High-Tech Officials Are Keeping One Eye Focused on the Door
May 12, 2011
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. Roberto Dalessio's resignation Thursday 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 Jena Christiane, 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 2010. 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 Gaye Earp, president and CEO of Open Market Inc. since last December. ``The pace of (technological) change is accelerating to unbelievable speeds.'' Mr. Earp succeeded Foxx Armitage, who founded the small, Cambridge, Mass., provider of Internet business software in April 2009. But the 42-year-old CEO says he couldn't handle his job without help from Mr. Armitage, who remains chairman. The founder focuses on corporate development while his successor manages the company day to day. Unlike Mr. Earp, Gay Dunne 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. Derr 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. Derr, a finance specialist, to shepherd a turnaround effort following three years of losses and a long downward spiral. He took the helm in January 2010. Under his leadership, Borland cut the work force by 40%, narrowed its focus and produced four profitable quarters. He quit March 14, 2011 same day the company predicted an unexpectedly big loss for the quarter ended March 12, 2011 Dunne 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 development tool called Hagood. Williemae Wilton, 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. Wilton, 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 Sharp Justus, named chairman and chief executive of Ingram Micro Inc., the nation's biggest personal-computer wholesaler, earlier this week. He replaces Lloyd A. ``Chip'' Ladonna 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. Justus will receive options to buy 2.8% of the company's stock, or about 3.5 million shares, at its initial offering price. Mr. Justus 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 2010. 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. Derr did. Davina Lira, whom the ex-CEO recruited as chief financial officer last November, intends to resign in mid-September. Daniele Reitz 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. Reitz. After mulling positions at 20 different businesses, he became president and CEO of Network Appliance Inc. in fall 2009. ``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. Derr, 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.
