Box’s proxy fight shows an unattractive side of the Valley

An ongoing battle with investor Starboard Value is indicative of the incessant demand for growth and profitability


Activist investor Starboard Value this week stepped up its harrying of cloud content management firm Box by advocating four candidates to sit on the company’s board. The move adds to pressure on Box after co-founder and CEO Aaron Levie stood down from his chairman position earlier this year and now sees even his presence on the board challenged. The scenario provides yet another illustration of the complexities of life on the public markets.

Starboard, known for its attempts to increase the worth of what it sees as “deeply undervalued” companies, took a position in Box two years ago and remains unhappy about the company’s performance. Most recently its ire has been drawn by what it perceives as its failure to capitalise on the shift, accelerated by Covid-19, to working from home. This is a market change that appears to operate in favour of companies like Box that use the cloud as a flexible way to store and collaborate on files.

In a letter to Box shareholders it posted on its website, Peter Feld, managing member of Starboard, wrote:

“Our investment thesis focused on a clear opportunity to drive profitable growth, improved capital allocation, and enhanced governance in order to address the significant valuation gap between Box and its closest peers. Unfortunately, despite repeated promises by management and the Board to address these issues over the past two years and to create shareholder value, performance has not sufficiently improved and Box is still deeply undervalued versus its peers. In fact, the valuation gap has further widened during this time.”

Its Box board candidates comprise: former Intel chief marketing officer Deborah Conrad; John McCormack the one-time CEO of security firm Websense; American Virtual Cloud Technologies CEO Xavier Williams and Feld himself. They add to three previous Starboard-approved board appointments that were elected last year. In another move to appease Starboard, Box also last year created an operating committee to identify opportunities to add revenue and profitability.

Box replied with a press release outlining recent profitable growth and new governance controls, lamenting that “Starboard’s statements do not accurately depict the progress Box has made”. 

In May this year, Box announced a $500m injection of capital from investment giant KKR but this also has not gone down well with Starboard.

“To make matters worse, the Company has made several poor capital allocation decisions, including its recent entry into a financing transaction that we believe serves no business purpose and was done in the face of a potential election contest with Starboard at the 2021 Annual Meeting of Stockholders… in order to ‘buy the vote’ and dilute the voice of common stockholders,” Feld wrote in his open letter.

In April, before the KKR announcement, Reuters suggested that Box was in sale talks. The company has worked closely with larger companies such as IBM and Microsoft in the past while other competitors in the space such as Google and Citrix, a former suitor, could also be interested in acquiring Box. Further afield, enterprise software giants such as Oracle and Adobe or content management veteran Open Text have been mentioned in dispatches. However, the KKR move may point to the company preferring to remain independent and affords a level of protection against Starboard.

Proxy fights such as this are unattractive but fairly common sights in the technology sector where demands for rapid growth and returns on investment are the norm. But Box remains an impressive company in many ways: a pioneer in an attractive sector with a roster of blue-chip customers, a powerful brand and a product line that is boosted by the ongoing shift to cloud by corporate IT departments. With some of the world’s largest organisations for competition, you might think that the best thing would be for it to continue to grow under its current setup without undue interference. 

The messy situation is complicated by the fact that Levie has been a high-octane leader for the company, attracting bags of good press for his candid openness and quirky sense of humour, qualities all too rare in Silicon Valley these days. Any diminution of his role would surely lead to concerns among staff and customers and create a threat to the company’s long-term value.

Neither Box nor Starboard commented in time for this story.