Nvidia CEO Jensen Huang is under internal investigation after admitting to an affair with a Chinese businessman who U.S. intelligence agencies believe was a Chinese spy.
Nvidia said the company has not yet named a specific investigator, but the investigation is being led by its board of directors with help from outside counsel. Lawyer Stephen Neal is the board’s lead independent director and head of corporate governance and will likely be at the center of the investigation.
Nvidia’s board of directors said in a statement that it will review all evidence, but “there is no reason to believe that national security or Nvidia’s confidentiality was compromised.” China has dismissed the spying claims. Huang, one of the most influential businessmen in the artificial intelligence boom, said he would “fully cooperate” with the process.
But the investigation has raised uncertainty about Hwang’s future at the chipmaker and raised concerns about broader ramifications for companies in high-tech sectors exposed to developments in AI.
One of the key issues for investors going forward will be “potential governance implications” and “increased regulatory oversight” as the company moves forward with its investigation, Citi analysts wrote in a note Monday.
lead the probe
Nvidia’s board of directors has 10 independent members, including a former president of Nvidia. taco bellformer Eli Lilly Executive Officer and former Vice Chairman of goldman sachs. Mr. Neal, who joined Nvidia’s Board of Directors in 2019, is Chairman Emeritus and Senior Counsel of the law firm Cooley LLP, where he also served as CEO from 2001 to 2008.
Neal did not immediately respond to a request for comment.
This is not his first corporate governance investigation. Cooley said Neal litigates securities, bankruptcy, antitrust and acquisitions matters. And he conducted several investigations into multiple boards of directors. general motorswhere he advised the company in its dispute with Ross Perot.
He also led the effort to prevent the merger of Walter Hewlett and the Hewlett Trust. hewlett packard company Compaq Computer Corp. and assisted PacifiCare Health Systems in transaction matters.
The company said Mr. Neal conducted multiple investigations of the company’s board of directors and committees of independent directors, but most customer names were kept confidential. He also handled Securities and Exchange Commission investigations of both corporations and individuals.
When Neil joined Nvidia, he was also Chairman of the Board of Directors. Levi Strauss & Company. The company announced at the time that he would step down in 2021 after reaching the mandatory retirement age of 72 for directors. The retailer did not immediately respond to a request for comment from CNBC on Monday.
Cooley also has a long history with Nvidia. According to the law firm, the firm was incorporated in 1993 and has been the primary outside lawyer for corporations and litigation for approximately 30 years. Mr. Cooley oversaw Nvidia’s initial public offering in 1999.
Braden King, a professor of management and organizations at Northwestern University’s Kellogg School of Management, said investors will be watching for the outcome of the investigation and the emphasis on independence as the process unfolds.
“We definitely need a leader that people can look at and say, ‘Okay, we completely believe this is the correct outcome and we believe this is a reliable report,'” King told CNBC. “That’s what investors are looking for. Investors just don’t like the volatility that comes with something like this.”
Focusing on corporate governance
King said the Nvidia investigation sits at a unique intersection of Wall Street and Washington, D.C., and the company will likely take next steps to appease both groups.
Nvidia’s reputation is highly correlated to Huang’s, so conducting a transparent investigation will be key to restoring and maintaining shareholder trust, King said. The lack of an immediate succession plan for the CEO only hampers that confidence, he added.
“I think the board recognizes that they are conducting an independent investigation because they really need to understand the extent of the actual problem, and they also know that without an independent investigation, there will be lingering concerns about whether key stakeholders can trust the company,” King said.
If the investigation finds that national security is indeed at risk, the company will need to take “very strong steps” to restore its reputation, King said.
“Basically, it would mean we need to put corporate governance structures in place to ensure something like this never happens again,” King said. “An independent review would need to be truly independent and honest enough for people to believe that normality can be restored in terms of how the company operates.”
It’s also likely to influence how other technology companies, especially those in the AI space, think about their corporate governance structures and how they navigate increased scrutiny of their leaders, he added.
wider impact
Marcel Kahan, a law professor at New York University, said he was not surprised that NVIDIA could be exposed to industrial espionage.
Because the company operates in such a high-profile and important sector, companies like NVIDIA need to be careful who they trust with their operations and information, Kahan said. Based on this investigation, the company may consider adding a governance committee to prevent a recurrence.
The revelations about the CEO could also mean more specialized training from Nvidia and its law firm to ensure trade secrets are protected.
He also said the company is prioritizing thorough investigations over transparency to investors and is likely focused on hiring the “best and brightest” to assist with investigations.
“NVIDIA is one of the most valuable companies on Wall Street,” Kahan told CNBC. “Given the attention it’s getting, I think this is one of those cases where you’re not so concerned that something is being done in an illicit manner.”
Still, even though NVIDIA is a large company with significant market influence, Kathryn Harrigan, a professor of business leadership at Columbia Business School, said the controversy may not have much of an impact on corporate governance structures.
Harrigan said he has seen similar controversies play out before on Wall Street and Silicon Valley, so the latest scandal may simply be following the script of his predecessor.
“Will the fundamental structure of building AI change? Probably not,” she told CNBC. “If you have a chip order, you can wait years for it to be on schedule. You can’t magically switch from one vendor to another.”
