Activist investor Starboard Value says it will vote in favor of a slate of directors

A shareholder in Starboard Value has come forward saying they intend to vote in favor of a slate of directors put forth by activist investor Box Inc., citing ongoing governance concerns at the software company.

Box, which has an 8.6% stake in Starboard, has nominated three directors to the board. The New York-based hedge fund has raised numerous concerns about the company's performance and governance, including its board's decision to take a $500 million investment from private equity giant KKR Co. in April in exchange for preferred shares and a seat on the board in April 2016.

Starboard has argued the financing arrangement served no business purpose, and has noted that KKR subsequently syndicated 70% of the investment, reducing its direct investment to $150 million, well below Starboard's own stake.

Box Asset Management, which owns a 1% stake in P. Schoenfeld Asset ManagementSchoenfeld Asset Management, said it was concerned about the financing. Peter Schoenfeld, the company's chief executive officer, said issuing the preferred shares in front a proxy fight with no need for cash seemed to be 'naked parking of votes for management. He said that his firm would vote in favor of Starboard's slate of three directors as a result.

Schoenfeld says that 'The Box Board has consistently exercised poor corporate governance, in an email said Schoenfeld. He noted that the Board of Box remains staggered in addition to the questionable funding arrangement, which means three directors will stand as candidates for election at a scheduled meeting on September 9 instead of the entire board.

All this in the face of substantial continuing underperformance to peers - particularly in the NPSC. We think the company needs true shareholder representation on board, he said.

A representative of Starboard declined to comment. A representative for Box wasn't immediately available for comment.

Starboard faces an unwarranted battle after a prominent shareholder advisory firm, Institutional Shareholder Services Inc. stated this week that support for its nominees was unwarranted ISS credited Starboard's engagement for recent improvements at the company and said its concerns about the KKR deal 'appear valid. But it said it didn't believe additional Starboard representation was needed on the board after two new directors were added as part of a settlement with activist last year. ISS recommended shareholders support two of Box's three nominees and withhold support for incumbent director Dana Evan due to the ongoing governance issues.

Box delivered positive results on Wednesday boosting analyst expectations, which exceeded its earnings outlook for fiscal year 2022. John Marks, an analyst at JPMorgan Chase Co., said he view the improvements in Box with 'cautious optimism. He said some metrics, such as retention and revenue growth, should continue to improve under a combination of product offerings and favorable macroeconomic backdrop.

'However, we think investors have acquired some level of pattern recognition with Box's history of falling short of long-term targets and that they have not yet developed confidence in sustained improvement in key metrics, he said in a note to clients Thursday.

Another proxy advisory firm, Glass Lewis Co. urged investors to support the appointment of Starboard managing member Peter Feld.

The election of a direct shareholder representative would provide an immediate cross-check on Box's governance and financing architecture, and fresh perspective on Box's proposed effort to turn around years of poor performance and decidedly subpar shareholder returns, it said in a news report Friday.