With everything that has gone down at Better.com over the past 18 months, many of us are scratching our heads in wonder that CEO Vishal Garg remains employed.
On December 10, employees of the digital mortgage lender were notified via email by the Better board of directors that Garg would be taking time off, effective immediately, after the “very regrettable events over the last week.”
The move came, according to an employee who wished not to be named, after the digital mortgage company hired a crisis firm earlier that week. For those of us following the drama, it was not a surprise.
But what is a shock is that Garg has not been asked to step down altogether. Some surmised that he had super-voting shares and thus could vote to keep himself in the role of CEO despite what others voted. But after digging into the S-4 filed by Better.com’s SPAC partner, Aurora Acquisition Corp., in November, we realized that is not the case.
According to the filing with the U.S. Securities and Exchange Commission, “entities affiliated with the Better Founder and CEO, Mr. Vishal Garg, will beneficially own approximately 17.5% of our outstanding common stock as a whole, but will control approximately 22.7% of the voting power of our outstanding common stock.”
To ensure that we were not undercounting his voting power, we also examined the shares that Garg has from unexercised options. Counting those, and taking into account different voting rights attached to various share classes, it does not appear that the erstwhile CEO has the ability to block his removal due to complete voting control.
Of course, other executives also hold stock that grants them a say in the company, but as a collective, “Better Home & Finance directors and executive officers as a group” control 35% to 37% of the combined Aurora-Better entity, per the same filing, depending on redemptions in the SPAC transaction.
So, the company’s backers must not be agitating for Garg’s complete removal, as that would be a seeming possibility given the company’s ownership structure. The Garg case is a notable warning against granting CEOs eternal, complete control of the companies they run; if Garg’s Class B shares had 10 votes instead of three, a not uncommon setup, he would be much harder to dispose of.
Executive wealth, responsibility
The filing reveals that other execs have a high number of options as well, including CFO Kevin Ryan, who was named interim CEO in the wake of the recent layoffs fiasco. He was granted 1.182 million stock options.
Even more, many executives were “granted certain partial recourse loans” by Better, including Garg and Ryan. Garg borrowed $41,029,200, while Ryan was loaned $5,980,920. Per the company, the loans were granted to help senior executives “borrow funds in order to exercise compensatory stock options prior to their scheduled vesting date in exchange for shares of restricted stock.” In case you were curious about how money is made in startups, there you go.
That Better.com compensated its senior staff well is not a sin. But, according to a recent Blind.com post, those same executives are not guilt-free when it comes to the layoffs. One anonymous employee alleges that Ryan originally came up with the idea for the layoffs several months back.
Meanwhile, another employee told TechCrunch that Garg only wanted to provide “one to two weeks” of severance to the 900 laid-off employees. He was reportedly forced to provide 60 days, per Insider, or else risk violating U.S. law around advance notice for mass layoffs.
Reasons for keeping Garg aboard are myriad, if dubious in their ethics. (An email to Better.com seeking comment was not immediately returned.)
The CEO could be retained to ensure that the SPAC combination can complete, and then be removed, perhaps. But from this vantage point, it appears that his maintenance as a part of the company, however diminished, is an active choice, rather than a forced reality.