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PHOTO: DAVID PAUL MORRIS/BLOOMBERG. ILLUSTRATION BY SAM ISLAND◼ SOLUTIONS Bloomberg Businessweek October 14, 2019Starboard’s move
followscriticismsofBox
bytwoshareholderadvi-
sory firms, Institutional
ShareholderServicesInc.
andGlassLewis& Co.ISS
recommended against
reelectingtwodirectorsto
theboardearlierthisyear,
inprotestagainstwhatit
seesascorporategover-
nanceshortcomings:Only
threedirectorsareputupforelectionatanyonetime,
andthere’sa highthresholdofshareholdersrequiredto
votetochangebylaws.GlassLewissaidSmithshouldn’t
beontheboard,whichnowhasninedirectors,arguinga
CFO’scontrolovercompanyfinancesmeanstheexecu-
tiveshouldreporttotheboard.Theboardstructureand
setofrulesaren’tunusualinSiliconValley.Boxplansto
addmoreindependentdirectorsovertime,saysa person
familiarwiththematterwhowasn’tauthorizedtospeak
publiclyabouttheplan.
Levie,34,onceoccupiedanenviableroleinSilicon
Valley.Hewastheupstartwhohadanideafora simple
digitalfile-sharingsystemandtookshotsatestablished
technologyplayerssuchasMicrosoftCorp.whosepro-
gramshadgrownstale.Leviedeliveredthismessage
onthebusiness-to-businesstechconferencecircuit,
wherehisenthusiasm,humor,andirreverencestoodout,
spurringBusinessInsidertocallhima wunderkindand
TechCrunchtosayhebrought“sexyback”toenterprise
tech.LeviefoundedBoxin 2005,joinedbyco-founders
Smith,JeffQueisser,andSamGhods.Queissernowhas
anengineeringroleatthecompany.Leviethenreached
outtobillionaireMarkCuban,whoagreedtobeaninves-
tor.TheydecidedtokeepBoxfocusedonservingother
companiesratherthanconsumers.Boxexperiencedfast
growthbutdidn’tdomuchtoconsiderwhatproducts
shouldcomenext.
TheyoungleadersranintotroublewhenBoxfirst
triedtopursueaninitialpublicofferingin2014.Some
investorsbalkedatthecompany’ssecuritiesfiling,which
showedthatBoxwasspendingmoremoneyonsales
andmarketingthanit wasgeneratinginrevenue.Wall
Street’sconcernsaboutLevieandSmith’slevelofexpe-
rienceswelled.TheIPOwasdelayedbyninemonths.
“Whenwewentpublic,it wasdefinitelyveryapparent
thatwewereearlyinourcareer,”Leviesays.“Thecon-
victionofourvisionsortagaveussomedegreeofmoral
authorityonwhyweshouldberunningit.”
Facinganotherchallenge,theexecutivessaythey’ve
gotthesameconfidenceintheirplan.Leviediscusses
whathe’slearnedaboutrunninghisbusinessathis
favorite Indian restaurant in Redwood City, where theEven in Silicon Valley, it’s tough to be the middle child.
Wedged between hot new startups and technology
giants, midcaps must prove their mettle when the pace
of growth dips and competition intensifies. Such is the
dilemmaofRedwoodCity,Calif.-basedBoxInc.,whose
revenuegrowthlagsthoseofitscloud-computing peers
andis slowing,compoundinginvestorconcernsthatthe
14-year-oldcompany has yet to turn a profit.
Chief Executive Officer Aaron Levie’s answer
hasbeentodiversifyBoxawayfromitsrootsasa
single-product file-sharing provider and position it in
the cloud content management market, with offerings
to help businesses secure data and automate workflows.
But he’s yet to show the strategy revamp is bearing fruit.
Box’s shares are down more than a quarter since its 2015
initial public offering. Shareholder advisory firms have
been raising concerns about the structure of the com-
pany’s board. And in the biggest blow to Levie yet, activ-
istinvestorStarboardValueLPdiscloseda 7.5%stakein
Box—calling the shares “undervalued” in a September fil-
ing and saying it could seek changes, including business
combinations, asset sales, and a board revamp.
Starboard’s entry could distract Box from dealing with
its problems, according to John Barrett, an analyst at
Morningstar Inc. “Sales execution remains the biggest
issue for the company,” he says, pointing to Box’s diffi-
culties delivering consistent revenue results. The com-
pany’ssaleshavebeengrowingmoreslowlythanits
consumer-focused file-sharing rival Dropbox Inc. While
two years younger than Box, Dropbox has more than
doubletherevenue:It boostedsalesby26%,toabout
$1.4billion,in thefiscalyearendedDec.31,withBox’srev-
enuerising20%,to$608million,in thefiscalyearended
Jan.31. Box forecasts sales growth of 14% this year.
For Levie and fellow co-founder Dylan Smith, Box’s
chief financial officer, Starboard’s involvement could lead
to existential repercussions if a battle ensues. The hedge
fund has successfully agitated for changes at a range
of companies, including EBay, Papa John’s International,
Symantec, and MGM Resorts International. Jeff Smith,
Starboard’s CEO, became chairman of Papa John’s in
February,andinAugust,thepizzamakersaidit would
replaceitschiefexecutiveafter 18 months on the job.
The Box executives have put on brave faces amid
early talks with Starboard. “We’re taking in a lot of their
feedback, spending more time with them, understand-
ing what their views are on the business, where do they
think that we should and can be performing better,” Levie
said on the sidelines of Box’s annual user conference,
BoxWorks, this month in San Francisco. “We actually
agree on most if not all of those dimensions around how
do we drive more operating leverage and profit in the
business while making sure that we’re still investing in
growth and continuing to put up healthy growth.”● Levie