Nvidia’s board finally woke up on Thursday morning – and the brutal “Huangover” is likely to last for a while.
If you feel sorry for these clowns for their dyspepsia, you shouldn’t. Yes they are clowns. This whole sordid mess goes beyond their wayward CEO and his sex life, and it was one of their own making.
Recall: The chipmaker’s directors had spent the previous week insisting that there was nothing to see here – all business as usual, really – as the headlines multiplied about its CEO Jensen Huang’s affair with an alleged Chinese spy.
It’s spent the past year sidestepping questions about Huang’s wonky business dealings with the woman, the questionable firm she repped and how oddly this company pushed to sell its most advanced, national security sensitive chips to China, a foreign adversary.
But over the weekend, Huang admitted to his dalliance with Alice Huang as images of her raising a glass with him and rubbing the small of his back went viral. Then came the reports that it wasn’t just Alice, but also at least two underlings he’d been canoodling with. To make matters worse, questions have arisen about the way Nvidia reports on its business in Southeast Asia to investors.
Huang’s undoing was self-inflicted. It began with his affair with a woman who was not only an Nvidia vendor (a glaring conflict of interest) but also suspected to be thick with the Chinese government. He layered that with an official statement that denied the affair (a likely regulatory violation, securities lawyers tell me).
If all of this weren’t messy enough, it was happening while Huang was trying to do even more business with our chief global adversary, even as he served as a top AI adviser to the Trump administration.
Jensen Huang is a smart guy. He saw the AI revolution coming and seized the opportunity to create what was until recently the world’s most valuable company. He cast himself as an industry rock star, sporting his black leather jacket at conferences, TV interviews and sitdowns with policy makers and the president himself.
But along the way, as too few cared to notice, he was also incredibly reckless. He left more than enough clues, and among those who chose to ignore them were the so-called gatekeepers of corporate governance at his company: his board of directors.
On paper, his board seemed weak – directors hail from places like Taco Bell and the NFL as opposed to heavy hitters in tech. Sorry, but that’s no excuse – among the many things that the board failed to enforce was a basic CEO succession plan.
Huang demanded and got the OK to have an oddball management structure that gave him a staggering 60 executives directly reporting to him. This has been described as “horizontal,” but it had the effect of making him everyone’s de facto boss.
That’s instead of a management team that could and should have weighed in when whiffs of trouble began cropping up as early as last year, according to press accounts – and likely sooner.
Let’s be clear: There are corporate finance laws that demand accountability – CEOs of public companies are accountable to shareholders. And it’s the board of directors that has to make certain those CEOs keep shareholders top of mind.
In this case, shares are cratering not just because Huang is out, but also because investors are worried what shoe might drop next. If a CEO is so reckless as to make what appears to be a materially false statement about his dalliance with an alleged Chinese spy, and if a board is so obtuse to ignore what’s going on under its nose, what else is lurking on Nvidia’s books?
We will know in short order. Huang will have to answer obvious questions, and not just from Dems looking for political points in touting his close relationship with the president. Republicans will be pushing as well because this all involves China.
We will get a full reading of that China relationship and how it was or wasn’t disclosed to investors. The Trump administration will face a crisis as well – possibly more daunting than anything that might come from its crypto deals.
It all could have been avoided by a board that simply did its job. Donald Trump tried to downplay all of the above. Both parties in Congress won’t and neither will regulators and class action lawyers. The latter would appear to have a layup of a case that governance flaws at Nvidia were destined to screw shareholders.
In other words, get ready to write a big check, fellas.
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