Autodesk must explain financial misreporting: Activist Starboard Value

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

The activist investor wrote in its letter that there had been “no consequences and no accountability for those involved in this purposeful misleading of shareholders.”

Starboard managing member Jeff Smith wrote that it was “lunacy” that the company had not explained which executives were behind the financial misrepresentation, which forced Autodesk to delay its annual reporting by more than a month after the probe concluded. 

Autodesk’s internal probe found that executives had reversed course on a well-publicized shift in how the company would charge its customers after those executives realized Autodesk would not meet its 2023 free cash flow target. The internal probe led to the reassignment of its chief financial officer and prompted inquiries from financial regulators and the Justice Department.

Starboard believes that the company has not done enough to address shareholder concerns around the probe, news of which sent Autodesk shares down 20%, and that more executives than just Autodesk’s CFO were involved in the effort to mislead investors. 

The activist, which has a more than $500 million stake in Autodesk, sent the letter after a Delaware judge prevented its effort to delay the software company’s annual meeting and mount a proxy fight.

Autodesk in a statement said the company remained open to shareholder input, and that its board was “focused on holding management accountable for performance.”

“We find it almost impossible to believe 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 believes either Autodesk executives must have deliberately withheld the billing reversal from the board, or Autodesk’s board had been made aware of the shifted plans.

“If the Board cannot trust an executive, that individual should no longer remain employed by the Company,” an apparent reference to former CFO Debbie Clifford, who was moved to a new role as chief strategy officer when the probe’s findings were announced.

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

Starboard also believes that Autodesk spends too much on sales and marketing compared with its peers, and that genuine improvements in operating margin would drive increased investor confidence and close the company’s discount to its peers. The activist wrote that it 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 misdeeds that took place, including disclosing all who were responsible, and to ensure that changes are made to rebuild shareholders’ trust and confidence,” Smith wrote.