Breakingviews: Salesforce sufficiently acquiesces to angry mob

Salesforce has succumbed to the swarm. The software developer revealed financial progress in its quarterly results, indicated it would throttle pricey deals and installed new board members, including a representative from ValueAct Capital. Unless pushy Elliott Management presents some superstar board nominees, it would be overkill to ask for more.

Co-Founder and Chief Executive Marc Benioff said on Wednesday that improving profitability is the company’s top priority. As evidence of the commitment, Salesforce said in January that it would lay off 10% of its workers. Its adjusted operating margin is already improving, up to 22.5% for the financial year finished Jan. 31 and it’s aiming for about 27% in the coming one. If achieved, it would be nearly 10 percentage points better than three years ago.

The $170 billion company is making better use of capital, too. It doubled its share repurchase program to $20 billion and says it will rethink and reduce stock-based pay. Salesforce has further to go. Touting that buybacks will fully offset dilution from stock-based compensation is leaping a very low bar.

The changes at least suggest more improvements are on the way. Questionable deals, such as the $28 billion acquisition of workplace messaging service Slack in 2021, have dragged down profitability. The company just disbanded its M&A board committee and will replace it with one focused on improving operations.

Benioff’s history of cycling through co-CEOs remains a concern and the board should insist on a clear succession plan. Otherwise, however, Salesforce has essentially acquiesced to everything activist investors, including Jeff Smith’s Starboard Value and Jeff Ubben’s Inclusive Capital, wanted.

Elliott Management is still threatening a proxy battle, privately nominating board candidates. It hasn’t gone public yet with how many or who. Unless they provide something like solid technical expertise, it’s hard to see why the five aggressive funds holding Salesforce should get any more representation.

Salesforce already has three new directors, one of which is ValueAct’s Mason Morfit. Appointing more may be counterproductive. While activists tend to follow a similar playbook, there are bound to be areas of disagreement as their numbers swell. Pushing any further imperils the results of a fight already won.