking for 20 years
In fiscal 2006, Ethan Allen sold $1.1 billion of furniture. That was the high-water mark, and it never came back. Today, revenue is $579 million, down 46%. Gross profit is down 34%. Operating income is down 68%. Enterprise value is down 70%. The workforce has been cut nearly in half. Now, the defense will tell you the whole industry suffered. So, look at the people who sell to the same customer. Over the same 20 years, Williams-Sonoma grew from $3.7 billion to $7.8 billion; RH grew from $713 million to $3.4 billion, nearly five times; and Arhaus nearly tripled from 2019 to today. They all faced the same tariffs, the same housing market, the same economy. The industry did not shrink. Ethan Allen did.
Fiscal 2026 sales fell another 5.7%, while written orders fell nearly 11%. That makes 15 straight quarters of year-over-year sales declines. The CFO admitted on the July earnings call that falling sales are de-leveraging fixed costs and squeezing margins. This is the sound of the ice cube melting. A company with factories, distribution centers and design centers cannot shrink its way back to health. Those costs stay put while the revenue drains out from under them. This company survived one 46% decline. It will not survive another.
The market has noticed. Investors once paid about 12 times EBITDA for this business; this was in 2011. They paid about 9.5 times in 2016. Today they pay about six times. Total shareholder return has trailed the broader market by 149 percentage points since October 2015. Over 20 years, the small-cap index returned 403%. Ethan Allen returned 44%. Over the past three years, the index rose 45%. Ethan Allen fell 17%.
Count Two: They boarded up the front door
The defense’s own letter calls digital “the front door” to this business. Roughly three in four furniture purchases now begin online. Ethan Allen has the lowest website traffic of any premium peer, about 420,000 monthly visits. Bassett, a company half its size, draws more. Premium peers get 25% to 37% of their traffic from paid search and social. Ethan Allen gets less than 20%. In 2022, the company reported that e-commerce was still under 5% of sales. Then it simply stopped reporting the number. When a company stops showing you the scoreboard, you have to ask yourself why.
In its latest annual report filed this September, management warned that a shift toward online buying “could have a materially adverse impact” on sales. Members of the jury, that is a sentence written by people who see the future as a threat. And when written orders collapsed in the fourth quarter? Marketing spending dropped as a share of sales.
Count Three: The money was there, and they gave it away
This is not a company that lacked the means to grow. It had $188 million in cash and investments and no debt on June 30. That is a war chest. Brand building, customer acquisition, store modernization and digital: These are compounding investments. Ethan Allen’s move? This board declared a $3 per share special dividend with a price tag of about $76 million. You do not sell the seed corn in a drought and call it discipline.
Count Four: You have heard this story before
In 2015, another shareholder, Sandell, ran a proxy contest at this very company. The board asked you to trust it, promising that from fiscal 2017 the company would enter “an accelerated growth phase, towards sales of $1 billion.” You believed them. Ten years later, sales are not $1 billion; they are $579 million. Here we stand again, and the defense has said again that they are “singularly focused on enhancing the value of your investment.”
Count Five: One man’s throne
Mr. Kathwari has been chairman and CEO since 1988. Thirty-eight years. He is 82. The board’s own rules say no director should be nominated after his 77th birthday. They have waived that rule for him every year since 2021. In August, Mr. Kathwari told Bloomberg that the board had never raised the issue with him. The board launched a formal CEO search only after we launched ours. That is a fire drill held after the smoke alarm goes off.
Count Six: Secrets
In 2013, Cynthia Ekberg Tsai was sued while she was CEO of Viropro. The suit alleged she diverted company money to personal expenses and to her affiliates. Viropro’s shareholders removed her as a director in 2014, and she was fired as CEO “for cause.” In 2015, a New York court found her guilty of spoliation and civil contempt for destroying evidence, called her conduct grossly negligent, and ruled that a jury could assume the destroyed emails would have shown fraud. This board made her chair of the Audit Committee, guarding your financial statements for four years. Today, she chairs the committee running the CEO search. And the company never disclosed any of these charges. Would you hand the keys to the evidence locker to someone a court sanctioned for destroying evidence? And then not mention it to anyone?
So, what do we offer instead? Not a wrecking ball, but rather a team built for the exact problem in front of you; a 100-day plan to stabilize every function, establish the facts, act on the highest-confidence moves, set owners and metrics for every initiative, and give the board full access to define the mandate for a permanent CEO.
Members of the jury, the defense will tell you that change is risky. It is. But, the safe choice is not to stand still. We have shown you, beyond a reasonable doubt, 20 years of decline, a front door left boarded, cash handed out instead of invested, a promise broken, a throne protected by contract, and a board that answered only when it was challenged. Thank you.
COUNSEL FOR THE BOARD: Members of the jury, a melting ice cube? It is a vivid picture. But ice cubes do not make money. Ice cubes do not carry zero debt. And ice cubes do not pay $768 million in dividends to their owners. Let’s look at the evidence.
Exhibit A: The house has good bones
When you buy a house, you look past the paint. You check the foundation, the beams, the roof. Gross margin has stayed above 59% for five straight years, and it rose to 61% last year. Operating margin over five years has averaged 13%, more than double the average of our proxy peers. Last year, the company earned $45 million in operating income and generated $53 million in operating cash. It has no debt. Total liquidity was $309 million on June 30. Cash and investments grew an average of 12% a year over five years.
On Aug. 7, on television, the prosecution’s own client said the business is fundamentally very strong, the products are great and domestic manufacturing is an advantage with tariffs. We agree. That advantage was no accident. While competitors moved their factories overseas, this company chose to keep making about 75% of its custom furniture in North America. Today, while importers pay tariffs and wait on ships, Ethan Allen builds to order at home. It has no capacity constraint and can grow without building a single new plant.
Now look around the industry. A long list of furniture companies have closed, restructured or gone bankrupt in the past decade. Even luxury retailers have failed. Neiman Marcus filed for Chapter 11 in 2020, and you may remember where the prosecution’s proposed CEO was working then. Ethan Allen, meanwhile, stayed profitable and debt-free.
Exhibit B: The prosecution’s numbers, read correctly
The prosecution’s favorite chart compares a $579 million custom-furniture maker with Williams-Sonoma and RH. That is like grading a master cabinetmaker against a big-box chain. Next, look at why revenue fell. Lower sales to the U.S. State Department alone explain 33% of the decline in fiscal 2025 and 55% in fiscal 2026. Lower sales to China and to outside dealers explain another 11%. Together, about two-thirds of last year’s decline came from government and wholesale channels that most of the prosecution’s peers do not have. That is not a front door left boarded; it is a side door that the government closed.
Over five years, Ethan Allen returned 49% to shareholders. The median proxy peer lost 43%. Over 10 years, Ethan Allen returned 30% against a peer median of 20%. Against our closest retail peers, Havertys, La-Z-Boy, RH and Bassett, Ethan Allen beat every single one over five years.
Exhibit C: The company did not stand still
The prosecution talks as if this company froze in 2015. Average order value rose from $4,635 in fiscal 2023 to $5,353 in fiscal 2026. Order value per design-center visit rose from $1,274 to $1,619. The close ratio, the share of visitors who buy, hit all-time highs in each of the past two years. Customers who work with a designer spend three to five times as much.
That last point is why the website-traffic argument misses. Ethan Allen is a tailor, not a rack of off-the-peg suits. You don’t judge a tailor by how many people window-shop. You judge him by how many walk out fitted. Digital here is the front door to a designer: online appointments, live chat, 3D room planning, augmented reality, Salesforce, a clienteling app, and now Data Cloud and Tableau tied to the point of sale.
And the growth plan is already in motion. Four new design centers opened in fiscal 2025 and four more in 2026. Five more are planned for fiscal 2027, plus two or three abroad, each expected to bring in $3 million to $4 million a year once mature. Marketing rose 10% last year and is projected to rise another 15%. Designers are being trained to double home consultations from about six a month to 12.
Exhibit D: The dividend was a habit, not a ploy
This company has paid an annual dividend every year since 1996, and a special dividend every year since 2021. On July 28, a week before DGB nominated anyone, the board declared a $0.25 special dividend. The $3.00 special dividend followed a year with positive operating cash flow in every quarter. After paying it, the company still holds about $85 million, plenty for $12 million to $14 million of planned capital spending.
Exhibit E: The succession is already underway
Succession has been on the board’s agenda for years, and it pre-dates this campaign. The independent directors met five times last year in executive session, without management in the room. On Aug. 7, Mr. Kathwari was talking about his age and his ability to lead, not about whether the board had discussed succession.
A committee of all four independent directors is running the search with a nationally recognized firm. It is considering internal and external candidates. The next CEO will be named no later than June 30, 2027, when Mr. Kathwari’s contract ends. The roles of chairman and CEO will be separated. Mr. Kathwari will stay on as a non-executive director only until the 2027 annual meeting, and then he leaves the board. Three of our four independent directors joined in the past five years. That is a handoff with a finish line.
Exhibit F: Where’s the beef?
Now look closely at the alternative. The prosecution asks you to fire every director, then install an interim CEO. Then search for a permanent CEO. That is two changes of command on top of a complete board reset.
Where is the blueprint? DGB’s Sept. 22 letter lists three broad priorities, but no revenue target, no profit target, no capital plan, no margin guardrails, no timetable and no milestones. It says the company could triple shareholder value in three years, but leaves out how much cash that would take, what it would earn, and what happens if it fails. Their nominees are running their own CEO search from outside the building, with no access to management assessments or non-public data.
When Mr. Bergeron was CEO of VeriFone, the company restated three quarters of its fiscal 2007 results. The SEC alleged operating income had been overstated by 129%. VeriFone settled without admitting or denying it. The stock fell 46% in a single day. Shareholder litigation ended in a $95 million settlement, approved in 2014, though VeriFone denied the fraud claims. Is this unfair to bring up? The prosecution reached back more than a decade to a lawsuit at another company to attack Ms. Tsai.
Members of the jury, nobody in this courtroom thinks the past 20 years were perfect. But, the question on your ballot is not, “Was the past perfect?” It is, “Who should choose the next CEO and guide this company through the handoff?” On one side, a profitable, debt-free craftsman with a CEO search already underway, a date certain, separated roles, and a retiring chairman who will leave the board. On the other, two handovers, a complete teardown, no published capital plan, and a leader whose own record raises the very questions he asks you to ignore. You do not tear down a house with good bones because the paint has faded. You repaint it, and you choose the next owner carefully.
