A pitched battle for the future of Pasadena-based Green Dot Corporation – colored by a public relations debacle last week – could mark the end of the leadership of its founder and CEO Steve Streit at the company’s annual shareholder’s meeting today.
Green Dot is a $652-million dollar a year prepaid debit-card company which was recently chosen to provide Walmart customers with reloadable moneycards. Its popularity jumped when it hired comedian Steve Harvey as its spokesman in a series of clever TV spots.
Quoting none less than John Adams (“Facts are stubborn things”), dissident shareholders led by Activist Harvest Capital Strategies have mounted a director-election proxy campaign to remove Streit and install a new Board of Directors.
Harvest owns approximately 9.3% of the outstanding common stock of the Company,
“Shareholders have suffered through repeated disappointments due to glaring deficiencies in the CEO suite,” a May 19 Open Letter to Green Dot shareholders from Harvest declared.
Then last week and just days before the actual proxy voting today, Green Dot suffered a major embarrassment when reports swept across the media that Green Dot’s prepaid cards sold to Walmart customers weren’t working and users could not access their money.
Wednesday Green Dot acknowledged the problem, saying that its new transaction processing partner, MasterCard Payment Transaction Services, was experiencing slowdowns in some systems.
Still, the thought of thousands of card users who trusted Green Dot finding themselves cut off from their own money seemed a publicity debacle at just the wrong time, to some observers.,
“Harvest can no longer sit idly by while the Board and CEO Steve Streit continue to destroy shareholder value quarter after quarter. As shareholder value burns, Mr. Streit and his Board continue to fiddle,” Harvest has said as it pressed its attack.
Control of the company represents a powerful investment. A study by Master Card and Boston Consulting Group indicates that domestic prepaid card load value will reach $421 billion by 2017.
Harvest Capital has offered its own slate of officers at the company’s annual meeting and board election, scheduled for May 23 — Philip B. Livingston, former CEO of Ambassadors Group; Saturnino Fanlo, who has served on the boards of Capmark Financial Group and KKR Financial Holdings; and George W. Gresham.
Harvest fired the first salvo against the company in January of this year when, in a letter and 93-slide presentation to Green Dot, it called for Streit’s removal.
“In our view,” the letter said, “Mr. Streit must be immediately replaced due to his (i) persistently poor performance, (ii) misleading and inconsistent investor communications and (iii) inability to deliver on promises to shareholders. Under Mr. Streit’s leadership, Green Dot has failed to achieve its financial forecasts in three of the last four years, while its stakeholders have suffered double-digit percentage declines in four of the last five years. Accountability is paramount, and we believe shareholder value will remain depressed until Mr. Streit is replaced.”
Harvest then doubled down on its attack with another letter to Green Dot in March, saying, “We are deeply concerned by the Board’s apparent refusal, or inability, to hold Mr. Streit accountable for his significant shortcomings, as well as the Board’s failure to address the Company’s severe underperformance. The facts are undeniably brutal: in the five years ending December 31, 2015, Green Dot has underperformed its original self-selected peer group by 274%, its revised peer group by 184%, and has experienced a dismal absolute stock price decline of 71%.1
“It is therefore unsurprising that stakeholders would have minimal confidence in Mr. Streit’s ability to begin delivering consistently on long-term promises,” the letter continued.
“Last week’s fourth quarter earnings call, which included the confession that 2016 will represent the sixth consecutive year that earnings have failed to materially improve, did nothing to change that point of view. The Board has failed in its most basic duty to hold Mr. Streit and itself accountable for the immense value destruction under the watch of its long-tenured leadership.”
Board member Michael Moritz, one of three board members that Harvest hopes to remove, responded in a letter to shareholders this week, saying, “In my opinion, Green Dot’s CEO and management team have done a valiant job – in a highly regulated and carefully monitored industry serving millions of unbanked consumers with a trusted service – for which they have been given no credit by the dissident shareholder. Management has also refused to use predatory practices, like high over-draft fees, that some of their competitors have used to drive short-term profitability, which are highly unfair to underbanked consumers and are at risk of being banned by pending regulations. At the same time, like any company, we have made mistakes and don’t pretend to be perfect.”
Meanwhile, Institutional Shareholder Services (ISS), an internationally regarded financial proxy firm, said that Harvest “articulated a compelling case that the core of the issues shareholders face are rooted in the founder/CEO having ‘blatantly disregarded the best interests of shareholders’ and, in conjunction with other long-tenured directors, prevented the company from ‘capitalizing on meaningful opportunities in the evolving payments industry.’”
ISS supported the Harvest slate, but did not call for Streit’s removal, saying, “Mr. Streit — and the board as a whole — defends his record by attributing the bulk of the Company’s poor performance to various factors mostly out of management’s control, though Mr. Streit and the board have acknowledged some missteps. As this narrative goes, Green Dot, having endured an extremely challenging period of intensified competition, business development and regulatory challenges, is now positioned to achieve growth and improved profitability. In our view, the Company’s recent communications and performance results, which have propelled the stock price higher, lend credence to this view.”
Green Dot said this week, “Green Dot stockholders should vote for the Company’s highly qualified nominees, who are critical for us to continue the successful execution of our Six-Step Plan that is already creating significant shareholder value.
“Replacing three of the Board’s 10 directors – including Green Dot’s Chairman and Chief Executive Officer – with Harvest’s nominees introduces material and unnecessary risk that could derail Green Dot’s strategy for long-term value creation,” the statement continued. “It is the wrong move at the wrong time and puts the future at risk for stockholders.”