Zscaler investors fire warning shot at management with board declassification vote

Investing.com -- After a brutal three-month stretch that has wiped nearly 30% off Zscaler’s (NASDAQ: ZS) market value, shareholders sent a warning shot to management by voting to declassify the company’s board — a move that could eventually make the cybersecurity firm more vulnerable to activist pressure or a sale.

The company disclosed the results of its annual meeting in a filing after the close on Thursday. The proposal is non-binding, but if implemented would dismantle the board’s staggered structure.

The vote passed even though Zscaler founder and CEO Jay Chaudhry and other insiders control a significant portion of the company’s voting power, and despite the company actively lobbying shareholders to oppose the measure.

Currently, Zscaler has nine directors serving staggered three-year terms, with three seats up for election each year. If the company follows through with the proposal, all nine directors would eventually stand for re-election annually. Zscaler said in the filing that any transition to a declassified board could be phased in over time.

So far, no activist investor is said to be involved with the company, according to people familiar with the matter. The proposal to declassify the board was submitted by James McRitchie, a shareholder advocate who routinely files non-binding governance proposals at public companies. This vote, the people said, was not the result of an organized activist investor campaign.

While the vote could prove important for investors, McRitchie himself is not certain the company will follow through on the measure, citing the current political and regulatory environment.

“With proxy advisors under attack by the current administration, threatening their very existence, I’m not sure how strong they’ll be in recommending a withhold vote next year against the head of the Nom/Gov committee if Zscaler refuses to move on the issue,” McRitchie told Investing.com. He argued that the MAGA movement appears intent on stripping both shareholders and workers of meaningful rights out of fear of their potential alliance, though he noted there is still some hope because Zscaler remains incorporated in Delaware — unlike Tesla, where he won similar votes before the company ultimately reincorporated in Texas.

The governance vote comes at a difficult time for Zscaler’s stock. Shares were hit after the company’s fiscal third-quarter results in November, despite beating on both the top and bottom lines, as Wall Street focused on a changing growth narrative.

Following the results, Bernstein analyst Peter Weed downgraded the stock, arguing that fiscal 2026 ARR guidance reinforced concerns about rising competition. “We don’t, yet, see the company expanding beyond their core cloud-centric network cybersecurity segment,” Weed wrote. “Over the coming 10–15 years we think growth will asymptote towards mid-to-low single digit %, unless they prove us wrong.” As a result, he said, Zscaler’s premium valuation is not justified.

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