Automattic’s Acting CEO and Legal Head Forge Mutual Severance Agreements Amid Mullenweg’s Short-Lived Departure

On September 9, Automattic’s board made the unexpected decision to place CEO Matt Mullenweg on paid leave, a move that remains publicly unexplained. In a message to the entire company via Slack, Mullenweg claimed CFO Mark Davies colluded with three board members to expedite the vote without adequately informing him, as he received only 50 minutes’ notice and was not allowed to consult legal counsel. After approximately 33 hours, Mullenweg resumed his position, during which time the same board members responsible for his temporary suspension left the company themselves.

In the brief period before Mullenweg’s return, both Davies and Chief Legal Officer Andy Missan approved lucrative severance packages for each other. In this interim period, Davies stepped in as acting CEO, while both executives finalized their severance agreements, effective September 10.

These severance arrangements, acting as golden parachutes, offer each executive a lump sum equal to 12 months of their base salary, accelerated equity vesting, the option to exercise their vested stock options, and an additional year of health insurance coverage. Together, these benefits amount to $8.15 million that Automattic is now obligated to pay, as Mullenweg terminated their contracts upon his return.

The legal team at Automattic is currently assessing whether to honor these payouts or challenge their legality. The company has shifted its legal representation from Gibson Dunn to lawyers Stephen Shackelford and Shawn J. Rabin from Susman Godfrey LLP, which was announced jointly by the company and Mullenweg on Wednesday. Additionally, it has been reported that Automattic’s General Counsel, Jordan Hinkes, had his company account deactivated, suggesting his departure as well.

The agreements stipulate that the executives must sign a comprehensive release of claims and adhere to confidentiality and non-solicitation clauses to receive their benefits.

Moreover, the contracts are structured to be favorable to the executives regarding what constitutes “cause,” the legal standard required for a company to terminate someone without severance. According to the terms, the company must notify the executive within 60 days of learning about any misconduct, allow 30 days for them to amend their behavior, and secure a majority board agreement that misconduct is present.

“Cause” is defined in a limited manner within the agreements, including gross negligence causing significant damage, dishonesty or fraud, legal violations leading to material harm, breaches of confidentiality or IP, or any felonies involving moral turpitude.

In Davies’ case, his agreement specifies that his removal as interim CEO will not qualify as “Good Reason” — a term that typically allows an executive to resign for materially altered job conditions and still claim severance — as long as he retains his role as CFO. Although this clause is not unusual for a legal document, it appears tailored to Davies’ situation as interim CEO, ensuring Automattic doesn’t owe him severance once his temporary role concludes.

While it may not be inherently wrong for the executives to sign off on each other’s agreements, it is noteworthy amid Automattic’s ongoing governance challenges.

Another aspect to consider is that Davies reportedly did not hold any stock in Automattic at the time of his exit, as detailed in an HR document reviewed by insiders. One source noted that he sold his stock a few months prior, but the exact timing remains unconfirmed. However, he still possessed a significant number of outstanding vested options.

These developments can be interpreted in contrasting ways. One perspective suggests that the board was reacting to an internal leadership crisis, leading to Mullenweg’s leave, which precipitated protective maneuvers for executives who might face repercussions if the leadership change proved ineffective.

Additionally, Automattic is currently embroiled in a legal dispute with WP Engine, which, in July, accused Mullenweg of destroying evidence in legal documents, specifically via messaging apps. If the board deemed Mullenweg’s actions posed a substantial corporate risk, their decision to suspend him and alter management could exhibit to the court that they were serious about addressing these concerns, potentially safeguarding against penalties or improving settlement conditions. Mullenweg’s post on X shortly after the board’s actions further supports this theory.

In an alternative scenario, it could be perceived that the board aimed to create a controlled environment for unspecified reasons – possibly related to a strategic transaction – by sidelining Mullenweg. Sources indicate this is the stance that Mullenweg suspects, though he claims he was never explicitly informed of the rationale for the board’s vote, leaving both him and observers to speculate on the true motives. This lack of clarity, along with Davies’ stock sell-off, seems to have heightened Mullenweg’s suspicions, influencing his decision to reclaim the CEO position and dismiss board members and other executives.

Automattic has been approached for comments. Success in reaching Missan and Davies has not yet occurred.