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Bounced CEOs get a second chance

CEOs seem to be leaving Silicon Valley companies as fast as a hyperlink on a T1 connection.

2 min read

CEOs seem to be leaving Silicon Valley companies as fast as a hyperlink on a T1 connection. Victims of increasingly impatient demands of boards for greater profits and faster turnaround times, an unusually large number of high-profile departures have rocked the industry in recent weeks.

But for the executives themselves, it's not always bad news.

Robert Frankenberg,
formerly of Novell

Just last week, chief executives at three major companies--Novell, AST Research, and Quarterdeck--lost their jobs.

As quickly as they hit the pavement, these high-tech veterans are often courted by other firms waiting to snatch them up. Just as newspaper want ads are overflowing with openings for engineers, positions are equally vacant in corporate suites as well.

It comes down to a simple equation of supply and demand: As the Internet has ignited an explosion in new business, companies need new chief executives to head them up. The industry's culture doesn't help, either. Notoriously incestuous, high-tech companies have always been reluctant to go outside to find new blood, often speaking in almost cult-like reverence about the special qualities needed to lead a technology company.

"There's so many more technology companies out there than there are CEOs," said Helen MacKinnon, president of recruiting firm Technical Connections. "Because there's a mystique around technology, companies want to hire CEOs who've had experience in the market and know the playing field, even if they weren't successful at their last job. There is a sense that they'll get it right this time."

Jon Holman, president of the Holman Group recruiting firm in San Francisco, estimates that he receives about ten calls a week from venture capital firms looking to hire a chief executive for an Internet company. Companies seeking software CEOs are responsible for one or two of those calls a week, he says, while inquiries for semiconductor executives bring in about a call a month.

As demand is heavy for CEOs with a technology pedigree, a number of middle-managers and bright employees find themselves reaching for the brass ring sooner than before.

"A number of people are becoming CEOs who wouldn't have ten years ago," Holman said. "Sometimes they're people who, given five more years of experience, would have become a CEO. Or, they may be brilliant employees but have never even run a division."

All of this is good news for top executives like Robert Frankenberg, formerly of Novell; Ian Diery, formerly of AST; and Gaston Bastiaens, formerly of Quarterdeck--all of whom resigned last week from companies that suffered a string of financial losses.

"I would say it's a little bit unusual for CEOs of some pretty high-profile companies to lose their jobs in the same week, but they all have one thing in common: their companies were in financial trouble," Holman said.

John Young discusses Frankenberg's departure

Novell President Joseph Marengi outlines management focus

Board members at Novell, a networking software powerhouse, apparently believed that Frankenberg did not aggressively market the company's products. Novell is seeking a new CEO to lead the company on a large-scale marketing attack, said newly-named Novell chairman John Young at a press conference. Frankenberg was not available for comment.

AST, meanwhile, named Young-Soo Kim as the new CEO at the computer maker. Kim, a former director and executive with the company's major investor Seoul-based Samsung Electronics, said in an interview with CNET that a communication breakdown and conflict in expectations between AST and Samsung arose under Diery's leadership. Diery was not available to comment.

Gaston Bastiaens
Quarterdeck's Bastiaens left the PC utilities and Internet software company after two unprofitable quarters. Bastiaens, who remains a company director and consultant, told CNET that he plans to announce his next step in the near future.

"Gaston had a nose for looking at the long-term vision. Now we need to find a CEO to implement strategy," said Ellen Spooren, a Quarterdeck spokeswoman.

The relationship between red ink spilling across a company's financial books and a CEO's walking papers is nothing new. But the timetable for tolerance has shortened over the years.

"In the early to mid-1980s, a CEO had four to six years to turn things around," MacKinnon said. "Now, boards want visible proof things are turning around within a year, and a CEO has another year or two to prove it works."

Contributing to this change, AST director Jack Peltason notes, is the increasing speed at which competitors develop technology.

Jack Peltason, AST director, says CEOs have to move quick "Competition is intense these days, and boards are becoming severe judges. A CEO doesn't have much time to turn things around," Peltason said.

Young-Soo Kim
of AST

A river of venture capital funds flowing to technology companies over the past decade have also led directors to demand quick results from their CEOs, Holman added.

"Venture capitalists, by nature, aren't very patient people," he said. "A board comprised of venture capitalists is more quick to move than a board made up of bankers."

But this pipeline of venture capital has also nourished the growth of a number of technology firms as well as increasing the demand for CEOs in certain segments of technology.

Peltason describes the small pool of available CEO candidates So desperate are some companies that they have taken the rare step of going outside the industry to fill the top executive spot.

IBM hired Louis Gerstner in 1993 as chairman and CEO from the former RJR Nabisco, where he served as chairman and chief executive. Apple Computer hired John Sculley from PepsiCo in 1983 as president and chief executive. Sculley, however, stepped down as CEO in 1993 as the computer maker lost market share and profits.

Technology companies have generally been reluctant to take a chance on a CEO from a different industry, but if its product is a commodity, such as computers, then sometimes it makes sense to go outside, MacKinnon said.

"Some CEOs are so steeped in the technology and they're not thinking from a consumer's perspective," she said. "You have to price the product well, market it, and provide customer service in a commodity market."

MacKinnon noted that it's usually easier for a large company to hire outside the industry because technical expertise typically exists already within its operations, compared with a start-up that first has to prove its technological prowess not only to customers, but also to financiers.

As CEOs come and go from one tech company to another, MacKinnon has this advice: "The smart CEO, once they get a new job, is already looking for the next one."