IT Company's Tel Aviv Stock Exchange Delisting Attests to Deficient Corporate Culture

Mellanox's decision to trade exclusively on Nasdaq is nothing more than a CEO hissy fit.

Mellanox Technologies is delisting from the Tel Aviv Stock Exchange within three months, the company said on Friday. Once it is, the dual-listed company will be traded exclusively on the Nasdaq Stock Market.

The official reason offered by the semiconductor company is the need "to be subject to a single set of listing rules rather than two, enabling management to better focus on the company's business and save on operating costs."

"While our listing in Tel Aviv provided some of Mellanox's investors a forum for trading in the stock, we believe that concentrating the trading in Nasdaq serves the company better," Eyal Waldman, the company's chairman, president and CEO, was quoted in the announcement as saying.

Waldman, of course, didn't forget to thank the company's investors. But they didn't respond with the heartiest of "you're welcomes": On Sunday, the first trading day after the news, Mellanox' stock dived 12% in Tel Aviv, bringing the cumulative drop from the 2012 peak to 60%.

Waldman's message marks the latest salvo in a running battle between him and Israel's institutional investors, among them Psagot Investment House, which holds a 6.2% stake in the company, and Migdal Insurance & Financial Holdings, which owns another 7.9%. The institutionals object to Waldman serving as both chairman and CEO, demanding that the two roles be split, arguing that the chairman's job is to oversee the CEO. Waldman, accustomed as he is to clashes, refused.

This hasn't been Waldman's first conflict with opponents. A decade ago, when Mellanox was still in private hands, the board considered dismissing him over its dissatisfaction with the technological direction he was taking the company.

Board had no choice

In an interview with TheMarker about a year ago, Waldman explained: "There were many doubts among the directors about the company's technological direction, as many leading high-tech companies like Intel, Microsoft and IBM were abandoning InfiniBand. But we continued to see keen interest and revenues so we stuck to this field.

"They [the board] didn't have a choice," said Waldman. "First of all, we held most of the stock. Second, if I were to have left, it would have been reasonable to assume that all the senior management would have left with me. The arguments were completely justified. I sat in a board meeting and told them: 'You have no choice because I have so much power that you'd have a hard time changing it. There's nothing you can do. I either take the company down or we succeed.'"

It seems Waldman was offended that Israeli financial institutions don't recognize his valuable contribution to the company and refuse to let him enjoy the best of both worlds - as chairman and CEO.

Yet his decision wasn't just based on the burning insult he felt, but also on his displeasure with their plan to impose the kind of corporate governance regime on the company that they saw fit.

Entropy Consultants, a firm dealing in this area, put it this way: "The issue of the board's independence in a publicly owned company has great importance for putting corporate governance principles into practice and in attempting to ensure sound management for the benefit of all shareholders. Its significance is expressed in the maintaining of balance in corporate management's existential conflict between objectivity and professionalism on the one hand and risk-taking on the other."

Mellanox is a company listed on the TA-25 index and one of the most heavily traded. The stock's average daily turnover over the past six months has been about NIS 29 million, making it the seventh most-traded stock on the exchange. With its dwindling trading volumes and no solution in hand, the exchange desperately wants to protect liquidity so it comes as no surprise to see CEO Ester Levanon taking Waldman's side.

Waldman knows that trading volume means power. All that's left for him to do now is simply act like the neighborhood bully and fulfill his threat to the financial institutions, to wit: If you don't approve of my being chairman and CEO then I'm leaving.

Companies whose CEOs behave like bullies, and which don't take heed of financial institutions that invested the public's money in them, and which refuse to accept any form of supervision, aren't fit to be publicly traded companies. After all, you never know when the lack of supervision over the CEO will turn a successful company into a failure. We have seen plenty of examples of results from lack of oversight: Some are even now being deliberated in court.

Ofer Waknin