Twilio, a communications software vendor for Domino's, the American Red Cross, and others, has reportedly drawn criticism for its recent board and governance changes, a move that seemed like the company's way of appeasing its investors in the first place. 

Anson Funds, Twilio's investor and the activist group that has been demanding reform at the business, is stepping up its demands for change in response to several board changes made by Twilio this week, including a reorganization of the board's composition. 

Twilio disclosed a settlement with activist investor Sachem Head on Monday. Sachem Head's interest in the firm was not previously disclosed. As a result of the transaction, Sachem Head's partner, Andy Stafman, was granted a board seat by Twilio.

(Photo: Twilio)

Twilio said two days later that Byron Deeter, a well-known venture capitalist and one of the company's first investors, would depart the board.

Twilio added in the same announcement that it will request a vote from shareholders at the next annual meeting to declassify its board. This would imply that all directors would be up for reelection every year instead of just some of them.

The news follows the resignation of Twilio CEO and co-founder Jeff Lawson earlier this year. As the vendor's drive for profitability stagnated, activist investors pressured the company to sell out the Twilio Segment and Engage, if not the company altogether. 

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Twilio's Lacking Changes

According to Anson's portfolio manager, Sagar Gupta, the actions have not gone far enough.

Although this agreement constituted a step in the right direction, Gupta believes it is insufficient to prevent the Board from becoming further entrenched and guarantee that Twilio's chronic underperformance will end. 

Gupta claimed that during months of engagement, Twilio consistently rejected suggestions for governance enhancements and that the firm only addressed those problems in response to severe pressure. 

Gupta's statements are supported by evidence, as sources suggest that Twilio's board changes do not address what may be the most important problem at the company, impeding its progress toward profitability: how the company acquires new clients but finds it difficult to retain them.

For example, at the beginning of 2024, Twilio had 305,000 active customer accounts, an increase of 15,000 from the previous year.

However, it achieved a dollar-based net expansion rate of 103% for the entire year 2023. According to that statistic, Twilio's revenues would have climbed by just 3% in the absence of any new clients during the previous year.

Gupta's Twilio Campaign

Early in 2023, Gupta's campaign at Twilio allegedly began as a result of several meetings he had with the business while he was at Legion Partners.

CEO Lawson's excessive influence would end at that point because Twilio's dual-class structure was coming to an end.

According to FactSet, Anson and Legion jointly control less than 0.5% of Twilio. Their strong demands have been sufficient to force Lawson out, launch an operational assessment of a company the firms wanted Twilio to sell, and launch an enlarged share buyback program.

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(Photo: Tech Times)