Palo Alto Networks is doing extremely well, according to Morningstar’s PANW Report (view). That may be one of the better reasons—not an argument against—to ask its Board to study whether broader employee ownership could make an already strong company more durable.
Morningstar’s September 2 report on Palo Alto Networks (PANW) does not discuss my shareholder proposal on broad-based employee ownership. But much of its analysis provides indirect support for the proposition behind it. PANW’s competitive advantage depends heavily on specialized people, accumulated knowledge, successful integration, data, innovation, and long-term execution. The ownership structure of the workforce is a legitimate subject for Board-level consideration, since it can undermine or reinforce those advantages.
My (James McRitchie) proposal PANW 7-8-2026 does not ask Palo Alto Networks to establish an ESOP or employee ownership trust. It asks the Board to study the feasibility, costs, and benefits of a potential extraordinary transaction through which a broad-based employee ownership vehicle could acquire an interest in PANW or a substantial business unit. The Board would retain complete discretion over what to study and whether to do anything afterward.
Morningstar’s latest analysis helps further explain why the question deserves consideration. [Note: This post contains some AI generated content.]
PANW’s Moat Is Built Largely on Intangibles
Morningstar’s PANW Report assigns Palo Alto Networks a Wide Economic Moat rating. But that moat is not primarily a collection of factories or physical assets. Morningstar describes PANW as an “entrenched platform vendor with sticky products, impressive enterprise penetration, and a long runway for growth.” It identifies high switching costs and a network effect as central sources of competitive advantage.
Even more telling is Morningstar’s discussion of artificial intelligence. Cybersecurity companies, it says, have invested “a great deal of capital and talent” in AI, while the quality of those systems depends on the data feeding them. PANW’s advantage comes partly from collecting and learning from enormous quantities of information across its platforms.
That sounds remarkably close to the premise of my proposal. I argued that PANW’s value depends heavily on “employee expertise, intellectual property, proprietary data, customer trust, and institutional knowledge.”
These are assets that walk out the door every evening.
A broad-based employee ownership transaction would not somehow manufacture expertise or innovation. But it is reasonable for a Board to ask whether giving employees a meaningful long-term economic stake could strengthen the retention, commitment, and ownership culture surrounding precisely those intangible assets on which PANW’s moat depends.
Take the First Step – and Music for a Democratic Corporate Governance
Morningstar’s PANW Report Identifies Talent Retention as a Material Risk
The connection becomes even more direct in Morningstar’s risk analysis. It specifically identifies “attracting and retaining talent” as a notable risk and observes that employees may command “high remuneration amid a talent shortage in cybersecurity.”
That is important.
Most corporate responses to scarce talent are framed almost entirely as compensation questions: How much salary? How large a bonus? How many restricted shares? How attractive an ESPP?
Those tools may work. PANW already has substantial equity-based compensation arrangements. But compensation and ownership are not identical concepts.
My proposal raises a different Board-level question: Could a substantial, durable, broad-based ownership stake create stronger long-term alignment than compensation arrangements primarily designed to recruit, reward, and retain individual employees?
That is why the proposal explicitly states that it does not concern individual compensation, employee benefits, hiring, promotion, or plan administration. It concerns a potential strategic ownership transaction.
CyberArk Makes the Question More Timely, Not Less
Morningstar’s PANW report also highlights the CyberArk acquisition.
Its bear case identifies a very specific risk: “Integrating the CyberArk acquisition introduces execution risk.”
The good news is that Morningstar now believes PANW is executing remarkably well. Its latest capital-allocation analysis says execution following the acquisition “has been stellar” and points to evidence that PANW is successfully selling CyberArk’s identity platform into its large installed base.
That does not make employee ownership irrelevant. It makes the question more interesting.
Successful acquisitions involve more than integrating products and balance sheets. They involve retaining people, combining cultures, transmitting institutional knowledge, and persuading employees of the acquired company that they are helping build something whose future they share.
My proposal, therefore, specifically suggested that the Board study consider whether broader ownership might strengthen “long-term retention, integration, innovation, productivity, and sustainable stockholder value.”
Morningstar independently identifies integration, talent, innovation, and long-term execution as important determinants of PANW’s value.
That is not proof an employee ownership transaction would work. It is a good argument for studying whether it might.
This Is Also a Capital-Allocation Question
Morningstar’s PANW report gives the company an Exemplary Capital Allocation rating, citing its balance sheet, investments, acquisitions, and shareholder distributions.
Some might see that as an argument for leaving well enough alone. I see almost the opposite.
A Board with a strong record of capital allocation should be particularly capable of evaluating an additional capital-allocation alternative.
My proposal deliberately does not specify how an employee stake would be created. The Board could examine an ESOP, employee ownership trust, subsidiary-level arrangement, share contribution, issuance, recapitalization, purchase, or another structure. It specifies no ownership percentage, financing method, timetable, or governance arrangement.
In other words, this is not “PANW should do an ESOP.”
It is: Should a Board that Morningstar considers exemplary at allocating capital examine whether allocating some capital toward broader employee ownership could improve the durability of the intangible assets producing that capital?
Shareholder Proposal or Micromanagement?
That distinction has become especially important as the SEC continues retreating from its historic role in the shareholder-proposal process.
In August, the SEC made permanent its policy of generally declining to give substantive views on whether companies may exclude Rule 14a-8 proposals. (Reuters) Just days ago, an SEC rulemaking proposal sent to OMB was expressly titled “Rescission of Rule 14a-8’s Federal Regulation of Shareholder Proposals and Amendments to Rule 14a-4.” (RegInfo.gov) Reuters reports that Chairman Paul Atkins is considering shifting much of the regulation of shareholder proposals from the federal level to the states. (Reuters)
PANW provides a useful example of what could be lost if Rule 14a-8 is reduced to an increasingly narrow list of subjects shareholders are permitted to raise.
My proposal does not tell management how to run a cybersecurity business. It does not establish employee compensation. It does not dictate the size of an ESOP. It does not demand a transaction.
It asks directors to study an ownership and capital-structure alternative and tell shareholders what they conclude.
That is close to the classic division of labor corporate governance should encourage: shareholders identify a potentially important strategic question; directors investigate it using information shareholders do not possess; and the Board retains authority over the decision.
My broader employee-ownership initiative is deliberately constructed that way—substantial but non-controlling ownership, ordinary common equity, no guaranteed Board seats, and safeguards against managerial entrenchment or hidden control blocs.
From Human Capital Disclosure to Human Capital Ownership
There is another governance issue lurking here.
For years, investors have debated whether companies adequately disclose their human capital. The more interesting question may eventually be whether our system adequately distributes ownership of the corporations whose value employees help create.
Morningstar describes competitive advantage as emerging from data, intellectual capital, innovation, customer relationships, network effects, integration, and highly skilled employees. Yet corporate governance continues to draw a sharp dividing line: executives and investors are owners; most employees are primarily compensated labor.
Broad-based employee ownership begins to blur that line.
The objective is not employee control. My proposal specifically contemplates a substantial but non-controlling position that preserves Board authority and public-market discipline.
Nor should ownership automatically mean a new voting bloc controlled by management, an ESOP trustee, or organized labor. A serious Board study should examine governance architecture as carefully as economics: who beneficially owns the shares, who votes them, whether employees receive confidential voting rights, and how to avoid both managerial entrenchment and employee control.
Those questions are increasingly important as corporate governance moves beyond simply asking who owns the shares to asking whose preferences those shares actually represent.
Good Companies Should Experiment From Strength
Perhaps the strongest point from Morningstar is that PANW does not need rescuing.
Morningstar sees a wide moat, exceptional capital allocation, strong growth prospects, successful acquisition integration, and significant free cash flow. Its latest fair-value estimate increased to $300.
But Morningstar simultaneously gives PANW a “Very High” uncertainty rating because cybersecurity is an “ever-shifting” industry. Staying ahead requires continuous investment in technologies the company believes customers will need in the future.
That combination—great company, excellent management, valuable human capital, and very high technological uncertainty—is precisely why experimentation with ownership architecture deserves study.
Boards should not wait until retention deteriorates, an acquisition falters, or innovation slows before asking whether employees could have a larger stake in the enterprise they are building.
My proposal asks PANW to investigate now, while it has the resources, management capacity, and strategic strength to do so thoughtfully.
Broad-based employee ownership will not be appropriate for every public company, and it may ultimately prove inappropriate for Palo Alto Networks. A study could reach exactly that conclusion.
But Morningstar’s latest report makes one thing harder to argue: that the underlying question has nothing to do with long-term shareholder value.
At PANW, the people, knowledge, innovation, integration, data, and ownership of those productive capabilities are deeply interconnected.
Stockholders should vote FOR, encouraging the Board to find out whether the ownership structure should reflect that reality more fully.
Why an ESOP or Similar Ownership Vehicle Is Worth Considering
Again, my proposal does not presume that an ESOP, employee ownership trust, or any particular structure is right for Palo Alto Networks. But there are reasons the Board should at least examine whether one of these mechanisms could produce benefits that ordinary equity compensation does not.
An ESOP or similar broad-based vehicle can create a more durable form of employee ownership. Restricted stock, options, and an ESPP can certainly give employees equity exposure, but employees may sell shares relatively quickly after vesting or purchasing. An ownership vehicle that accumulates a meaningful stake on behalf of a broad cross-section of employees can make employee ownership a more persistent feature of the company’s capital structure. That distinction matters if the objective is not simply compensation, but a stronger long-term identification with the enterprise.
That durability could be particularly relevant at PANW. My proposal emphasizes that the company’s value depends heavily on employee expertise, intellectual property, proprietary data, customer trust, and institutional knowledge, and that the CyberArk integration makes retention and motivation especially important. Morningstar independently identifies “attracting and retaining talent” as a significant risk in the cybersecurity industry, where scarce talent can demand high remuneration. A broad-based ownership vehicle could supplement compensation by giving employees a collective, long-term economic interest in the value they help create.
Such a structure could also broaden ownership beyond the employees receiving the largest equity awards. One attraction of an ESOP or similar vehicle is that it can be designed to cover a much larger portion of the workforce, potentially strengthening an ownership culture across functions and organizational levels. The relevant hypothesis is that employees who share meaningfully in long-term enterprise value may be more likely to think like long-term owners—supporting retention, cooperation, innovation, and successful integration rather than focusing only on annual compensation.
There may also be a governance advantage. The proposal specifically contemplates substantial but non-controlling employee ownership, ordinary common equity, no guaranteed Board seats, and safeguards against managerial entrenchment or hidden control blocs. Properly designed, an employee ownership vehicle could therefore broaden the population with a direct economic stake in PANW without transferring control from the Board or undermining public-market discipline. Depending on structure, the Board could also examine whether employees should receive confidential pass-through voting or other appropriate ownership rights rather than having their economic interest translated automatically into management-controlled voting power.
Finally, an ESOP or comparable structure is worth studying because it can be approached as a capital-allocation and ownership-architecture decision, rather than merely another employee benefit. Shares might be issued, contributed, purchased in the market, acquired in connection with a recapitalization, or incorporated into another extraordinary transaction. My proposal deliberately leaves all of those choices open and prescribes no ownership percentage, financing method, timetable, or governance structure. The question for the Board is therefore not, Should PANW establish an ESOP? It is: Could some form of substantial, broad-based, non-controlling employee ownership improve retention, integration, productivity, alignment, and long-term stockholder value enough to justify the costs and risks?
That is precisely the kind of question a Board study can answer. Shareholders should encourage them to do so by voting for my proposal, Study of Broad-Based Employee Ownership Transaction, PANW 7-8-2026.
Collaborate with CorpGov.net on Social Media (or Leave a Reply at the bottom)
Linkedin
BlueSky
Facebook
Mastodon
Substack
X (formerly Twitter)
Posts Related to Morningstar’s PANW Report and Broad-Based Employee Ownership
First Agreement Reached on Broad-Based Employee Ownership Transaction Proposals
Ownership Without Voice: Reconstructing Democratic Agency Through Public-Company ESOPs
Comments are closed.