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Besieged PeopleSoft suffers exodus of execs

Under strain from Oracle's hostile acquisition bid and other pressures, PeopleSoft has seen a growing number of top executives depart.

An executive exodus at PeopleSoft has some outside experts worried that Oracle's hostile buyout bid, coupled with a difficult sales climate, has taken a bigger toll than the software maker is letting on.

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What's new:
Under strain from mounting pressures--including Oracle's hostile acquisition bid, a megamerger with J.D. Edwards and a difficult sales climate--PeopleSoft has suffered an executive exodus.

Bottom line:
For companies embroiled in takeover turmoil, a prolonged battle can siphon off management attention from normal business activities and lead to staff retention problems.

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Since June, PeopleSoft has lost three general managers in charge of marketing and development for major product lines; its senior vice president of North America sales; its head of marketing for the company's customer relationship management division; and its director of public relations. In addition, its general counsel, Anne Jordan, has given notice and plans to leave sometime this year, for a total of seven departures.

The six who left did so as the company stared down the threat of an Oracle takeover, which is still hanging over PeopleSoft, even as federal regulators seek to block it. Oracle CEO Larry Ellison pledged to go on a firing spree if he succeeded in his $9.4 billion bid for PeopleSoft, which sells a set of complex software programs designed to streamline accounting, human resources and customer service functions for large businesses.

Given this, job security concerns may have helped fuel the executive exodus, analysts have suggested. PeopleSoft disputes that interpretation.

Whether PeopleSoft will remain an autonomous company is "an open question" for some of its employees, said Bruce Daley, the editor of the PeopleSoft Observer newsletter, which is published independently of the company. Fearing that it won't, "they are voting with their feet," he said.

Federal regulators filed suit last month to stop Oracle from buying PeopleSoft on the grounds that the deal would hurt competition--a big victory for PeopleSoft. While the antitrust action takes some of the pressure off PeopleSoft, Oracle is challenging the suit in court, and few are willing to call the fight over.

Adding to PeopleSoft's turmoil over the past year was a major merger with rival J.D. Edwards and declining license fee revenue at the Pleasanton, Calif., company. PeopleSoft blames its difficult sales climate, in part, on Oracle.

Spokesman Steve Swasey said the executive departures were normal for a company the size of PeopleSoft, which has more than 12,000 employees. The recent management turnover had nothing to do with Oracle, J.D. Edwards or PeopleSoft's financial performance, he said. "Solid, strong, innovative companies get tapped," Swasey said. "Every recruiter has us on speed dial."

Distress signals
Though PeopleSoft CEO Craig Conway, who has led the company's vigorous takeover defense, remains surrounded for now by his most senior officers, the talent drain is indicative of a company in distress, observers said. Companies embroiled in takeover turmoil generally face this problem--a prolonged battle siphons management attention away from normal business activities and can lead to staff-retention problems.

"Companies like Disney and PeopleSoft that are under a hostile takeover attempt are likely to suffer from low morale, and employees there are more susceptible to being recruited," said Richard Spitz, a senior client partner at executive recruiting firm Korn/Ferry International.

In many cases, the best are the first to go, Spitz said.

At PeopleSoft, two of the top-ranking executives to leave this year were Doug Merritt, former general manager of PeopleSoft's human capital management systems division, and Joe Davis, his counterpart in its customer relationship management (CRM) unit.

Merritt and Davis were in charge of product divisions that together generate more than 50 percent of PeopleSoft's license and maintenance revenue, according to Brent Thill, a securities analyst at Prudential Equity Group who issued a report on their departures. PeopleSoft doesn't report revenue by division and wouldn't confirm that figure.

Thill's Prudential report cites the company's reorganization surrounding newly acquired J.D. Edwards as a likely reason for the executive exits, but mentions Oracle as a potential culprit as well. "The Oracle situation may also be adding stress to the organization as key players look elsewhere for opportunities," it states. Thill declined to comment further.

Davis, who left PeopleSoft last month to take the chief executive post at a start-up, said neither Oracle nor J.D. Edwards had anything to do with his move, which he insisted was driven completely by his desire to run his own company. Merritt, who left PeopleSoft in January, is taking time off and could not be reached for comment.

Other former PeopleSoft executives, including North America vice president Kyle Bowker and former CRM marketing chief Brad Wilson, all said their recent decisions to leave the company were driven not by fears about Oracle, but by their own personal career goals.

However, in an industry in which nondisclosure agreements and employee stock ownership are pervasive, former executives rarely talk publicly in frank terms about their previous employers.

Even if PeopleSoft ultimately prevails in its fight to remain free of Oracle, the loss of some seasoned executives may be one of the less obvious, more painful challenges PeopleSoft has to face during that ordeal. It may even be more painful in the long run than the nearly $43 million it spent last year on lawyers and other services to fend off Oracle, experts said.

"Poison pills and staggered boards aren't enough to protect against a takeover attempt," said headhunter Spitz. "People are going to have to deal with the human-capital issue."

Worker satisfaction
Other companies would be wise to learn from PeopleSoft's situation, he added. As the information technology industry continues to retrench and consolidate after years of depressed sales, more hostile takeover attempts may be on the way. And when they come, target companies should already have strong employee-retention plans in place, Spitz said.

The use of cash bonuses, promotions and raises, which many companies have curtailed in the post-boom economic clampdown, are key tools for staff retention, Spitz said.

Among the set of forces at work in the PeopleSoft executive-retention story is the emergence of the Silicon Valley job market from its funk, PeopleSoft's Swasey said. Start-ups are pocketing fresh rounds of venture capital, and the market for initial public offerings is opening up again after several dry years--all of which is giving high-tech hiring and recruitment a mild boost.

PeopleSoft competitor Salesforce.com, a subscription software company that's preparing one of the most anticipated IPOs in years, is one of the bright spots in the industry. The San Francisco-based company has been on a hiring tear, with the promise of IPO riches helping lure executives from more established competitors such as Siebel Systems, Sun Microsystems and PeopleSoft, experts said.

Peter Gassner, the former general manager of the PeopleTools division at PeopleSoft and a nine-year PeopleSoft veteran, was one of them. He joined Salesforce after leaving PeopleSoft in July--just weeks after Oracle launched its surprise bid.

Gassner said he actually stayed at PeopleSoft a little longer than he otherwise would have in order to help the company through the critical first month of the Oracle battle. "Here at Salesforce.com, it's pretty exciting," Gassner said. "I can work on a new thing with full focus in a growing industry."

With Oracle still in the picture and license revenue in decline in key product areas, PeopleSoft might be hard-pressed to compete for talent on those same criteria.