The arc of the moral universe is long, but it bends toward justice.
“Out of the Long Night of Segregation” by The Rev. Dr. Martin Luther King, Jr. (Advance, February 8, 1958, p. 26)
A common criticism of both public and private companies that waste the stockholder’s money is “where was the board?” The company’s board of directors are charged by stockholders with providing the first line of oversight over a runaway executive team that act against the company’s interest.
If the board fails in its role, one of the ways that individual stockholders can call executives and board members to account is by attending an annual meeting. Most of the attending stockholders have already voted by proxy (often by proxies given to vote in line with recommendations of the company’s board of directors–who are usually a slate approved by the company’s senior management. Unfortunately for the attending stockholders, given the proxy system, voting at an annual meeting is quite the kabuki dance as we saw with the ridiculous Google annual stockholder meeting.
Attending stockholders are also dependent on the company’s executives to inform them in a full and frank manner of what the company’s executive team are up to. Pandora’s executive seem to have kept a few key facts from the assembled group of stockholders, investment bankers and analysts.
Derek Sivers, the founder of the game changing CD Baby, apparently attended the June 4, 2015 Pandora stockholder meeting and writing in TechCrunch had this to say about the way Pandora executives manipulated information:
As Pandora shareholders convened their annual meeting this week, the streaming music giant’s executives predictably omitted an ongoing battle with songwriters over royalty rates in the hopes of focusing attention on the company’s recent growth.
But when it comes to Pandora’s relationship with songwriters, investors would be wise to dig deeper.
As someone who has both worked as a professional musician and run a successful music technology business, I remain puzzled as to why Pandora has chosen to wage an expensive and exhaustive fight against the songwriters that form the very foundation of its business – in courts, in the media and even in the halls of Congress – rather than negotiate with them. It just doesn’t make long-term business sense.
According to Pandora’s Form 8K recording the votes taken at the stockholders meeting, there were only two resolutions submitted for a vote. The first was appointment of Ernst & Young as the company’s accountants. The other was the approval of the senior management’s compensation package.
So now we know why Pandora executives wanted to keep it all unicorns and puppy dog tails at the shareholder meeting–get that executive comp approved so the massive stock payment gravy train would continue.
Knowing what we know about Pandora, no one should be shocked by this manipulation other than by the fact that it was done and Derek seems to be the only one to comment on it. No stock analysts, no tech journalists, no music journalists have put this together.
But Pandora has a good reason to keep its war on artists and songwriters on the DL. The last time Pandora’s lobbying and litigation tactics came together was with the ill-fated Internet Radio Fairness Act, a classic example of Silicon Valley overreach and vindictiveness. Stockholders faired poorly as this Wall Street Journal chart shows. The IRFA legislation was introduced on September 21, 2012 when the Pandora stock closed at $10.50. The negative press on the legislation drove the price down to an all-time low of $7.18 on November 16–a few days after David Lowery confronted Pandora, Senator Ron Wyden and CES executive Michael Petricone at the Future of Music Policy Summit on IRFA. Also about two weeks before the rollicking hearing on the bill on November 28, a hearing in which member after member chastised Pandora and the National Association of Broadcasters. In fact, it resulted in Rep. Mel Watt announcing he was introducing a bill to essentially take away the streamers’ statutory license.
Thus, the postulate: Pandora’s stock price varies inversely to the intensity of its lobbying.
Destroying shareholder value was not lost on the executive team, apparently. They’re a bit smarter about it now, as Derek writes. Just don’t bring up these facts that could cause a run on the stock price.
For example, if you examine Pandora’s own investor information page, there is nothing about Pandora joining the infamous “MIC Coalition” (or as it’s known, the “McCoalition”). The McCoalition is devoted to destroying the lives of artists and songwriters.
There are, of course, some events that Pandora simply cannot hide from its investors such as the lawsuits against Pandora for stiffing artists who recorded prior to 1972. Here’s how they inform stockholder about Pandora’s exposure:
The outcome of any litigation is inherently uncertain. Based on our current knowledge we do not believe it is probable that the final outcome of the matters discussed above will, individually or in the aggregate, have a material adverse effect on our business, financial position, results of operations or cash flows; however, in light of the uncertainties involved in such matters, there can be no assurance that the outcome of each case or the costs of litigation, regardless of outcome, will not have a material adverse effect on our business. In particular, rate court proceedings could take years to complete, could be very costly and may result in current and past royalty rates that are materially less favorable than rates we currently pay or have paid in the past.
What they don’t say is that the reason Pandora is in this fix to begin with is because the company’s policy is to try crushing artists and songwriters first, negotiate only if you have to. Pandora could easily put that policy to a vote of the shareholders, but they never do.
Pandora ought to be on the frontlines with songwriters, working towards a solution – not standing in the way of meaningful reform.
By undercutting songwriters, Pandora’s approach to music licensing is not just self-serving, but shortsighted – and this is something its shareholders need to hear.
Imagine how great it would have been if Pandora had joined together to stand with artists and songwriters instead of fighting us every step?
I have to believe that in the long run, the cause of artists and songwriters is right and just and will be vindicated. I’m not the only one who thinks that in the music community or on Capitol Hill, and I think Derek would agree. Wouldn’t Pandora’s stockholders want to be on the side of moral justice?
Even if Pandora’s stock price is declining for other reasons, Derek still is quite correct: The vindictive nature of Pandora’s management team is costing stockholders dearly. The question is, where is the board?