A Starboard spokesperson declined to elaborate on the reasons behind the lawsuit. A comScore spokesperson acknowledged in an email that the company had received the complaint and said the company would not comment further.
In the past, Starboard has gone up against big companies like Yahoo, successfully pressuring the online media giant to give the company four seats to its board, and challenging Darden Restaurants to make operational changes at Olive Garden.
Founded in 1999, comScore quickly established itself as the go-to source for online rankings for websites accessed by computer, smartphone and other devices. The company went public seven years later and currently employs more than 1,800 people. According to its website, it currently measures online ratings for more than 75 markets. In 2016, it merged with Rentrak, another ratings system.
More recently, the company has been attempting to gain traction in delivering ratings for traditional media. Sinclair Broadcast Group, owner of local television stations and digital channels, gave the company a boost in March when it dropped rival Nielsen for a partnership with comScore to deliver its TV ratings. Nielsen, meanwhile, had been building its own business to measure Web traffic to compete with comScore.
ComScore is “becoming the measurement currency for local television stations,” said Laura Martin, senior media analyst at the investment banking firm Needham and Co. “ComScore has been the monopolists in online measurement since 2000. Nielsen is trying to displace that position but they only entered the digital side of the business in the last three years.”
Despite signing up an important client, it’s been a tough couple years for comScore’s accounting department.
Last year, the company began to look into how specific “nonmonetary revenue,” or transactions with no money attached, were being reported. The revenue amounted to estimates of how much the company gained from exchanges of data with other companies, totals that contributed to the growth reported by the company. As the inquiry proceeded, comScore postponed publishing its quarterly financial results or holding annual meetings.
In February, the Nasdaq stock exchange announced it was delisting the company’s stock because it violated a rule requiring regular documents be filed to the Securities and Exchange Commission. ComScore had asked for an extension for submitting the paperwork last year.
In September, the company reported its investigation found that it overstated revenue by more than $48 million over a three-year period. At the time, comScore said in filings to the SEC that it found “errors in judgment and internal control deficiencies.” In an additional SEC filing on Nov. 17, comScore said that it uncovered additional monetary transactions and contracts that were not properly accounted for.
The company went through a change in leadership in the middle of the inquiry, naming co-founder Gian Fulgoni chief executive after fellow co-founder Magid Abraham resigned to focus on other endeavors but stayed on the company’s board for the remainder of the year. Additionally, Joan M. Lewis, a former Proctor & Gamble executive, was named chairman, and David Chemerow assumed the role of chief financial officer.
The company’s share price has dropped considerably in the last two years. In August 2015, comScore’s stock was trading at nearly $64 per share. On Wednesday, it opened the day trading at $27.90.
The company still hasn’t released financial statements publicly for the fiscal years of 2015 and 2016, and it has said it does not plan to until its investigation over the statements and practices is over. ComScore said in a previous statement that it expects to resubmit all of its newly updated statements later this summer, in August or September.
“I think that investors want more information out of comScore because they haven’t filed in a long time,” said Thomas Eagan, a senior analyst at the Tesley Advisory Group, a company that tracks consumer markets, trends and companies. “I think that Starboard publicly wants them to be a little more transparent.”
In its lawsuit, Starboard claims comScore has not held an annual meeting for more than two years, meaning that only four of the company’s 12 sitting directors have been elected by shareholders.
“The Court should not permit the Company to stall corporate democracy any longer,” Starboard asserted.
Starboard, which said it holds about 4.9 percent of comScore’s stock, also claims comScore adopted without shareholder approval a “poison pill” measure to discourage any stockholder from acquiring more than five percent of comScore’s shares.