Even though Green Dot has made changes to its Board that should probably answer Harvest Capital's concerns, its activist shareholder continues to press on its efforts to change the company. Harvest just scored another victory this week. But while their strategy of positional negotiation may have induced Green Dot's leadership to make a few conciliatory fixes, they will not find similar success in contradicting the will of the CFPB and Walmart.
Earlier this week, Green Dot Investor Relations reported that the preliminary results from the 2016 proxy indicate that Santurnino Fanlo and George Gresham have been elected to the company's Board of Directors. This followed on announcements that Green Dot Directors Michael Moritz and Timothy Greenleaf will resign. Only Steve Streit, who had also been targeted for replacement by Harvest, appears to have survived. This is a significant change for Green Dot, as both Moritz and Greenleaf have been a part of the company for many years.
The election results reflect how Harvest Capital, a San Francisco investment company, now holds substantial influence with Green Dot. Naturally, much of this can be attributed to the fact that Harvest is now the largest shareholder of Green Dot's common stock. Harvest has used that position to contest Green Dot's strategic plan. ("Fix Green Dot").
But Harvest has asked for change even though Green Dot has already made moves to invite new independent leadership to its Board. On April 11th, Green Dot appointed Raj Date, Bill Jacobs, and Chris Brewster. Each is considered an independent director. As a former CFO of Cardtronics, Brewster has experience with ATM networks. Jacobs has worked in payments processing and in credit cards.
Green Dot also announced that it would accept Harvest's nomination of George Gresham, "irrespective of the outcome of the 2016 Annual Meeting of Stockholders."
Simultaneously, Sam Altman stepped down from the Board. Altman came to Green Dot as part of the Loopt acquisition. Altman, as the founder of Loopt and the President of Y Combinator, brought his status as an innovator. But after paying $43.4 million for Loopt, Green Dot never found a way to integrate its mobile shopping platform to their products. Harvest characterized the Loopt acquisition as a strategic misstep, writing that "four years post-deal, this acquisition has yet to generate a positive return for shareholders."
Given that much of Harvest's critiques centered on a lack of independent representation on the Board, including gaps in governance, the additions could be seen as already answering Harvest's concerns. Additionally, Altman was clearly emblematic of what Harvest found lacking in Green Dot. Yet in spite of that Harvest nominated a slate of Directors. So to some extent, while Green Dot's actions do reflect an accommodation of Harvest's concerns, the sense of satisfaction is not evident on Harvest's part. All of this happened in spite of external support for Green Dot's slate. Glass-Lewis, the country's leading proxy advisory firm, recommended shareholders to vote for Moritz, Streit, and Greenleaf.
"We aren't supportive of Harvest's campaign to remove Mr. Streit as CEO and current leaders of Green Dot - an action which doesn't appear to us to be warranted or advisable at this time," wrote Glass-Lewis.
Glass-Lewis has been a voice for gender diversity on boards, for more corporate efforts in sustainability, and has expressed concerns about spending on political contributions. At times they have pushed for separation of CEO and Board Chair roles. Last year, Glass Lewis encouraged shareholders to vote against Bank of America's proposal to allow Brian Moynihan to hold roles as both Board Chair and CEO. If a nominee has worked for an under-performing company, then they tend to vote against that person. Likewise, they like to see linkages between actual performance and Board pay. Going back to before the financial crisis, Glass Lewis was one of the advisory firms who urged shareholders to vote against the re-election of all compensation committee members at Washington Mutual. All of this is to say that Glass Lewis' support of Green Dot shouldn't be interpreted as a fait accompli by a firm that only supports industry.
Who are the new Board Members?
Nino Fanlo is currently the CFO of non-bank lender SoFi. He is a co-founder of Capmark Financial. Once a large commercial real estate lender and a subsidiary of GMAC, Capmark filed for bankruptcy in 2009. After that, a consortium of venture capital firms restructured the company. In 2014, Capmark acquired Bluestem Group, a multi-brand company whose most famous division is probably Fingerhut.
George Gresham was formerly the CFO of NetSpend. Before that, he worked at Global Cash Access. Global Cash Access recently changed its name to Everi, but its business model remains focused on providing payment services and games for casinos.
Harvest had hoped that Phil Livingston would gather the votes necessary to replace Steve Streit on Green Dot's Board. In its presentation, Harvest argued that Livingston would implement better governance strategies. But while governance is essential, Green Dot has this one covered. Green Dot recently placed Raj Date on its Board. Date brings his experience in credit cards, secured credit cards, and fintech. As the former Assistant Director of the CFPB, it is hard to imagine someone better than Date at mixing business experience with insights into governance concerns.
How Could this Affect Consumers?
Even though Green Dot is already wading into the area of consumer credit (secured cards and Marketplace), if Harvest's intentions were implemented then it would mean a sea change in how the company interacts with its consumers.
Part Five of Harvest's plan to increase shareholder value is entitled "Explore Consumer Lending and Banking Efficiencies."
But this is tone deaf to the regulatory horizon and its existing institutional relationships. Harvest is naive to put too much faith in an expanded credit strategy. It is not hard to conclude that it is only a matter of time before the CFPB announces the final rule for prepaid cards. It seems like a safe bet that its release will herald the prohibition of overdraft on prepaid cards. It's also a good possibility that it will create strict protections for any credit offered through a prepaid card - if it permits it at all. That's the regulatory context, and somehow, Harvest is proceeding as if it will not materialize.
But even if the CFPB does allow overdraft, Green Dot would still be imperiled by including it on either the MoneyCard or its regular Green Dot cards.
Why? Because overdraft is not Sam's Way. Walmart's fundamental values are built on offering low-cost products to repeat customers. Transparency is an essential element of that strategy. Walmart's Money Centers consistently provide the lowest cost financial services. So while an overdraft service might extract higher margins, it would do so to the detriment of the company's active card count. In 2015, Walmart MoneyCard accounts contributed to 46 percent of Green Dot's operating revenues. To paraphrase one Walmart executive, Green Dot can go ahead and offer overdraft. But then they won't work with Walmart.
It will be interesting to see how Streit and the pre-existing Directors interact with the new additions and Mr. Fanlo in particular. While those interactions will undoubtedly become cordial and professional, the battle over Green Dot's approach seems to continue. I doubtHarvest's efforts will ever translate into a change in consumer experience, nonetheless. Harvest is operating with regulatory blinders on, and they are ignoring the opinion of the world's most influential retailer. I can't imagine how they will overcome the objections of both the CFPB and Walmart. That's quite a combination.