DealBook: NetApp Adds Directors Amid Push for Changes

NetApp Inc. quietly announced last week that it planned to add two directors to its board. But their qualifications may hint that the decision to appoint them did not just come out of thin air.

In its preliminary proxy filing, NetApp, the computer storage provider, disclosed that it will seat Kathryn M. Hill and Tor R. Braham as its newest directors, with investors voting on them at the company’s annual meeting on Sept. 13.

Both have been involved in the technology sector for a long time. But according to people briefed on the matter, they were also suggested by Elliott Management, the activist hedge fund that has taken a stake of just less than 5 percent in NetApp and is pushing for strategic changes at the company.

Elliott, which has managed to shake up several technology companies in recent years, had discussed adding Ms. Hill and Mr. Braham with the company for a number of weeks, one of these people said. Mr. Braham was the suggestion of Elliott’s point person on technology investments, Jesse Cohn; Ms. Hill arose out of discussions between the two sides.

What makes both nominees interesting are their backgrounds. Ms. Hill was most recently a senior vice president of development strategy and operations at Cisco Systems, which is considered a natural potential buyer of NetApp.

And Mr. Braham is a longtime technology mergers banker who previously worked at Deutsche Bank and at Credit Suisse, where he worked with the deal maker Frank Quattrone.

“We applaud NetApp’s smart, forward-thinking decision to strengthen its board as it plans for success in the future,” Mr. Cohn of Elliott said in a statement. “Both Tor and Kathy will add tremendously to the board’s dialogue as it seeks to ensure continued success and value-creation for NetApp’s stockholders.”

A possible goal of adding the two directors is to help steer the company’s board into considering a sale, an idea that Elliott has supported. It has had success agitating for the sales of Novell and BMC Software. The hedge fund has pushed for several changes at NetApp to lift its stock price.

The company has already taken steps to return money to shareholders. In May, it rolled out a $3 billion stock buyback plan and a new quarterly cash dividend.

It remains to be seen whether NetApp will take that next step. For its part, the company said of its newest directors: “All candidates underwent a comprehensive review process and NetApp is confident in the two new nominees to bring a fresh perspective to our existing board with their relevant experience and deep industry knowledge.”

The company added that its board and management would continue working to improve the company’s long-term shareholder value and “will continue to take actions that we believe will enable us to achieve this objective.”

IT directors attack dire software licensing schemes

Software companies are making it difficult for IT departments to buy legitimate software.

IT directors have told Computer Weekly that there is a lack of direction or guidelines from software publishers to enable buyers to track software compliance. Suppliers are unable to give users a clear answer as to how many licences they require.

An audit that reveals a shortfall in authorised licences, or where the organisation is found to have purchased the wrong licence, can lead to large fines and hefty excess licence charges.

Writing recently on the Constellation Research blog, analyst Ray Wang warned that software publishers use the threat of running a software audit to drive customers to buy more licences: "Audits are used to start the discussion. Unsuspecting customers who no longer have context about the original contract may fear breach of contract."

Software publishers want to sell organisations an enterprise agreement, according to James Moy, assistant vice-president for IT asset management at Bank of Tokyo-Mitsubishi. "They love to sell their software, but if you ever ask any of the software vendors how they keep compliant on their own software, they will have no response," he said.

Moy said most software is coded with executable file and revisions. "How does a user or company actually count? Take into account upgrades, patch versioning, enterprise agreements and select agreements, and your head is spinning," he added.

Job site Reed.co.uk switched back from virtualisation to physical servers, because it was cheaper and easier to understand, from a licensing perspective.

"Virtualisation was quite [challenging]," said Mark Ridley, director of technology at Reed.co.uk. "We were scaling virtual machines, but we reverted back to physical boxes because the [software] licences were clearer and simpler."

He said that running the Reed.co.uk website on larger physical boxes was cheaper than using virtualisation.

Licensing issues was also one of the reasons Reed.co.uk opted for Google Apps over Office 365. "We think Office 365 is a great product, but when we looked at the Office 365 E3 licensing [scheme], the fine print stated you weren't allowed to use it on virtual desktops," said Ridley.

The Microsoft licensing limitations did not fit with Reed.co.uk's desktop visualisation strategy, so Microsoft lost out.

Part of the problem dealing with Microsoft was that each product family had its own sales rep, and often the different product divisions will have conflicting licensing agreements, he said.

"It would be fantastic if you only needed to talk to one person instead of someone from the Office group or SQL Server group separately. Microsoft needs to ensure it is simpler to understand. To buy Microsoft [software today], you probably need an MS specialist."

When we looked at Office 365 E3 licensing, the fine print stated you weren't allowed to use it on virtual desktops
Mark Ridley, Reed.co.uk

As Computer Weekly has previously reported, software asset management consultant Martin Thompson is running the Campaign for Clear Licensing to give a voice to users who are often mis-sold software licences or are unable to navigate the minefield of terms and conditions to ensure they have purchased the correct licence.

In a new blog post on the campaign he wrote: “Industry bodies such as the BSA and Fast tend to rely heavily on FUD [fear, uncertainty and doubt] and lopsided arguments to push their agenda. The usual mantra is, 'We are poor, defenceless software companies being attacked by ruthless pirates'. Many software companies could implement simpler licensing programmes whilst protecting their revenue and intellectual property, but choose not to do so.”

In defence of the software industry, Alex Hilton, CEO of the Federation Against Software Theft (Fast), said: “Realistically, the pressures facing sales organisations are not really all that different from those of 10 or 20 years ago. We have always faced highs and lows in the economic cycle. This brings its own challenges, but Fast has not seen any evidence of changes to sales practices from software vendors.”

Addressing the licensing complexity issue, Hilton said organisations buying software were increasingly looking for simplicity of software licensing, but they also want flexibility: “Fast supports both options, but we also recognise that the flexibility demanded also leads to increased levels of license complexity.”