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Starboard Push for Box Board Nominees Falls Short

·3 min read

(Bloomberg) -- Starboard Value’s efforts to revamp Box Inc.’s board fell short Thursday with shareholders in the software company electing three incumbent directors instead of the activist investor’s nominees.

The New York-based hedge fund had been seeking three seats on the board in an effort to improve Box’s performance and governance. Preliminary tallies show that investors rejected Starboard’s calls for change and supported management’s three nominees, including Chief Executive Officer Aaron Levie, the company said in a statement.

“Box appreciates the support and perspectives we have received from our stockholders throughout this process,” the company said. “The board and management team will remain focused on continuing to transform Box and executing Box’s strategy to grow profitably and deliver significant value to all Box stockholders.”

Starboard has been locked in a months-long battle with Box, arguing the company is underperforming peers and has made a series of questionable decisions, including a $500 million investment by private equity giant KKR & Co. Starboard has argued that financing was unnecessary and served no corporate purpose.

The activist fund said Thursday it was disappointed by the results of the vote, which it said was heavily skewed by the voting rights KKR received in the deal and the subsequent share buyback from shareholders who were likely to support its push for change at the company.

“The future of Box is in the board’s hands, and there is a significant amount of work left to be done. Many commitments have been made, and we hope that Box will finally be able to follow through on its promises to drive improved results, accountability, governance and compensation practices,” said Peter Feld, Starboard managing member, in a letter to shareholders, adding that the hedge fund will continue to monitor the company’s progress.

Shares fell 3.4% to $24.48 at 11:38 a.m. in New York, giving the company a market value of about $3.7 billion.

Starboard managed to win the support of some Box investors, including P. Schoenfeld Asset Management, which said the KKR financing was just the the latest example of the board exercising poor corporate governance.

Starboard also won partial support for its campaign from prominent proxy advisory firm Glass Lewis & Co., which urged investors to elect Feld to the board.

Another advisory firm, Institutional Shareholder Services Inc., also credited Starboard’s campaign for improvements at the company. Total shareholder returns have been more than 70% since Starboard first disclosed its stake in Box in September 2019. The company has also implemented other changes, including separating the CEO and chairman positions.

ISS argued, though, that additional Starboard presence on the board wasn’t warranted after the firm reached a settlement last year for two directors that it backed to be appointed. ISS urged investors to support two of management’s nominees, and to withhold their votes for lead director Dana Evan over the ongoing governance issues at the company.

(Updates with comments from company and Starboard beginning in the second paragraph.)

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