“How many times does a board have to tell a CEO his services are no longer needed?”: OpenWeb counters Shoval’s lawsuit
“How many times does a board have to tell a CEO his services are no longer needed?”: OpenWeb counters Shoval’s lawsuit
Board claims Shoval refuses to accept dismissal, accusing him of prioritizing personal financial gains.
“Nadav Shoval's lawsuit is nothing but a baseless attempt to artificially create ‘drama’ where none exists. This is a common situation in many commercial companies, where the board of directors loses trust in the CEO and decides to terminate his position.” This is how the high-tech company OpenWeb opened its response to the lawsuit and request for an injunction filed by Shoval, the company's founder, who was dismissed in early September but refuses to accept the decision.
OpenWeb, through the law firm Herzog, Fox, Ne’eman & Co., attached an appendix to its response in which all directors, except Shoval and his ally Haim Sasson, state that they would vote again to remove Shoval from the CEO position if necessary. Among the signatories is Avishai Abrahami, CEO of the Israeli tech giant Wix. While Abrahami's affidavit, attached to Shoval's lawsuit, claimed that he did not attend the initial board meeting where Shoval’s dismissal was decided, he later signed the dismissal document, saying he "did not have time to delve into it." Shoval's primary argument is that there was a flaw in the board's conduct during the meeting that voted on his dismissal.
Following the meeting and OpenWeb’s announcement to all employees regarding the appointment of an interim CEO, Shoval refused to acknowledge his dismissal. He sent a message to all employees, which he also published on social media, stating that he does not accept the decision. Shoval founded OpenWeb, which develops a platform for social media discussions, in 2012 with Roee Goldberg and Ishay Green, both of whom are no longer with the company. Since its founding, Shoval has served as CEO. However, in early September, he approached the board claiming a breach of contract because, instead of reporting directly to the board, he had been made subordinate to an executive chairman. The company responded by accepting his resignation, though Shoval claimed he had not intended to resign.
"How many times does a company's board of directors have to make it clear to the CEO that his services are no longer needed?" reads the company's response, led by Jeff Horing, founder of Insight Partners, one of OpenWeb's largest shareholders, alongside other directors such as Margaret Wu from Georgian. OpenWeb argues that in any case, it has the support of five directors out of the nine that the company can appoint according to its articles of association, all of whom support Shoval's dismissal.
OpenWeb presents a different version of events leading up to Shoval's dismissal. One constant, however, is Shoval's apparent desire for liquidity after multiple secondary transactions in which he reportedly realized tens of millions of dollars from his holdings. Today, Shoval (34), holds less than 1% of the company’s shares, with an additional 5% in unvested options. In his lawsuit, Shoval claimed that the Blackrock investment firm had expressed interest in investing directly, but sources close to the company and in the lawsuit itself suggest this was primarily another secondary transaction for Shoval’s personal benefit.
"Shoval wants the company’s shareholders to meet his demands and buy his remaining shares for tens of millions of dollars," the company continues, "through media noise, he is trying to extract money he doesn’t deserve, believing that the bigger the noise, the higher the price he can demand from the company." The company also claims that just before his dismissal, Shoval presented disappointing financial results, which were significantly below forecasts. Furthermore, according to the company, there has been no change in Shoval's subordination, but a deteriorating working relationship between Shoval, the previous chairman, and the entire board. There were also unexpected revisions to forecasts for 2024. These concerns, along with the strained relationship with Shoval, led to doubts about his ability to continue as CEO.
According to the company's response, in the breach of contract letter he submitted to the board in early September, Shoval demanded, as a condition of his cooperation, that the company’s investors purchase his shares. The company included in the appendix an email Shoval sent, which he did not submit to the court, in which he agreed to resign as CEO and participate in the search for a replacement until June 2025, on the condition that within three days, existing investors purchase his shares at $15 per share. According to Shoval, this was based on the price offered by Blackrock. He also demanded that the remainder of his locked shares be purchased 30 days after his departure and that the vesting of his options be significantly accelerated.
The directors that Shoval himself appointed, including Abrahami, Professor Scott Galloway, and Omar Ziegler, have repeatedly voted in favor of his removal. The company seeks to have Shoval’s request dismissed and to have him bear the legal costs.
