PeopleSoft's CEO Conway gets the boot

PeopleSoft's CEO Conway gets the boot

PeopleSoft CEO and President, Craig Conway, was shown the door last Friday by the company's board of directors, who immediately replaced him with Dave Duffield, PeopleSoft's founder and chairman.

Conway's dismissal was due to a "loss of confidence" in the CEO's ability to lead PeopleSoft, the company said in a statement. The board of directors also promoted chief financial officer, Kevin Parker, and executive vice-president, Phil Wilmington, to co-presidents and Aneel Bhusri, a former PeopleSoft executive now working as a venture capitalist, to vice-chairman of the board.

"It's great to be back," Duffield said.

He served as PeopleSoft's CEO from its incorporation in 1987 through 1999, when he turned the reins over to Conway.

Duffield said his re-appointment to the CEO spot is permanent.

PeopleSoft also said its license revenue in the quarter ended last week topped $US150 million - a pleasant surprise to many financial analysts, who feared worse after PeopleSoft said its license revenue for the quarter topped Oracle's.

Oracle reported $US69 million in application revenue in its most recent quarter; while PeopleSoft wouldn't comment further on its revenue, analysts generally took its statement to mean it had only edged past Oracle's disappointing results.

The CEO dismissal at the end of a respectable quarter puzzled some analysts.

"I think it was a huge surprise," American Technology Research analyst, Donovan Gow, said.

"$150 million in license revenue is strong -- I think pretty much everyone, myself included, thought that the quarter would be a complete disaster. On the one hand, they're saying we've lost faith in the CEO; on the other hand, they're saying they're gaining traction with new and existing customers. Obviously, they're not giving him credit for that."

Speaking on behalf of PeopleSoft's board, director, George "Skip" Battle, declined to go into specifics about the reasons for the lost faith in Conway. The decision was made and approved by the board's five independent directors, with Duffield and Bhusri abstaining from the vote, he said.

PeopleSoft's eight-person board had consisted of Duffield, Conway and six outside directors including Bhusri.

"The very simple and plain truth is that over time the board has become increasingly concerned with Craig's leadership and essentially had lost confidence," Battle said. "There's no smoking gun, there's no accounting irregularity. He was not terminated under the for-cause provision in his contract."

Battle denied that PeopleSoft's ongoing battle with Oracle, which is continuing a hostile takeover campaign it launched in June 2003, had anything to do with Conway's firing. PeopleSoft's board has consistently rejected Oracle's offer, now valued at $US7.7 billion. Conway, a former Oracle executive, strongly opposed the deal and was seen as having a personal stake in ensuring it did not occur. But Battle said PeopleSoft's transaction committee, comprised entirely of independent directors, unanimously agreed to reject each of Oracle's bids and was never at odds with Conway about the Oracle deal.

Financial analyst, Charles Di Bona, said he saw deeper problems at the company than the confusion created by Oracle.

"I think a large part of the loss of confidence really is more around the J.D. Edwards situation than Oracle," he said, referring to PeopleSoft's work integrating the smaller business applications vendor it purchased one year ago. "$150 million is still down 9 per cent year-over-year.

There's not as much good there as [Wall] Street thinks. This is not a growing company, this is an ailing company. I think that's getting lost in the noise because people thought it was not just ailing but on life support."

Duffield said his priorities at PeopleSoft will be returning the company to the core values upon which it was founded.

"We need a little more in the way of vision and strategy, and I think I'm very good at that stuff," he said.

Forrester Research analyst, Paul Hamerman, sees the move as a good one for customers. Under Conway, PeopleSoft moved aggressively on raising maintenance prices and lost some of its reputation as a customer-focused vendor, he said.

"I think there's been an erosion in customer confidence," Hamerman said. "There's been issues about the maintenance pricing and the service levels customers are receiving. In the days when Dave Duffield ran the company, they bonded with their customers and really paid a lot of attention to customer satisfaction. They've decided to step back in and restore some of the original values of the company."

Hamerman also expects to see a more developed technology vision from Duffield, something he feels Conway lacked. PeopleSoft's primary product development strategy for the past year has been what the company calls the "total ownership experience," a push to reduce its software's administrative costs and burdens.

Whether Duffield's return would change PeopleSoft's stance regarding Oracle was an open question, analysts said.

"Conway was generally regarded as a big impediment to the deal going through," American Technology Research's Gow said. "I don't necessarily think [Duffield] will be any more likely to accept the bid, but it's very hard to read at this point."

Forrester's Hamerman said that as PeopleSoft's founder, Duffield was likely to want to see the company remain independent.

"I don't think he wants to give up the company, especially to Oracle," he said.

Yankee Group analyst, Mike Dominy challenged that view, though.

He thought this marked the end of the road for PeopleSoft's resistance. With the US Department of Justice announcing that it would not appeal a court decision overruling its antitrust objections to a PeopleSoft-Oracle merger, the European Commission expected to approval the deal, and PeopleSoft struggling to grow its sales, Oracle's offer became ever harder to walk away from, Dominy said.

"I absolutely believe the developments with Oracle are a factor [in Conway's departure]," he said.

Oracle now needed to develop and very clearly communicate a plan for both short- and long-term support of PeopleSoft's customers; disrupting product development and alienating the customers it spent billions to buy would be a waste of Oracle's investment, he said.

Laura Rohde in London contributed to this report.

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