Top management headed for the exits at two of the San Francisco Bay Area's well-known technology firms, McAfee (MFE) and CNET Networks (CNET) - Get Report, a clear sign that options-backdating scandals are not yet over, and that more departures may follow for firms with similar accounting problems.
While investors seemed relieved that McAfee had put its options questions to rest -- recently bidding the stock up 3.3%, or 86 cents, to $26.65 -- the news had the opposite effect for CNET -- its shares fell 6.5%, or 64 cents, to $9.26.
No doubt contributing to the divergent reactions from investors was the additional news from CNET that it was cutting its revenue guidance to $92.8 million for the third quarter. Previously, the online media firm said sales would range from $93 million to $96 million. Thomson First Call analysts polled had pegged the company for sales of $94.8 million.
Following investigations into its stock-option grant practices, McAfee fired President Kevin Weiss and announced that George Samenuk, the security-software firm's chairman, had retired. Meanwhile, CNET CEO and Chairman Shelby Bonnie resigned, along with the company's general counsel and head of human resources.
But some corporate governance watchers expect similar moves in the future.
"These are not the only companies that are going to take this action," says Jim Post, a professor of management at Boston University who teaches corporate governance and ethics for the school's MBA program. "I think this puts more pressure on the boards of other companies to be aggressive in the way they treat problems at their own companies."
"It's the tip of the iceberg," Post says.
While the likelihood that more companies could take similar actions may be unsettling to investors, it should reassure them that "boards are serious about cleaning up this mess," Post says.
"It's got to make for some sleepless nights for executives at some of these other firms," he added.
Friedman, Billings, Ramsey analyst Daniel Ives, who follows security companies, wrote that the news was "positive for the long-term health of MFE and its investors. Since this stock-option investigation started, it has been a major overhang on shares, as investors are 'gun shy' of owning a name that was in the early innings of a complex stock-option investigation."
Ives, who has a buy rating on the company, said the executive shake-up also gives McAfee COO and CFO Eric Brown, who has "Street credibility and proven track record in previous roles," a chance to take on a larger role. FBR seeks to do banking with the companies it covers.
The executive departures followed months of internal investigations that sought to find out whether the companies gave stock options to certain employees with manipulated grant dates for better financial gain.
Because of the stock-options debacle, McAfee said it will need to restate historical financial statements to record charges for stock-based compensation expenses over a ten-year period. Based on the initial review, the company said the amount will be in the range of $100 million to $150 million.
Dale Fuller was named interim president and CEO of the security firm. Fuller, who served for more than six years as CEO and president of
, joined McAfee's board in January. Charles Robel was appointed nonexecutive chairman of the board.
"After almost six years at McAfee, I have retired as Chairman and CEO in the best interests of the company, its shareholders and employees. I regret that some of the stock-option problems identified by the Special Committee occurred on my watch," Samenuk said in a press release.
The board appointed a search committee for a new CEO immediately and will look internally and externally for candidates.
At CNET, the special committee appointed to oversee the options investigation found problems with options granted from the time of the company's IPO in 1996 through at least 2003. Those errors will result in a previously announced
restatement of financial results.
The committee blamed a number of company executives, including the former CFO and the three departing executives for "varying degrees of responsibility."
"I apologize for the option-related problems that happened under my leadership," ex-CEO Bonnie said in a statement. "I believe that the company has come a long way since 2003 in addressing these deficiencies but am deeply disappointed it happened nonetheless."
He will remain a director.
The board appointed Neil Ashe to take the reins as CEO and director, effective immediately. Jarl Mohn was appointed non-executive chairman of the board.
CNET said the recently resigned executives and the directors who were granted improperly priced options have agreed voluntarily to have these options repriced on the correct measurement date.
The special committee found that the compensation committee "relied upon management to establish and maintain appropriate procedures with respect to stock-option grants. The report stated that it would have been better practice if the compensation committee had encouraged management to adopt more rigorous procedures and controls during the 1996-2003 period."