Opinion: Marc Benioff’s Salesforce fairy tale is crumbling around him

In doing so, he pushed the boundaries of Silicon Valley and helped relocate parts of the technology industry to San Francisco in new ways. Salesforce is the anchor tenant of the gleaming Salesforce Tower, the tallest building in San Francisco, whose 1.4 million square foot skyscraper is half dedicated to Salesforce employees. The cloud software company was the largest private employer in San Francisco, and when it moved into the building in 2017, its revenue had more than doubled to $8.4 billion.

The tower — ubiquitous almost everywhere in the city — was a beacon of Salesforce’s unbridled growth and Benioff’s impact on his hometown as he became a billionaire and philanthropist. And at a time when tech conferences were ubiquitous in San Francisco, no bigger crowd brought the city than Benioff’s annual Dreamforce conference, which regularly sent out-of-town residents to avoid the massive influx of genuine Salesforce supporters.

At some point in the past year, however, the Salesforce train left its comfortable tracks. After the company posted revenue growth and a surge in hiring during the pandemic, co-CEO Bret Taylor said he would step down last November after just a year in the position, the second executive to share co-CEO status with Benioff reached to leave after less than two years in the position.

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But that was only the beginning of the bad news. After a few minor rounds of layoffs last year, the company confirmed in January that it would lay off 10% of its 73,541 employees as its double-digit revenue growth slowed quickly, with Benioff taking the blame for overhiring during the pandemic. Benioff turned off his phone during a 10-day trip to French Polynesia in the midst of the madness for the past six months and beyond told the New York Times about itwho said he needed a “digital detox.”

The chaos has begun to change what was once a family culture, and with it the attitudes of many Salesforce employees. Benioff told the Wall Street Journal in an interview that at an executive retreat earlier this month, he proposed a strategic plan to rank employees based on metrics, including how much sales sellers bring in, a suggestion he later withdrew after employee protests. He also told the Journal how Salesforce cuts costs and some perks, like B. a monthly “feel good day” for sales reps, and severed ties with a corporate retreat in nearby Scotts Valley, which billed it as its “Trailblazer Ranch” during his Dreamforce conference last fall.

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Salesforce has shed nearly half of its peak rating, and after a decade in which more than three-quarters of Wall Street analysts recommended buying Salesforce stock, the percentage of “buy” ratings for Salesforce stock is now down fallen to its lowest level since 2012. according to FactSet.

Then there are the activists. Several activist investors have been adding to Salesforce shares over the past few months at a pace that could be unprecedented. Macquarie Capital analyst Sarah Hindlian-Bowler told MarketWatch that in her more than 22 years in the software industry, she’s never seen such a sudden addition of activists at a company.

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The most prominent is the hedge fund Elliott Management, which has amassed a multi-billion dollar stake in the cloud software giant. Other activists who have bought stakes and are seeking change include ValueAct Capital, Starboard Capital and Inclusive Capital. Third Point LLC acquired a stake earlier this month but has remained silent so far, while Starboard founder Jeff Smith told CNBC late last year the company was concerned about Salesforce’s profit margins compared to its cloud software peers.

Pressure from one or two activists is usually a warning sign to investors that change is coming, but the rare and unusual grouping of five activists buying into the same company could spook any company, although Barron’s has found that activists do don’t have a good record at repair companies.

All of this sets Benioff up for one of the most important earnings reports in the company’s history on Wednesday. Wedbush Securities analyst Dan Ives called it “a landmark call for CRM history” and hinted that Wall Street “wouldn’t be happy with the standard conference call and fiscal 2024 outlook.”

More on cloud earnings: How big is the cloud software storm? Salesforce, Okta, and Snowflake will tell you in a moment.

But with four, possibly five activists stirring up the pot, the process of responding to the current situation will take longer, and Wednesday’s conference call isn’t expected to have much of a response beyond fourth-quarter results. A Salesforce spokeswoman said Wednesday the company would focus on earnings and answering questions when speaking to analysts, but could not comment beyond that.

“I don’t expect that by the time of their earnings they will have reached a settlement with all of the activists,” Hindlian-Bowler told MarketWatch. “I was hoping there would be some sort of solution.”

“Typically, the more people involved, the longer the decision-making process,” she said. “I’d like to hear an update on the buyback or some cost savings, I’m not sure we’ll come to a formal agreement.”

Salesforce has already replaced three of its longtime board members, according to Starboard news, and one of the new directors is Mason Morfit, managing director of ValueAct Capital. But the real question is whether it’s time for a more permanent change at the top — like the CEO.

This is an issue on which Hindlian-Bowler says activists have had some disagreements. Elliott management wanted to push for Benioff to step down as CEO, but that’s no longer on the table, she said.

“I think that’s more isolated to Elliott’s position and it’s difficult for Elliott to be successful in that,” she said. “He [Benioff] is such a fabric of Salesforce, he’s such a part of the company and its culture, even when he’s made mistakes, he’s really the guide for this company.” Elliott didn’t respond to a request for comment on the Salesforce situation or to what it hopes to achieve.

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In theory, even if Salesforce could thrive without Benioff, there might not be any top executives left who could easily take over the company. The two co-CEOs being prepared to succeed Benioff left the company when he failed to hand over the reins.

“The big question is, can Marc really go out of business?” said Daniel Newman, founding partner and principal analyst at Futurum Research. “It seems that no one else can be Marc. Is this a symptom or a disease or is this a good thing?”

That’s the big question Benioff faces as he comes under attack from within the company and from Wall Street in a way that was unthinkable just a year ago. The road forward might start with Wednesday’s earnings, but it could be a long, dark road from there for a company that’s been basking in the sun for a decade.