NVIDIA: Not Yet Another Brick in the Wall

Few companies have even come close to doing as well as NVIDIA at its peak. It started out making graphics chips and is now the most valuable chip company in the world, and the AI boom depends on it. A month ago nobody would have asked whether it belonged on the wall. This week people are asking.

What happened

On 8 November NVIDIA’s board announced an independent investigation after reports that Jensen Huang, its founder and then chief executive, had been the target of a foreign intelligence effort. The same day, Huang told staff he had had an affair. The woman named in reports is Alice Huang, a former executive of Megaspeed, a buyer of chips. US intelligence agencies are reported to have concluded that she was a spy for China. China rejects the claim.

A committee of independent directors is overseeing the inquiry. It has hired Joon Kim, a former acting US Attorney for the Southern District of New York, and Wachtell, Lipton, Rosen & Katz. At the time, the board said it had no reason to believe that national security or NVIDIA’s secrets were compromised, and that it had confidence in Huang. A proposed shareholder class action has also been filed.

Four days later, that confidence had gone. On 12 November NVIDIA announced that Huang had stepped down as president, chief executive and director, with immediate effect. Colette Kress, the chief financial officer, became interim chief executive while keeping her finance role, and Harvey Jones, a director since 1993, became NVIDIA’s first ever chair. The board has begun a search for a permanent chief executive, and its independent directors are reported to be continuing the investigation. The next day Reuters reported, citing two sources and internal messages, that Huang had misled senior colleagues, including the general counsel, about the relationship. That is a report, not a finding.

The affair is a private matter, and it is not my business. The governance question is whether this board can judge what happened, and choose what comes next, in a way that outsiders can trust.

Why it is not a brick yet

The wall has one rule: a case goes on it only when there is a public finding, from a court, a regulator, an inquiry or the firm’s own admission. The only admission here is a personal one. A resignation is a consequence, not a finding, and a news report is not a finding either. Whether anything was compromised, and whether the board was told what it needed to know, is what the investigation is for. Putting NVIDIA on the wall now would mean judging on press reports, which is exactly what we would criticise a board for doing.

Two things that were not true

Much of the early comment rested on two claims that did not stand up.

Huang was not the chair. Until 12 November NVIDIA had no chair at all. It had a lead independent director, Stephen Neal, who set board agendas with Huang, and Neal could call meetings of the independent directors without him. So it was never the familiar American model of one person holding both roles.

His children do not sit on the board. His son and daughter work at NVIDIA in product roles, and his son-in-law works there too. The proxy statement says that none of them is an executive officer, none reports to him, and their pay was set without his involvement. It is fair to ask about family members working in a company, but it is not a board independence point.

What is worth asking

The real questions are less obvious, and more useful to any board.

Tenure. Directors’ average tenure is nearly 15 years, about twice the S&P 500 norm. Until this week, Huang and two other directors had served since 1993, and another joined in 1997. Under the UK Corporate Governance Code (which does not apply to NVIDIA, but which offers an interesting lens on corporate governance from another perspective), a board has to explain why a director is still independent after nine years. NVIDIA treats every one of its directors as independent. When the board finally created the role of chair, it gave it to one of those 1993 directors, Harvey Jones. The UK Code expects a chair to be independent on appointment. After 33 years on the board, that is a hard case to make.

The lead director. Neal ran the law firm Cooley from 2001 to 2008 and is still its senior counsel. Cooley has been NVIDIA’s lawyer from the start: it incorporated the company in 1993, took it public in 1999 and has been its main outside counsel ever since. Neal is not the first Cooley figure on the board. His predecessor as lead director, Mark Perry, was a former Cooley partner, and another former partner, James Gaither, sat on the board for more than twenty years. In 2023 Neal said he was no longer a Cooley partner but still drew a salary from the firm. Before Kim was hired to lead the investigation, people close to the inquiry expected Neal to run it. This says nothing about Neal’s integrity. However, independence is as much about perception from outside as it is about facts on the inside. Again, under the UK Code, a material business relationship through a firm a director works for is one of the tests, and the board would have to explain it.

Experience. According to Semafor, no director has national security experience. A board does not need a specialist for every risk, but it does need to recognise a risk like this early and take competent advice. The question now facing the board is a national security question.

Succession. Huang ran a famously flat company with dozens of people reporting to him, and no successor had been named. That is no longer a hypothetical weakness. The chief financial officer is now also interim chief executive, and the search has only just begun. One governance professor has called it a “captive board”. I would not go that far without a finding. But a board that has grown wealthy alongside its founder over thirty years will find it harder to judge what happened, and to look beyond its own circle for a successor, than a board of newcomers would.

The chair and chief executive debate

NVIDIA shows why the American debate about splitting the chair and chief executive roles misses the point. Until this week, NVIDIA had split them in one sense, by having no chair. Yet the agenda was set by the lead independent director together with the chief executive, and management wrote the papers the board read. What matters is who controls the agenda and the information, and whether there is someone on the board who could lead an inquiry into the chief executive without anyone doubting their independence. I doubt this will reopen the debate in the United States. But it should at least change the question being asked. NVIDIA has now split the roles properly, but only under pressure, and with a chair who has sat on the board since 1993. The title has changed. Whether the agenda and the information have changed is the real test.

What would put it on the wall

Success makes boards content. That is one of the threads that runs through four hundred years of failure, and one of the six themes on the wall is “the unchallenged leader: one person, and a board that did not ask”. Whether NVIDIA belongs in that column depends on what the investigation finds, and on what the board does next.

NVIDIA would go on the wall if the investigation found that the board knew and did nothing, or did not know because nobody asked, or that investors were misled. What would keep it off is an inquiry that outsiders accept as independent, findings that are published, and a board that acts on them, including on the harder questions about tenure and succession, which will still be there whatever the investigation finds.

An independent inquiry and an independent board are not the same thing. Hiring respected outside lawyers makes the investigation independent. It does not make the board’s judgement of the findings independent, and the same board will choose the next chief executive. If the Reuters report is right, the board’s information also depended on the candour of the chief executive it was meant to oversee.

A board can look captive for thirty years and still pass the test that matters. That test is what it does when it finally has to act on its own judgement. For NVIDIA’s board, it has started.