ISS Says Support for Starboard Nominees at Box Unwarranted

(Bloomberg) -- Activist investor Starboard Value’s effort to revamp the board of Box Inc. was dealt a blow Monday with a prominent shareholder advisory firm urging investors not to support to its director nominees. 

Institutional Shareholder Services Inc. said investors should support two of the three nominees put forth by the company and withhold support for incumbent lead director Dana Evan due to her longstanding presence on the board and the lingering governance concerns at the software company. The firm said investors should support the re-election of Chief Executive Officer Aaron Levie and Peter Leav in a shareholder vote slated for Sept. 9. 

ISS said Starboard does deserve significant credit though for the changes that have been implemented at the company since its settlement with the company in March 2020 that included two board seats, and its renewed campaign this year. 

“However, in light of the operational and governance improvements shown since the settlement, the current board appears to deserve some additional time to implement the turnaround. As such, direct support for the dissident nominees does not appear warranted at this time,” it said in its report Monday. 

Box said in a statement it was pleased that ISS had recognized that the company today was not the same company it was two years ago. It urged investors to support all three of its nominees. 

“The current board has taken meaningful actions to accelerate the company’s growth strategy, improve its operational and financial results, and enhance its governance. As a result of these actions, Box is in the strongest financial position in its history and the positive momentum is continuing,” it said. 

A representative for Starboard wasn’t immediately available for comment. 

Starboard, which owns an 8.4% stake in Box, nominated three directors to the company’s board earlier this year, arguing the company had failed to deliver on its promises. In particular, Starboard has been critical of two equity financings it undertook earlier this year, including a $500 million investment from KKR & Co. in April, which Starboard has argued served no business purposes. 

ISS said some of Starboard’s concerns about the terms of the KKR financing “appear valid.” The $845 million combined capital raised between the two financings was a “head scratcher” for a company that already had $225 million in cash on hand, significant cash generation, and no history or stated strategy for mergers and acquisitions, it said. 

But the company has made headway relating to its underperformance prior to the March 2020 settlement with Starboard, ISS said. As such, it said it didn’t believe additional Starboard representation on the board was warranted. 

“Given the level of collaboration in the initial stages of the dissident’s involvement, it is unclear what incremental benefit the dissident’s presence on the board would impart at this stage. The nominees who joined the board as a result of the settlement appear credible, experienced, and engaged, and they have expressed conviction in the company’s strategy,” it said. 

Shares in Box rose 1% to $25.11 in New York at 1:09 p.m., giving the company a market value of $3.9 billion.

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