The Heat on Salesforce Grows Ahead of a Big Earnings Call

By Andrew Ross SorkinRavi MattuBernhard WarnerSarah KesslerMichael J. de la MercedLauren Hirsch and Ephrat Livni, February 28, 2023

Wednesday’s earnings report by Salesforce may be the most closely watched in the software giant’s 24-year history. Investors — especially the now half-dozen activist shareholders who are clamoring for change at the company, and possibly board seats — will be eager to hear how its chief, Marc Benioff, plans to turn around its fortunes.

That won’t be easy. Mr. Benioff must make potentially drastic changes to the performance and culture of the company he founded, even as employees grow restive after a wave of layoffs.

Salesforce faces a host of challenges. Its stock price is down 47 percent from its November peak, as investors fret over declining sales and a company that seemingly grew bloated during the tech boom. The Wall Street Journal outlined some of the most striking examples of what happened to the onetime highflier:

  • The company paid Matthew McConaughey, a friend of Mr. Benioff’s, over $10 million a year to be a creative adviser and spokesman, including in a $5 million Super Bowl ad. (Mr. Benioff told The Journal he had no part in approving McConaughey’s compensation.)
  • Mr. Benioff repeatedly prioritized sales growth — including a “flood-the-zone” approach — over profitability and efficiency; he believed that slowing hiring for sales teams would hurt revenue growth. That’s borne out in financial measures: The company’s adjusted operating margins have been much smaller than those of rivals like ServiceNow and Adobe.
  • Previous efforts to promote efficiency, including a 2021 proposal that would have ranked top achievers and eliminated the worst performers, fell flat with staff.
  • Salesforce, the largest employer in San Francisco, was once awash in perks, including specialty-coffee baristas at its headquarters and use of a 75-acre wellness retreat. Those have been drastically scaled back, drawing complaints from the 22,000 employees who’ve joined an internal Slack channel called “airing of grievances.”

Mr. Benioff has already moved to change course, including by laying off 10 percent of the company’s work force, or 8,000 people. That cuts against his longtime corporate philosophy of “ohana” — Hawaiian for familial bonds — but it was necessary, he told The Journal: “If you don’t have a performance culture, and you don’t operate the company with that kind of efficacy, you’re not doing anybody any favors.”

The question now is what investors will think. Wall Street has already been agog at how many activist shareholders have piled into Salesforce — including Elliott Management, Starboard Value, Third Point, Inclusive Capital and ValueAct. They are likely to push for a focus on increasing profits. A sixth activist showed up this week: Strive Asset Management, a self-professed “anti-woke” investment firm, which has called on Salesforce to “stop using your business as a ‘platform for social change’ and focus on serving your customers alone.”

Benioff may address the investor challenges on Wednesday, including any potential détente he has reached with the activists. (Salesforce has been in truce talks with Elliott in recent weeks, though it’s unclear whether that will be enough to stave off a proxy fight.) But the greater challenge of restoring the company to its former heights may take a long time to address.

Read the New York Times DealBook here.