High-Tech Company: Key Management Change

MINIMIZING DAMAGE AFTER A KEY MANAGEMENT CHANGE

Disruption Doesn't Have to Trigger a Sell-off


At the time of N&A's engagement, this high tech company faced a critical dilemma. Founded by two entrepreneurs, the company became a classic high tech success story. Its founders astutely realized that different skills were needed to manage a $1.0+ billion operating company in a highly competitive environment. Then its problems began.

Background and Situation Analysis

At its inception, our client company defined and claimed a niche in the high tech market. Its entrepreneurial underpinnings served the company well in the early years. Even when the company went public in the 1980s, its youthful culture and style of doing business lent a cachet to the company that was accepted by "The Street." However, with the transformation of the company from a start-up to a substantial, publicly held, operating enterprise facing ever more intense competition, the founders realized the need for bringing in a seasoned, professional chief executive from the outside and they retained a top executive search firm. The candidate they ultimately selected possessed some surprising credentials. First, he came from a different, albeit tangential, industry; second, he came from a bureaucratic company where he had spent most of his career. The selection surprised "The Street" and raised analysts' eyebrows. They worried about a clash of cultures.

The founders turned over the management reins of the company to the new CEO, although they continued as major shareholders. Once on board, the new CEO allayed the concerns of analysts. He quickly established a level of credibility and began to make his mark. Because his agenda differed somewhat from that of the founders, he began to implement changes. However, some of the changes did not come easily to the company and brought with them new problems. The company began to report losses, the stock plummeted and analysts began to reassess the company's outlook. The founders faced a difficult decision:

  1. They could do nothing and watch their paper losses mount and their personal fortunes dwindle; or
  2. They could reinstate themselves in the day-to-day management of the company.

If they were to reinstate themselves as adversaries, they risked upending the company, precipitating a boardroom fight, as well as violating the new CEO's contract. They also risked creating the perception that they were meddling because they couldn't really turn over the management of the company to another executive.

The Plan

The founders opted to "assist" the new CEO. However, before such a plan of action could be initiated, conditions in the company took a turn for the worse. The CEO began to exceed his authority and proactive involvement of the founders became critical. 

Working with the founders and their counsel, N&A developed a crisis communications plan, which embodied the protocols for several possible outcomes:

  1. An amicable restructuring of the role of the CEO that provided for reinstatement of one or more of the founders.
  2. The termination of the CEO.
  3. The "negotiated" resignation of the CEO.
  4. The voluntary resignation of the CEO.

Of major concern in any of these outcomes was preservation of the reputation and integrity of the company with its stockholders, employees, customers, lenders, suppliers and other constituents. In the short-run, this meant protecting against a sell-off in the company's stock on the first hint of bad news. It also meant planning for any number of contingencies. For example, what if attempts to dislodge the CEO precipitated a boardroom brouhaha that got aired in the public?

Strategizing became essential. It was necessary in any scenario of possible outcomes to present a sufficiently detailed story to "The Street" and the outside world as to justify any actions taken by the founders but not so-detailed as to precipitate a libel suit from the CEO were he to be ousted. N&A was involved in aiding the founders and counsel with internal and external strategies. We began to develop the message points for analyst and media conference calls and the print media. Those message points included assurances of the fundamental strengths of the company, framing the precise nature of the current problems and detailing the nature of the corrective actions being taken.

Results

The CEO, when confronted with the realities of the situation, elected to resign but agreed to enter into a consulting agreement and to stay on as a board member. One of the founders stepped in as CEO.

Information regarding the management and directional changes of the company was quickly announced through a series of analysts and news media conference calls and, where appropriate, one-on-one interviews were conducted. The company's stock fell by less than a point on the initial announcement. Within a week, the stock was trading back at its recent levels. The story generated limited news coverage in the local and regional media and smaller "news briefs" in national media outlets.