Autodesk vs. Starboard: A Proxy Fight With Lessons For Every Boardroom

For the second time in 12 months, activist investor Starboard Value is challenging Autodesk for board seats. This comes after Autodesk resisted Starboard’s attempt to force changes on the board last year, and after the software-design maker appeared to make conciliatory changes to the board by adding two independent directors in December. Apparently, that move wasn’t enough, so Starboard has nominated three director candidates, including its CEO Jeff Smith, for Autodesk’s 13-member board in time for the company’s annual meeting.

As with most board challenges, stock price performance is a key issue in the dispute. Starboard contends that Autodesk is underperforming its peers in the market and needs to implement more cost cutting measures. For its part, Autodesk says that the strategy in place is working, and it has already made changes to the board that should help. Unfortunately, Autodesk’s share price is down 7 percent already this year, which has investors on edge.

Board members at other companies should take note of Autodesk’s situation because other activist investors are paying attention to how companies are performing in this very volatile market. Here are some observations from the proxy fight at Autodesk:

Get large investors on board with your plans for growth. In responding to Starboard’s claims that Autodesk is underperforming, the company did a good job releasing a press statement showing financial information that suggests strong growth. Unfortunately, boards can no longer assume that investors will agree that the growth the company thinks is good shouldn’t be better. Activists will always assert that they can achieve better performance. Boards may need to gain the confidence of the majority of its largest investors and get them to agree with the growth strategy of the board. While there are no guarantees, this can help if the board needs investors to back their position in a proxy fight.

Discuss how the board will potentially frame poor performance in volatile environments. Company losses in volatile environments will require an immediate response from the board. A mechanism to deal with investor unrest needs to be thought out and agreed upon before any such event occurs. How will the board communicate with investors and the financial markets? Which talking points will best assure investors that the business strategy is still viable? How is the company adjusting to and capitalizing on fluctuations in the markets? Demonstrating that things are under control in difficult markets will show the strengths of the directors on the board.

Stay vigilant against board challenges that can resurface at any time. Autodesk rebuffed Starboard’s attempt for board seats last year, but that didn’t stop the activist investor from coming back with a more serious attempt this year. Even changing two directors didn’t stop Starboard from seeking seats. Defending the performance of the board is a consistent challenge. Director’s seats are always at risk because part of the activist’s game plan is to obtain board seats, and gain influence on company strategy.