Confirmed: Schultz and Efrusy to Leave Groupon Board; “Accounting Types” Joining
According to sources close to the situation, Starbucks Chairman and CEO Howard Schultz and Accel Partners’ Kevin Efrusy will be stepping down from the board of Groupon.
Schultz’s departure will be effective today, but Efrusy — who was critical to the initial funding around the Chicago-based daily deals site — will not be standing for re-election at the company’s annual meeting in June.
The departures are voluntary, but sources said the pair will be replaced by two new directors with significantly more fiscal oversight experience, whom one source characterized as “accounting types.”
(Update: Groupon just posted a press release noting the board departures, with the names of the new board pencil pushers: Daniel Henry, CFO of American Express, and Deloitte Vice Chairman Robert Bass. Henry joins immediately in Schultz’s place. Full press release below.)
It is a move that is critical, given Groupon’s recent series of missteps around its financial reporting that have hurt both its reputation and, more importantly, its stock.
Interestingly, several sources noted that Schultz almost left the board right before Groupon’s public offering last fall, after several ongoing disputes with its management, but stayed on so as not to scuttle its IPO.
The board of the company has not involved itself as prominently in the accounting messes at the company, but it appears as if they will begin to now.
It must, given Groupon shares have been trading at a low of $11. Its stock has dipped to $10.98 today.
As Tricia Duryee wrote recently about the fall:
At that price, it is now worth just over $7 billion, down 57 percent since the company went public last November and well off the more than $10 billion it was valued at as tech’s hottest start-up of 2011.
Ironically, Groupon’s current market valuation is actually not much more than the $6 billion offered for it by search giant Google in late 2010.
The fall of Groupon has been swift, from the honorific of being the fastest-growing company ever to one that cannot keep control of that runaway growth.
That’s perhaps no surprise.
Perhaps most significantly, Groupon went public in just four years, delivering the biggest tech IPO since Google.
The quicksilver move was typical for it. In just two years’ time, the company ballooned from 37 employees to 9,625 and from serving five markets in the U.S. to 175 in North America alone. And that’s leaving out massive expansion abroad. In the past year, Groupon has acquired roughly 17 companies, including many international copycats.
The company also has entered many new segments, expanding from selling lower-priced and simpler deals on restaurants and spas to more complex and pricey arenas, including travel, physical goods and luxury items.
But Groupon is now learning that its original business does not work across just any segment, especially to more discerning customers of its higher-level and more expensive offerings.
In fact, it was those newer and potentially more lucrative markets that forced the company recently to revise the company’s fourth-quarter report after returns skyrocketed on luxury items, such as Lasik eye surgery.
The problems forced Groupon to lower revenue in the period by $14.3 million and net income by $22.6 million. It is now reporting a wider net loss of $64.9 million on revenue of $492 million, pushing it further away from its goal of profitability.
The company also disclosed at the time that independent auditors had noted “material weakness” in its financial controls. In addition, The Wall Street Journal reported that the Securities and Exchange Commission was examining Groupon’s revision.
With many companies, investors might have shrugged off such accounting issues, but the impact on the stock has been greater since they are only the latest in a string of similar mistakes at Groupon.
In its pre-IPO period, for example, Groupon was forced to restate revenues after counting both its portion of the revenue and the revenue that goes to the merchant together. It also had to dump a controversial accounting metric that made the company look more profitable than it was, because it did not include important costs, such as critical online marketing expenses to attract new customers.
Those came after the company retracted a statement by Eric Lefkofsky, Groupon’s co-founder and executive chairman, who told Bloomberg in an interview that Groupon would be “wildly profitable.”
At least the wild part was accurate.
Much of the blame for these missteps by Wall Street is being aimed at CEO and co-founder Andrew Mason, the iconoclastic 31-year-old entrepreneur who is largely responsible for defining the company’s culture, as well as Jason Child and Joe Del Preto, the chief financial and accounting officers, respectively.
Child joined the company in December 2010, coming from Amazon, where he held several roles over a 10-year period — including VP of finance, international, and director of investors relations. Prior to joining Amazon, he worked at Arthur Andersen as a certified public accountant.
Del Preto has been Groupon’s chief accounting officer for the past year and, before that, he was the company’s global controller for three months. Before Groupon, he was controller and VP of finance at Echo Global Logistics and also served as controller at InnerWorkings, the same company where Mason was a computer programmer in his early career.
Mason, of course, is the best known and the person most responsible for establishing the company’s whimsical culture and managing — or mismanaging, depending on how you look at it — Groupon’s hard-charging growth.
It will also be up to him to turn it all around, as the company sinks in both value and investor regard. Since the restatement, Mason has said little about how he intends to do that. In February, when Mason concluded Groupon’s first-ever earnings call, he said: “Thanks, guys, this was a lot of fun, and I look forward to many more of these.”
It’s not clear fun will be on the agenda at his next outing on Groupon’s first-quarter call in mid-May.
Here is the official press release from Groupon on the board changes:
Groupon Appoints Two Directors to Board Daniel Henry, CFO of American Express, and Robert Bass, Vice Chair of Deloitte
CHICAGO — (BUSINESS WIRE) — Groupon, Inc (http://www.groupon.com) (NASDAQ:GRPN) today announced that Daniel Henry, the chief financial officer of American Express Company and Robert Bass, a vice chairman of Deloitte LLP will join its Board of Directors. Both will serve on the Audit Committee with Audit Chair, Ted Leonsis. Daniel Henry was appointed to the Board on April 26, replacing Howard Schultz, who has stepped down from the Board. Robert Bass will stand for election at the annual stockholder meeting to be held on June 19 following his retirement from Deloitte, replacing Kevin Efrusy, who will not stand for reelection at that time. “With their deep financial, accounting and operational experience, Dan and Bob will provide invaluable expertise to the Board going forward,” said Eric Lefkofsky, Groupon Chairman.
Daniel Henry, 62, has been the Chief Financial Officer of American Express Company since October 2007. Henry is responsible for leading American Express Company’s finance organization and representing American Express to investors, lenders and rating agencies. He has also served as Executive Vice President and Chief Financial Officer of U.S. Consumer, Small Business and Merchant Services and joined American Express as Comptroller in 1990. Prior to joining American Express, Henry was a partner with Ernst & Young.
Robert Bass, 62, has been a vice chairman of Deloitte LLP since 2006, and a partner in Deloitte since 1982. He will retire from Deloitte on June 2, 2012. Bass has specialized in e-commerce, mergers and acquisitions and SEC filings. At Deloitte, Bass is responsible for all services provided to Forstmann Little and its portfolio companies and is the advisory partner for Blackstone, DIRECTV, McKesson, IMG and CSC. He has also previously been the advisory partner for priceline.com, RR Donnelley, Automatic Data Processing, Community Health Systems and Avis Budget. He is a member of the American Institute of Certified Public Accountants and the New York and Connecticut State Societies of Certified Public Accountants.
“I’m thrilled to have been a part of Groupon’s development,” said Kevin Efrusy. “The Company is well on its way to becoming the operating system for all local commerce.”
“Howard and Kevin helped guide us on our journey to becoming a public company and I want to thank them and acknowledge their contributions,” said Groupon CEO Andrew Mason.
“During my tenure on the Board, I was impressed by the game-changing opportunities that Groupon has delivered for both merchants and customers on a global scale,” said Howard Schultz. “Groupon has a strong sense of mission and purpose, and as I move on to focus on my other time commitments, I wish them the very best.”