Why Is Shutterfly's Jim Clark So Concerned About SarbOx Constraints?

Jan.11.07 | About: Shutterfly, Inc. (SFLY)

Maybe we can call it “Sarbitching.” Shutterfly (NASDAQ:SFLY) chairman and Silicon Valley legend Jim Clark resigned on January 1, and his resignation letter was attached to this 8-K filed on January 8. It’ll be sure to be cited as evidence of how Sarbanes-Oxley is causing a brain drain and decreasing risk-taking and driving investment overseas and causing global warming.

Take a look at the letter, excerpted here:

“… My reasons are twofold: 1) as a technologist, I feel there is little that I can offer to guide what has become a manufacturing company, and 2) because of the constraints imposed by Sarbanes-Oxley on my having any significant role on the board.

As I understand it, Sarbox dictates that I not Chair any committee due to the size of my holdings, not be on the compensation committee because of the loan I once made to the company, not be on the governance committee, and it even dictates that some other board member must carry out the perfunctory duties of the Chairman. What’s left is liability and constraints on stock transactions, neither of which excite me.

It seems pretty clear to me that lawmakers have gone too far in considering a large shareholder to be inappropriate in the roles, but it is equally clear that I have no ability to change this in the near term. My only solution is to become an outsider. I wish to be treated as such effective immediately…

A couple of things to note. His first reason is this: the man calls himself a technologist, and uninterested in a manufacturing environment. He’s just got little to offer a manufacturing concern. And if that’s so, and it makes sense to him not to be at Shutterfly on those grounds - why be so concerned about constraints imposed by Sarbanes-Oxley? Seems like just an opportunity to vent on the law, if the first reason is the most important one. And the one that makes leaving a sensible thing to do for a fellow like him.

If there’s “little that I can offer to guide what has become a manufacturing company” - why, then, is SarbOx such a constraint? Why is it necessary for Mr. Clark to be chairing any of the various committees? In truth, what he’s doing may well be the right thing for the company, but for the wrong reasons. This shows how SarbOx is sapping entrepreneurship? Be serious: how material do you think his interest in Shutterfly may be to Clark’s portfolio? Think he’d be sweating long nights writing code if he stayed? He may be more beneficial to the company on the outside as a resource - both financial and networking - than staying on the inside as chairman and “chief manufacturing officer.”