Nvidia’s board faces an unprecedented test over Huang

The investigation follows reports that Huang admitted to an extramarital affair with Alice Huang, a former executive at Nvidia customer Megaspeed whom U.S. intelligence agencies believe was spying for China. Nvidia said Sunday it had “no reason to believe that either national security or NVIDIA secrets were compromised.” It remains unclear when Huang learned she was suspected of espionage or what, if anything, she obtained from him. Information about chip designs or manufacturing facilities could matter to the Justice Department; ordinary corporate information probably would not, said Todd Henderson, a University of Chicago law professor.

Henderson and Ann Lipton, a University of Colorado law professor, said previous cases involving affairs or sexual harassment offer no close comparison to a suspected national security breach. Lipton identified three questions for investigators: whether the law was broken, whether Huang violated company policies and whether he misled the board, including what he disclosed and when. She said the inquiry by independent directors with outside counsel is a standard approach, but its thoroughness depends on the directors overseeing it. Henderson noted that law firms conducting internal investigations know who pays them, without suggesting that was a problem in Nvidia’s case.

The timing of Huang’s reported hiring of a crisis public-relations firm a year ago could be relevant, though the reason may have been the affair alone. Henderson said the board’s assessment would differ sharply depending on whether Huang knew Alice Huang was suspected of spying. If a CEO of a company with sensitive technology withheld that information from directors, he said, it could be a fireable offense.

Lipton expects shareholder litigation. Nvidia already faces a proposed class action alleging the company and Huang misled investors by describing its Megaspeed dealings as routine. Securities-fraud claims focus on alleged lies, she said. A Delaware-law claim that directors mismanaged the company is more difficult: shareholders generally must show the board cannot act independently, often because directors are implicated or beholden to the CEO. Nvidia’s 10-member board has been described as loyal and deferential to Huang, but the announced investigation with outside counsel could complicate such an argument.

The episode also puts Nvidia’s broader governance under scrutiny. More than 60 people reportedly report directly to Huang, and the company does not appear to have a succession plan; Lipton called that a danger for any company. Huang’s children work at Nvidia: Spencer is a director of product management, Madison a senior director of product marketing, and son-in-law Nico Caprez works in business development. Both professors questioned the prospect of a family succession at a publicly traded company of Nvidia’s size.

One structural feature could give directors room to act: Nvidia does not have dual-class shares. Huang reportedly owns about 3.6% of the company and does not control the vote. Lipton said that makes him easier to dislodge, while noting his deep integration into Nvidia. With no voting control, the board has more options than it would otherwise.