Pfeiffer might become the largest CPQ shareholder with influence on the Board. Conclusion of this article from UK Financial Times (thanks to Thames-sider Yahoo Club for alert).
_______________________
COMPAQ: Pfeiffer finds himself without friends
The man credited with making Compaq a computer industry giant swiftly paid the price for recent troubles, writes Louise Kehoe
Even by Texan standards, the University of Houston fund-raiser on April 9 was an event to remember.
General Motors donated a Cadillac luxury sports car for a "cyber-auction". Compaq, the US computer maker, gave $100,000 for a black and pewter silk-draped table for the guests, who included Steve Forbes, publisher and presidential candidate.
The evening raised $3m, enough to endow a new faculty chair in the name of the guest of honour - Eckhard Pfeiffer, the tall, suave and immaculately coiffeured Compaq chief executive widely credited for transforming the company from a builder of PC "clones" into an industry giant.
Ben Rosen, Compaq chairman, led the accolades, praising Mr Pfeiffer for his 16 years with Compaq and singling out last year's $9.1bn acquisition of Digital Equipment as an inspired move. Adding a personal touch, Carolyn Farb, organiser of the gala and Mr Pfeiffer's long-time companion, unveiled a bronze bust of the honoree.
Nine days later, Mr Pfeiffer was out of a job - and it was Mr Rosen, supported by the rest of the Compaq board, who led the putsch.
Insiders are still trying to fathom how a man acclaimed as one of the most successful businessmen of his generation could have fallen so far, so fast.
Mr Pfeiffer rose to prominence by turning Compaq into a PC powerhouse. He was hailed as a business genius for boosting revenues tenfold, from just over $3bn when he took over as chief executive in late 1991 to $31bn in 1998.
But his ambitions did not stop there. Last year he declared that Compaq would become the world's second largest computer company, after IBM, offering a broad range of computers, software and services.
As Compaq grew, so did Mr Pfeiffer's reputation. He enjoyed the trappings of wealth, especially the fast cars, expensive clothes and luxury hotels that have become badges of honour among high-flying, high-tech executives.
Yet even in an industry of huge egos, Mr Pfeiffer seemed to overstretch. His German reserve was often perceived as arrogance, and he made little effort to change this image. But as long as Compaq was gaining ground, Mr Pfeiffer was admired, if not much liked.
However, the events leading to his humiliating departure show how he was running out of road - a victim of earlier mistakes, personal rivalry and a failure to retain the confidence of shareholders.
On the same day as the Houston fundraiser, Compaq warned Wall Street that first-quarter earnings would be far below expectations. Either Mr Pfeiffer had been oblivious or had seen no need to inform shareholders.
Investors and analysts were outraged. James Poyner, an analyst at CIBC Oppenheimer, complained: "The company did not hold a conference call, or return calls. Compaq's handling of the announcement was extremely disappointing behaviour given that many institutions have continued to question management credibility".
Others, including Ashok Kumar at US Bancorp Piper Jaffray, were convinced Compaq's sales were falling far short of projections. In mid-March, he had warned investors that Compaq shares "at best represent dead money".
The roots of Compaq's problems date from early last year when, in the industry lingo, it "stuffed the channel" - giving incentives to resellers to increase their orders, regardless of demand from users. "Channel stuffing" is a well-honed art in the PC industry, and Compaq, its critics charge, is a master.
When analysts raised the alarm, Compaq denied there was a problem - until a March 1998 warning that it expected only to break even for the quarter.
The inventory glut was so huge that Compaq was forced to cut production and slash prices, hitting component suppliers and forcing competing PC makers to match the price cuts. For two quarters, the entire PC industry suffered the effects.
A year later, Mr Pfeiffer was once again facing Wall Street's wrath. On Monday April 12, Compaq belatedly held a conference call with analysts. Everything went wrong. Callers could not hear Mr Pfeiffer's statement, questioners were cut off and tempers flared. It was hardly Mr Pfeiffer's fault, yet his inability to bring even a little humour to the situation was telling.
Compaq repeated the call later in the day. Mr Pfeiffer blamed market conditions - slack demand and price competition - for the earnings shortfall. But by then, many analysts had lost faith.
The consensus was that Compaq had taken its eye off the ball, perhaps distracted by the integration of Digital.
Mr Pfeiffer's gamble was that Digital's high-performance, high-margin products would offset shrinking margins on low-cost PCs. But the dice did not tumble in his favour. Compaq, once the great innovator, found itself on the defensive as rivals such as Dell Computer, selling PCs over the internet, stole market share.
In an effort to focus attention on its future plans, Compaq hosted 4,500 customers, journalists and industry analysts for a three-day company-sponsored trade show which started on Tuesday 13 April. A visibly weary Mr Pfeiffer unveiled the company's new internet strategy. "It was the flattest speech I ever heard him give," said one attendee.
The monotone presentation did little to strengthen Mr Pfeiffer's position. After the trade show, non-executive board members conferred. On Saturday April 17, Mr Rosen - who had ousted Mr Pfeiffer's predecessor in 1991 - summoned the chief executive to a meeting where he was informed that it was once again "time for a change" of management.
Mr Rosen, a wily New Yorker, had provided the seed capital that enabled a group of former Texas Instruments engineers to create Compaq in 1982. He had always been the power behind the chief executive's throne at Compaq, and he did not hesitate to exercise that power.
The procedure should have been familiar to Mr Pfeiffer, who was himself installed as chief executive by Mr Rosen following the earlier boardroom coup. Yet it seems Mr Pfeiffer expected a chance to present his case.
He did not get it. Plans had already been laid to create a new "office of the chief executive" of three board members, including Mr Rosen himself.
After 16 years, it was over. By the next day, Mr Pfeiffer was virtually a "non-person" at Compaq. His e-mail address was cancelled; he was erased from the company's website.
But Mr Pfeiffer did not go quietly. In a CNN interview, he accused Mr Rosen of appeasing Wall Street and of conspiring with "former, dismissed Compaq executives".
His voice quivering with emotion, Mr Pfeiffer declared: "The feedback I am getting is that [Compaq's] board should hang their heads in shame, and that I did a good job and will do a good job in whatever I do next."
It is not clear which former Compaq executives Mr Pfeiffer believes had plotted against him. One former manager said he had few friends within the company. "The only emotion he ever showed was anger. I would not work for him again."
However, many still hold him in high regard. "He is a visionary," said Mr Kumar at USB Piper Jaffray. "The only fault I would find is that he failed to build a management team with sufficient depth and breadth. He did not groom a successor."
Even Bill Gates was taken by surprise by Mr Pfeiffer's departure, he told colleagues. The Microsoft chief had been Mr Pfeiffer's guest at an exclusive dinner, held during the Compaq trade show, that closed Houston's finest restaurant.
Carl Howe, of Forrester Research, described Mr Pfeiffer as a scapegoat, adding that with the chief executive gone, other managers would defect. That prediction was borne out last weekend by the resignation of Michael Heil, Compaq's top sales and marketing executive.
Two days after Mr Pfeiffer's departure, Compaq held its annual meeting. Some investors praised Mr Rosen for his swift intervention, but one was bold enough to raise the issue of Mr Pfeiffer's compensation, as well as his lavish spending.
"He has dissipated our money," said Joan Lobel, a shareholder from Houston. "He gave $100,000 to one of his local fundraising things," she complained. This was "Compaq's money, not his".
Despite Mr Rosen's efforts to cut her short, Ms Lobel delivered her punch line: "Mr Pfeiffer is going to walk away with about $300m."
The exact figure will depend on Compaq's share price. Under his contract, Mr Pfeiffer will receive four years' salary - about $6m - in cash. In addition, more than 10m stock options will become excercisable, potentially making him the company's largest single shareholder. He may have been removed from the chief executive's office, but Mr Pfeiffer looks set to retain considerable influence over Compaq's board. |
