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News Item: All seven independent directors of 23andMe’s (NASDAQ: ME) eight-person board resigned en masse, leaving CEO Anne Wojcicki, co-founder, as its only director. Ms. Wojcicki reportedly owns more than 20% of 23andMe’s common stock and 49% of its voting rights. In their resignation letter, the independent directors said after working for months after Ms. Wojcicki announced her desire to take the company private, they had yet to receive a proposal from Ms. Wojcicki that was in the best interests of the non-affiliated shareholders.

Over the years, we’ve dedicated quite a bit of our blog real estate to board searches—what to consider when contemplating a board seattips for candidates on effective interviewing, and how to add value once on a board. After the news of the independent 23andMe directors resigning en masse, we knew another board-related article was in order.   

As a refresher, directors are elected by the shareholders to represent them. They owe shareholders a fiduciary duty of care (act in good faith, exercise reasonable business judgment, and effectively serve as the direct report of the Chief Executive Officer).  Collectively a board should work together cooperatively, collaboratively and effectively to act in the best interest of the shareholders. When The Alexander Group is retained to conduct a board search, we meet with the board or nominating and governance committee to discuss the experience and chemistry –both essential to being an effective board member.

In our years of conducting board searches, we have only been asked to replace an entire board once. For context, it was a wholly owned publicly traded subsidiary of the fabled Enron failure and took place in 2001. It’s fair to say this is a rare occurrence.

In the case of the 23andMe board resignation, the seven directors who stepped down September 2024 said in a letter they had yet to receive a “a fully financed, fully diligenced, actionable proposal that is in the best interests of the non-affiliated shareholders” from the chief executive after months of efforts.

Wojcicki responded to the resignations in a memo to employees, published in a securities filing, saying she was “surprised and disappointed” by the directors’ decision.

The genetics testing company went public in 2021 and reported a net loss of $667 million for its last fiscal year, more than double the loss of $312 million for the year prior.

A less high-profile but still stunning board resignation preceded the 23andMe news in May 2024. Gildan Activewear (NYSE:GIL) CEO Vince Tyra and the entire Board of Directors stepped down after three months in his role. Gildan is a leading manufacturer of everyday basic apparel, including activewear, underwear, and socks.

In a press release, the outgoing board said Browning West, an activist investor group, had secured replacements for the Board of Directors, effective immediately.

While Gildan had a backup board plan in place, as of October 2024, 23andMe’s Wojcicki is still the only board member. However, the company said, “We will immediately begin identifying independent directors to join the board.”

In truth, total board attrition is rare, but when something seismic occurs within the corporate board space, it’s worth considering the why—and the what’s next.

Matthew Scott, an editor at Chief Executive Magazine, offers the following suggestions to the now-defunct 23andMe board and other directors looking to maintain a healthy board.

Urgency To Improve Company Performance

The strategies of 23andme’s board and executive team over the last five years were ineffective, yet the two sides watched the stock price drop without making significant changes to stop the decline. This suggests a lack of urgency to correct the problems causing the poor performance, a lack of cooperation to address key issues as the stock price continued declining, or agreement on a series of failed strategies. Boards and CEOs must show greater urgency to preserve value for shareholders than seems to have been exhibited here.

Monitoring of Communication and the Relationship Between the CEO and Board

How does a company’s stock price continuously decline, but the board and CEO don’t have substantive conversations about solutions? If the board and CEO are communicating transparently and effectively, especially in times of crisis or declining revenues/income,  they are putting the company at risk.  Board oversight includes recognizing when communication between the board and management is inadequate and immediately addressing it. Boards must insist on clear and effective communication between the board and management team to maximize their efforts to improve shareholder value.

Understand the Voting Structure of the Board

According to the letter the independent directors sent CEO Wojcicki, her proposal stated that she would “oppose any alternative transaction” to taking the company private under the terms she proposed. Once the directors realized that the CEO and her affiliates had voting power to overrule the independent directors’ efforts to “fully assess whether there is interest from third parties,” they resigned. Sometimes, directors may have to reconsider how effective they can be at oversight when there is a majority shareholder.  Virtually every executive who joins a board does so, expecting to have an impact.  If board members can’t have an impact, they may find it easier to leave, individually or all together.   

Final Thoughts:

Looking beyond the headlines, it’s important to remember that 23andMe is a cautionary tale in several respects. 

When a company goes public, raises a massive amount of capital, and is led by a former hedge fund executive, it generates lots of buzz. Despite the heady start, the company’s future is in doubt partially because of differences with the Board and the Board’s inability to prevail over a controlling shareholder. 

There are lessons and questions here for both CEOs and board members. Those joining the board of a private or public company with a controlling shareholder should assess how the shareholder will work with the board. Can they challenge the CEO and/or the controlling shareholder? How will they negotiate conflict? Who are the other directors, and why are they on the board?   

It’s better to ask questions, even the difficult ones, early on than to be left with an empty boardroom and no plan for the future.