Autodesk must explain erroneous financial information: Activist Starboard Value

Activist investor Starboard Value sent a letter Tuesday to from Autodesk board of directors, demanding that the company explain to shareholders who and what was behind an internal financial probe that triggered federal investigations and revealed deliberate misrepresentation of key financial metrics.

The activist investor wrote in his letter that there had been “no consequences or accountability for those involved in this deliberate deception of shareholders.”

Starboard Managing Member Jeff Smith wrote that it was “madness” that the company failed to explain which executives were behind the financial misrepresentations, forcing Autodesk to delay its annual report more than a month after the conclusion of the investigation.

Autodesk’s internal investigation found that executives changed course following a high-profile change in how the company would bill its customers after realizing that Autodesk would not meet its free cash flow target for 2023. The internal investigation led to the reassignment of its CFO and prompted investigations from financial regulators and the Justice Department.

Starboard believes the company hasn’t done enough to address shareholder concerns about the investigation, news of which sent Autodesk shares down 20 percent, and that executives other than its sole CFO Autodesk were involved in efforts to deceive investors.

The activist, who owns a more than $500 million stake in Autodesk, sent the letter after a Delaware judge blocked him from delaying the software company’s annual meeting and holding a proxy fight.

Autodesk said in a statement that the company remains open to shareholder feedback and that its board is “focused on holding management accountable for performance.”

“We find it almost impossible to believe that there were not more members of management, and potentially the board, who were aware of these issues,” Smith wrote in the letter, adding that he believed that either Autodesk executives must have deliberately concealed the billing cancellation from the board of directors, or the Autodesk board of directors had been informed of the changes in plans.

“If the board cannot trust an executive, that person should no longer remain employed by the company,” an apparent reference to former CFO Debbie Clifford, who was moved to the new role of CFO strategy when the findings of the investigation were announced.

“If, on the other hand, management was transparent with the board and at least some board members knew of this misleading disclosure at the time it occurred,” Starboard wrote that those members of the board should “resign immediately”.

Starboard also believes that Autodesk is spending too much on sales and marketing compared to its peers, and that real operating margin improvement would boost investor confidence and reduce the company’s discount to its peers. The activist wrote that he had received “overwhelmingly positive feedback” from other investors frustrated with Autodesk’s perceived “poor corporate governance.”

“We strongly urge the board to be transparent with shareholders regarding the wrongdoings that have taken place, including disclosing all those responsible, and to ensure that changes are made to restore shareholder confidence,” he said. writes Smith.