Many executives will complain in private about the mounting restrictions they face running a public company these days, from the hassles of Sarbanes-Oxley to the regulations in place at U.S. stock exchanges. But few are as frank as Jim Clark, the legendary founder of Netscape and Silicon Graphics. When Clark submitted his letter of resignation as chairman of photography Web site Shutterfly only three months after its initial public offering (IPO), he made it clear that with all the new rules, he just wasn't able to play the role he wanted to.
He particularly complained that he could not be on important committees including the governance and compensation committees. "What's left," he wrote, "is liability and constraints on stock transactions." Reached by senior writer Nanette Byrnes two days after Shutterfly announced the move, Clark wasn't any happier. Here are edited excerpts from their conversation:
Your resignation letter was pretty frank. You sounded frustrated.
When I wrote that I had no idea it had to be attached to the document that went to SEC [the Securities & Exchange Commission]. That was a genuine statement.
I basically kept that company alive. I became its bank. I hired the current CEO and had been involved in every step. I made a $30 million investment. I had been on the compensation committee, which seems like a rational committee for the largest shareholder to be on. Then suddenly I start realizing all these constraints on me.
There were all these arbitrary rules because of my shareholder status and the fact that I had loaned the company money in the past. Your role as board member is being an active participant on the board as well as the committees. I was precluded from being on them in any way.
Being on the board of a public company already has risks. Now I have all these constraints and essentially no power. Shutterfly is in many ways my company, at least financially. I had been the prime mover keeping it alive. And I thought this is ridiculous. I don't want to be on the board.
Do you think the restrictions of Sarbanes-Oxley and U.S. listing requirements are hurting board quality or limiting the number of people who want to serve?
Jeff [Housenbold, Shutterfly's CEO] brought in some excellent board members. They just don't own much of the company. Sarbanes-Oxley seems to take the point of view that if you own part of a company that's a bad thing.
I read all the time about the problems of a CEO having stock in the company. I wouldn't want it any other way. What do we want to do, go back to days of Henry Ford, when 10 people owned the company?
There are two kinds of board members. One gets companies going and is really involved in opening a new market. Then there are professional board members, sitting on 5 or 6 or 10 boards is how they remain engaged in what's going on in the marketplace.
Those are two different breeds of cat. The former breed is not going to stay on boards. I am that kind of cat. It's inevitable that they're going to lose some talent. If the one category of board member as a result of these new laws decides it's not worth it, it has to be a loss.
So will you stop investing this way too, no longer funding startup companies like Shutterfly, and before that WebMD?
For a person like me who is my own investor, I can invest in a broad portfolio including venture funds. The concentrated investment scenario [funding one company] is starting to make a lot less sense because of these constraints. The notion of a very concentrated investment in a company is that you become a key contributor in the welfare of the company. But it seems less attractive to do that since the goal is to do an IPO, and then you're subject to these stupid rules.
I don't think I'll take a highly concentrated position in a company anymore. There's not a whole lot of upside unless you sell for cash to some larger company. Owning a concentrated position just leaves you in the position I'm in now.
Is there any upside to Sarbanes-Oxley?
If it did anything for you it would be O.K., but I've seen absolutely nothing except at least a doubling of the legal and audit bills. It's very bad for small companies. The current notion of exempting smaller companies from Sarbanes-Oxley is stupid. Every small company wants to be a big company. It's a continuum [so they'll have to comply anyway]. It needs to just be flushed down the drain.
What about the push to separate CEO and chairman?
I don't know that is part of Sarbanes-Oxley itself. I think in general the trend is disconnecting the CEO and chairman title. I think that's a good thing.
The chairman is the person who oversees and coordinates the group that is overseeing the management of the company. For that to be the CEO as well—there's the risk of contamination, of lack of transparency.
What's next for you?
Mostly philanthropic stuff and environmental things. I'm funding a nonprofit to increase people's awareness of what's going on in the world's oceans. I've been a diver for 20 years. I'm quite keen on these issues. At the moment I'm not doing any business.
But will you be back? It's been 25 years since you started Silicon Graphics, but you seem to have a hard time walking away from business entirely.
Yes, it seems that way.