Conway's Firing Shocks Industry 2

PeopleSoft Inc.'s surprise move to fire president and CEO Craig Conway has nothing to do with its fight against Oracle, PeopleSoft executives said Friday, shortly after the company disclosed the dismissal.

PeopleSoft named company founder and former CEO Dave Duffield to take over the helm of the embattled application vendor. The board said the decision was the result of "a loss of confidence in Mr. Conway's ability to continue to lead the company," according to a statement issued Friday morning. Using unusually harsh language, the statement said the board's unanimous decision to "terminate" Conway as president and CEO was effective immediately.

Just how Conway's firing could impact Oracle's $7.7 billion hostile bid to acquire PeopleSoft wasn't immediately clear. The company, in its statement, signaled that the ongoing fight with Oracle was not a factor in Conway's dismissal by emphasizing that all decisions regarding Oracle's tender offer have been made by the board based on "the unanimous recommendation of the transaction committee of the board."

Last month a federal judge rejected the U.S. Department of Justice's efforts to block an Oracle acquisition of PeopleSoft, and Justice announced Friday it will not appeal the decision.

There has been speculation about Conway's future because of PeopleSoft's recent poor performance, AMR Research analyst Jim Shepherd says. Net income plunged 70% to $11.0 million in the second quarter ended June 30, compared to one year earlier, despite increased license and total revenue. Net income dropped 37% to $24.2 million in the first quarter ended March 31.

But the company added an odd note to the Conway news by disclosing that license revenue for the third quarter ended Thursday is expected to exceed $150 million, well above Wall Street's expectation.

The firing caught many off guard. "I'm shocked. That's about it. We had a lot of confidence in Conway. I'm not sure what direction PeopleSoft's going," says Ben Wilson, CIO of Napa County, Calif., which uses PeopleSoft applications. "The board must feel it's a good direction to go in, so we still have a lot of confidence in PeopleSoft."

Conway once worked for Oracle CEO Larry Ellison and the acrimonious fight over Oracle's takeover bid is often seen as a personal battle of wills between the two high-profile executives. Firing Conway would remove a potential roadblock to any deal.

But if that was the company's intention, it would not have brought back Duffield as CEO, notes AMR's Shepherd. Duffield founded PeopleSoft in 1987 and has been a vocal opponent of any deal with Oracle. "He's certainly not a guy who's inclined to sell the company to Oracle," Shepherd says.

Duffield stepped down from the president and CEO posts in 1999 but stayed on as the company's chairman and owns a significant amount of PeopleSoft stock.

Oracle declined comment on Conway's firing.

Duffield is popular with PeopleSoft employees and customers, Shepherd says, a point confirmed by Napa County's Wilson. "We've met with Duffield. Nice guy, brilliant, ran a friendly company," he says. Duffield could leverage his popularity to rally customers and business partners against Oracle, Shepherd says.

PeopleSoft also named Kevin Parker and Phil Wilmington as PeopleSoft co-presidents. Parker will retain his CFO post and oversee the company's internal operations. Wilmington, currently responsible for PeopleSoft operations in the Americas, will be in charge of worldwide field operations. Board member Aneel Bhusri was named vice chairman and will focus on product and technology strategy.

Some say the oust reflects the board's decision for a different management structure that spreads duties around to more executives--a CEO, two co-presidents, and a vice chairman overseeing products and technology. The approach is more collaborative than before, according to an industry insider. Ironically, PeopleSoft's new approach mirrors that of Oracle's; earlier this year, Oracle split Ellison's position in two, creating a CEO and a chairman, and also named two co-presidents.

--With additional reporting by Steven Marlin and Laurie Sullivan