In any size, Salesforce CEO Marc Benioff has been a successful driver. He helped build Salesforce from the ground up, starting in a San Francisco apartment in 1999 and eventually Salesforce Tower, the tallest building in the city. He took the idea of running software in the cloud and developed it into the de facto way to deliver software at a time when most companies offered software in boxes or on-prem seat licenses.
There’s no denying that he’s helped transform the way software is bought and sold. But he’s under close scrutiny now: Not one but two activist investors have recently taken large positions in Salesforce, meaning his decisions could be challenged on everything from acquisitions to budget allocations.
For starters, Starboard Value announced in October that it would be taking a significant (but undisclosed) stake in Salesforce. Then, this week, Elliott Management announced it would take a multibillion dollar position in the CRM leader.
Both firms usually have strong opinions about what they believe should be fixed at a company – and they usually get what they want. In this case, they probably want a more profitable, less expensive Salesforce. This may include cutting executive salaries, reducing overheads, laying off additional people, and selling unprofitable parts of the organization. The activist investors are also likely to seek board seats.
Salesforce has already begun budget cuts, announcing earlier this month that it would lay off 10% of its workforce. It plans to also reduce property costs while lowering total operating costs and increasing efficiency, but it may not be enough in the eyes of the new investors.
Looking at the moves Salesforce has made over the past five years, there’s certainly room for criticism over the huge amounts of money spent on acquisitions and how successfully acquired assets have been integrated and allocated. It’s possible that Elliott and Starboard were watching from afar, waiting for the company to weaken enough to question some of those decisions.
With Salesforce’s share price down 29% over the past year and growth slowing, these companies may have seen the moment and made the move. What does this mean for Salesforce and Benioff going forward? Let’s explore further.
We can fix it
When activist investors come along, they usually make a list of desired changes and push for board seats to ensure those changes are implemented.
But that doesn’t necessarily have to sound hostile right away. A CEO who has experienced a battle with activists told me that the goal in the beginning is to find common ground rather than take a combative stance with the activists.
“It’s not exactly about defence. That’s what the industry calls it, but it’s much more about understanding what your shareholders are pushing for and why they’re pushing for these things. And are they right? And do you align with the time frame where they want a certain number of things versus maybe the long-term vision the company has? said the director, asking for anonymity to speak candidly with businessroundups.org in the background.
It is very much a political exercise, and Benioff will have to read the pulse of other major investors to see how this all aligns. “I think the really important blocking and tackling process like this is you have to be extremely close to your top 20 to 30 to 50 shareholders, and you have to understand what is top of mind for them,” the CEO said.
All this information will play a role in Benioff’s strategy. If there are many shareholders who agree with the activists, then he will have to lean more towards their agenda, but if the activists’ views differ from those of other shareholders, then he has room to push back.
“So this is a really interesting kind of dance because it’s really kind of shareholder democracy to some extent,” the executive said.
That said, Salesforce will probably have to make some concessions.
