High-Tech Chiefs Keep One Eye on the Door
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By Joann S. Lublin
Staff Reporter of The Wall Street Journal
Chief executives of high-tech businesses now find the revolving door spinning at a dizzying pace.
Facing increased investor pressures and rapidly shifting fortunes, more high-technology companies
are replacing their CEOs at a faster rate than concerns in most other industries. Robert
Frankenberg's resignation yesterday from Novell Corp., after running the weakened networking
company for about two years, marked the third departure of a high-tech leader this week alone.
The heads of AST Research Inc. and Quarterdeck Corp. lasted less than 18 months -- as did the
chief of Borland International Inc., who quit in July.
"In high-tech particularly, boards are willing to pull the trigger faster" to keep up with competitors,
says Jeffrey Christian, president and CEO of recruiters Christian & Timbers. He says boards can
do that because of the large pool of CEO talent, created partly by the industry's current wave of
mergers and acquisitions. So far this year, the Cleveland firm has won more than 60 assignments
for high-tech CEOs, up from about 20 in 1995. Rival Heidrick & Struggles Inc. reports it's
handling a record number of such searches.
Industry executives also attribute the torrid pace of CEO replacement to the pressures of guiding
technology companies through quickly changing markets. "It's like being the pilot of a fighter plane
flying at Mach 3 while you're redesigning the plane to fly at Mach 6," observes Gary Eichhorn,
president and CEO of Open Market Inc., since last December. "The pace of [technological]
change is accelerating to unbelievable speeds."
Mr. Eichhorn succeeded Shikhar Ghosh, who founded the small, Cambridge, Mass., provider of
Internet business software in April 1994. But the 42-year-old CEO says he couldn't handle his job
without help from Mr. Ghosh, who remains chairman. The founder focuses on corporate
development while his successor manages the company day to day.
Unlike Mr. Eichhorn, Gary Wetsel failed to convince directors that he could handle what he calls
the "very difficult challenge" of steering a high-tech business. The former CEO of Borland, blames
a jittery board rather than his own shortcomings for his forced resignation last month. High-tech
directors "tend to have a knee-jerk reaction" to a single crisis, and that's what happened at
Borland, Mr. Wetsel says. "Instead of sticking with the strategy, they said, `We have to make this
change'" at the top, he recalls. "People underestimate what it takes to turn a company around."
The Scotts Valley, Calif., software company recruited Mr. Wetsel, a finance specialist, to
shepherd a turnaround effort following three years of losses and a long downward spiral. He took
the helm in January 1995. Under his leadership, Borland cut the work force by 40%, narrowed its
focus and produced four profitable quarters.
He quit July 2, the same day the company predicted an unexpectedly big loss for the quarter
ended June 30. Mr. Wetsel had assured directors just two months before that Borland would be
profitable during this period, according to individuals familiar with the situation. The concern was
blindsided by meager demand for a key desktop software tool called Delphi.
William Miller, Borland's outside chairman and acting CEO, agrees that the fast-changing fortunes
of high-tech businesses often make board members impatient when a CEO stumbles. "In the past,
you didn't see [these] people leaving" the No. 1 spot after less than two years, notes Mr. Miller, a
Stanford University business professor. But today, a high-tech company "can get into trouble very
fast." At that point, he adds, "you need some out-of-the-box new thinking or new actions" from
new leadership.
Companies sometimes pay a stiff price for switching CEOs. Newcomers typically command
between 30% and 50% more cash than their predecessors, recruiters say. Some new leaders of
technology companies, however, forsake big bucks up front for big chunks of equity.
Consider Jerre Stead, named chairman and chief executive of Ingram Micro Inc., the nation's
biggest personal-computer wholesaler, earlier this week. He replaces Linwood A. "Chip" Lacy Jr.,
who left in May after a protracted dispute with its parent, Ingram Industries Inc. Ingram Micro,
based in Santa Ana, Calif., plans to go public this fall. In exchange for no salary or bonus, Mr.
Stead will receive options to buy 2.8% of the company's stock, or about 3.5 million shares, at its
initial offering price.
Mr. Stead hardly needs the cash. The former Legent Corp. CEO walked away with a pretax
payment of $16.5 million after exercising his options when Computer Associates International Inc.
acquired Legent in August 1995.
Turnover in a high-tech company's top ranks also can cause turmoil outside the corner office. A
Borland sales vice president quit soon after Mr. Wetsel did. David Mullin, whom the ex-CEO
recruited as chief financial officer last November, intends to resign in mid-September. Daniel
Warmenhoven says half his six senior executives exited after Network Equipment Technologies
Inc. announced his planned departure -- and before he actually left the Redwood City, Calif.,
maker of sophisticated telecommunications gear in December 1993.
The rapid clip of high-tech CEO resignations seems unlikely to slow soon. One reason: the
industry's plentiful pool of jobs for former chiefs. "As many CEOs walk as boards eject," observes
Mr. Warmenhoven. After mulling positions at 20 different businesses, he became president and
CEO of Network Appliance Inc. in fall 1994. "In the tech world, the options available to you are
much more numerous" than in other industries.
Fresh opportunities seem to pop up daily. Mr. Wetsel, for one, has his eye on the newly vacated
throne at Novell. "That [CEO position] is a significant challenge," the 50-year-old executive notes,
"and one I'd be interested in" filling.
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Turmoil at the Top
Executives who left technology firms this year
NAME COMPANY
Robert Frankenberg Novell
TITLE: Chairman, President and CEO
DATE: Aug. 1996
Ian Diery AST Research
TITLE: President and CEO
DATE: Aug. 1996
Gaston Bastiaens Quarterdeck
TITLE: CEO
DATE: Aug. 1996
Gary Wetsel Borland International
TITLE: President and CEO
DATE: July 1996
Mark B. Hoffman-a Sybase
TITLE: President and CEO
DATE: July 1996
William J. Razzouk America Online
TITLE: President and COO
DATE: June 1996
Syed H Iftikar Syquest Technology
TITLE: CEO
DATE: June 1996
Linwood A. Lacy Jr. Ingram Micro
TITLE: CEO and Co-chairman
DATE: May 1996
Michael Spindler Apple Computer
TITLE: CEO
DATE: Feb. 1996
Umang Gupta Gupta
TITLE: CEO
DATE: Jan. 1996-b
a-Remains chairman
b-Gupta Corp. since renamed Centura Software Corp.; Mr. Gupta remains chairman |
