A second major proxy advisory firm on Tuesday issued a report recommending that investors support the incumbent board of Chico's (CHS) , another blow to activist investor Barington Capital Group's efforts to elect a minority slate of two dissident director candidates and to drive a sale of the business.

Glass Lewis said in a report obtained by The Deal that the activist fund "failed to establish a sufficient case" to support the election of its nominees. The proxy advisory firm said Chico's has made positive changes with its strategy, management, operations, financial discipline and it has a new CEO and recently refreshed board, all of which has led it to recommend that investors back the incumbent board.

The recommendation was the second piece of bad news for Barington and its founder, Jim Mitarotonda, in recent days after the other major proxy advisory firm, Institutional Shareholder Services Inc. over the weekend also recommended that shareholders should back the incumbent slate. ISS said that Barington didn't make a compelling case for additional change at the board level or that Chico's management-backed candidates are "likely the best" at driving improvement in the company's performance.

The recommendations come as the proxy fight and annual meeting is set for July 21. Chico's share price is up 2% in afternoon trading and trades at $11.82 a share.

Many institutional investors, particularly those that don't have the resources to research their own decisions, are heavily influenced by ISS and Glass Lewis recommendations when deciding how to vote on proxy fights.

Barington, which has a 1.4% stake, has argued that Chico's has "substantial corporate overhead" and advertising costs. It wants to have Chico's decentralize its corporate headquarters and give each of its three brands, Chico's, Soma and White House Black Market, more autonomy. Barington also believes its plan would reduce the company's selling, general and administrative costs by $100 million.

However, both Glass Lewis and ISS contend that Chico's appears to be doing enough to reduce costs. ISS noted that Chico's has "announced initiatives to address escalating expenses, beginning in February 2015 with the announcement that it would close stores." And Glass Lewis noted that Chico's has a "comprehensive plan and cost-cutting measures" in place.

At the center of the battle is Barington's assertion that one of Chico's nominees, Bonnie Brooks, is deeply conflicted because of her position as non-executive vice chairwoman at Hudson Bay Co. (HBC) , the operator of Saks Fifth Avenue and Lord & Taylor department stores. As a Chico's director, Barington asserted, Brooks is conflicted because of she works at a direct competitor of the women's clothing company. Both sides have issued studies to back their case, with Barington even producing images to show that Chico's, Saks and Lord & Taylor offer similar clothing at stores that often are near to each other. Brooks announced last week, possibly under pressure from the activist campaign, to resign from Hudson Bay Co. on Dec. 31.

Glass Lewis argued that Hudson Bay stores "do not compete in any practical sense with Chico's or its brands given their differing price points, geographic locations and customer demographics." In addition, the proxy adviser noted that Brooks' retirement from Hudson's Bay eliminates any "potential conflicts of interest" and that her experience in retail and merchandising "figures to fit well with Chico's current needs and management's new operating plan."

ISS suggested that her retirement "renders any potential conflict of interest moot." In addition, ISS said Brooks brings "significant current retail experience-including experience in mid-and high-end apparel-as well as successful turnaround experience at three retailers" to Chico's board. Nevertheless, Brooks, if elected, would still have senior roles at both Hudson Bay and Chico's for more than five months.

While Barington's campaign does not raise the specter of a sale, one proxy solicitor familiar with the situation contends that the activist fund may want to see it be acquired at some point.

He noted that the activist campaign comes in the wake of reports last year that private equity firm Sycamore Partners came close to acquiring Chico's but later canceled its effort over financing and valuation concerns.

However, Glass Lewis took issue with Chico's executive compensation plans and recommended that shareholders vote against the plans when it comes up in the retailer's annual non-binding "say on pay" vote at the annual meeting. The adviser said that there is a significant disconnect between the pay and the company's performance."

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