To say that George Shaheen got a golden parachute when he dashed out the chief executive officer’s door, leaving struggling home grocer Webvan (Nasdaq: WBVN) behind, would be the understatement of the year.
The parachute glitters even more when compared to the company’s other fortunes. More than 800 people have been laid off from the company, for example, and not one was guaranteed lifetime payments. Except for ex-CEO Shaheen.
Naturally, the press loves the contrast. And, no doubt, the people Webvan laid off in Atlanta, Georgia and Sacramento, California in recent weeks see red when they think about Shaheen’s deal. Yes, that’s right, US$375,000 peryear for life.
To some, it is the French Revolution, digital economy style. Let them eat cake ordered online and delivered straight to their doors.
But the fact is that Shaheen earned his pay. Every last penny of it. He did it all by just showing up.
He Earned It
Make no mistake, this is a costly, long-term payout. Shaheen is 57 years old, so if he lives to be just 75, a pretty modest life expectancy these days, he’d collect close to $7 million. That’s a pretty conservative bet, since his wife will get the payments should she outlive him.
Naturally, the question of how a company that has laid off hundreds of workers and cut back on the cities it serves can afford $7 million for a guy who doesn’t work there anymore is on a lot of people’s minds.
Webvan is a struggling company, likely to face Nasdaq delisting any day now. In addition to all the displaced workers, what about all the investors holding stock worth pennies per share?
The fact is that when Webvan made the deal, it couldn’t afford not to.
Up Front Deal
Shaheen needed some pretty substantial financial assurances to leave his $4 million a year job at Andersen Consulting and to take the wheel at Webvan. After all, leaving an established Goliath, like Andersen, for a startup is a risky proposition.
Add in the fact that Webvan is a company in an incredibly uncertain niche of a still nascent industry, and you understand why Webvan had to weigh down the scales with long-term promises of cash in order to win a CEO.
Essentially, Webvan was paying up front for Shaheen’s cachet, his experience and his connections in the high-technology and financial worlds. The move to hire him was a strategic one.
Not every dot-com made the same choice, but those that did — including Amazon and Priceline — had to pay dearly to get their executive of choice.
In the end, it hasn’t worked as well as hoped. Among the factors that Shaheen blamed (on his way out the door) for Webvan’s woes is a cold shoulder from Wall Street. A lack of belief, if you will.
Maybe Shaheen could have done more to convince investors that Webvan and the home grocery chain are viable long-term plays. But Webvan didn’t hire him to cheerlead. Webvan hired him because he was George Shaheen. And he came with a price tag.
Is it fair? No. But it is reality. Crying foul isn’t going to change that.
Out of the Club
But what did his year-and-a-half tenure at Webvan do for Shaheen’s long-term career prospects?
Perhaps he’ll recover just fine and the Webvan payments will simply be a little something extra each year — a $375,000 stocking stuffer, if you will. But the fact is he stepped out of some pretty rarified air as a leader of a Big Five consulting firm to join Webvan. He won’t be able to jump back into that exclusive club immediately.
Even when he is re-admitted, he’ll always have Webvan on his resume. While there was a time when being a dot-com executive — even at a company that suffered the cruelest fate — was viewed as a positive, those days are over.
The Final Cost
The business world is a lot more savvy about these things now. Distinctions are being made and deeper looks being taken.
Stock answers about gun-shy investors and the difficulties of running a pure-play Internet company aren’t going to cut it when people ask what happened to Webvan on Shaheen’s watch.
For years to come, Shaheen will cost Webvan a great deal of money. But even if you shed no tears for him, one might also wonder what Webvan will cost Shaheen?
What do you think? Let’s talk about it.
Note: The opinions expressed by our columnists are their own and do not necessarily reflect the views of the E-Commerce Times or its management.
Was Shaheen’s 375k per year funded in a bullet-proof trust or other funding vehicle? If not, he may never see the payout since he’ll have to stand in line with all the other creditors, and this would be true even if he used a “Rabbi Trust” to fund the payments.
There’s a tendency to justify these outrageous “Golden Parachute” deals by pointing to the just-as-looney standards for top CEO compensation. Let’s have some perspective here. What was Shaheen’s “risk” when he left Anderson — that he’d be forced to settle for a $2-million-a-year job after Webvan, since he would be too tarnished to get another $4 million job like he had at Anderson? That his savings from his Anderson job would run out, and he’d be forced to live in a refrigerator box, eating Alpo?
I say it’s time to replace the “Golden Parachute” with the “Golden Bungee Cord.” Give the failed CEO a nice severance check, attach the giant rubber band to his ankle, and let him fly out the corner office window. This way, the CEO is unharmed, yet he gets to know what his stockholders felt like when their share prices plummeted.
You make a good point — it seems that Webvan is not long for this world, so unless there is some kind of trust fund set up for Shaheen, his payments might not be the windfall they appear to be at first glance.
Golden parachutes are nothing new — I’ve worked at a company where a CEO with less than a year’s tenure got a multimillion-dollar severance. The thing that is bothering people, IMHO, is the “for life” part. It just seems gratuitous. If the payment were calculated as a lump sum (say, $4 million, his old yearly salary at Andersen), Shaheen could make just as much or more by investing that wisely as he ever will from this deal, and there would be a lot less backlash.
I think there really is a difference between Old Economy and so-called New Economy mindsets. And I think a combination of both is the real recipe for success.
It’s like a car: New Economy execs are needed to turn the key in the ignition and drive fast — but it’s the Old Economy execs who have the experience to repair the car when it breaks down.
Re: consultancies, my personal opinion is that they are a waste of most companies’ time and money. They toss around buzzwords and talk a lot about “process,” but the nitty-gritty of actually doing business seems to get lost in the process.
First, despite Webvan going under, Shaheen will continue to receive payments. Why? Annuity. When he was brought on, I’m sure Webvan bought an annuity for a couple of million based upon the contract that Shaheen had coming in.
Second, several posts were about Shaheen not having CEO-retail experience or about him being a consultant, etc. He must be doing something right to get to the top of AC. To be sure, he WILL land another role (probably a second-in-command job at some Fortune 500). At that level (CEO) there are two things that are important: being able to break down the business model into simple terms (a la Sam Walton) and turning that into increased shareholder value. Webvan’s business model was extremely simple: real-time inventory management and logistics of groceries. Why does the CEO of a company like Webvan need to be a guru in the grocery business? The answer is that he doesn’t.
Explain to me how a lifetime payment of $375K continues on to George’s wife after his death. Shouldn’t it be an after-lifetime payment. Anyone figure out the NPV of a $375K perpetuity??
My guess is bankruptcy court voids that annuity – and if there any justice in the world Shaheen will be seen for what he is – a greedy, worthless ex-consultant.
If there’s any justice, Mr. Shaheen will get the Webvan version of “the check’s in the mail.” Just wait by the door at home for your cash, George. The truck will be there any minute now.
George Shaheen may have to line up along with every other person to whom Webvan owes money. Can a bankrupt company be allowed (or forced) to pay $375,000 that it doesn’t have to its former CEO before paying other creditors? I’d like to see Shaheen’s lawyers argue that in Bankruptcy Court.
The biggest mistake we made in our venture funded start-up was listen to the VCs who listened to the headhunters who collected over $250k for 2 months work and delivered a CEO who had “cachet” and pedigree and no clue how to run an internet software company. The ONLY thing worse would have been hiring a CONSULTANT … someone who is rarely paid or judged on performance and lacks REAL BUSINESS experience. Our CEO leaving was the only thing that SAVED us and allowed a modest recovery under the direction of the founders who don’t look sexy on paper BUT KNOW THE BUSINESS.
One thing to remember: Once Webvan is in bankruptcy, Shaheen will likely just be another unsecured creditor, and will get to share the delights of standing at the back of the line (and getting nothing out of the bankruptcy) along with the other shareholders.
It’s a crying shame and a disgrace to “honor” an individual’s choice to leave one career to start up a risky business venture and get paid even when it failed.
It’s not what he knew (or lack thereof), it’s who he knew and all supporting “rich” buddies that allows him to skip merrily into the future while others hit the pavement in search of much needed jobs.
Webvan was taken for a long ride….
It is obscene that 2000 good workers have lost their jobs with nothing to fall back on and Shaheen leaves with $370,000. I was a customer of Webvan. The workers were fine, courteous people. It was a pleasure to have them visit my home and deliver quality groceries.
Shaheen failed. Failure should not be rewarded. Perhaps if his salary wasn’t so high, Webvan groceries would not have been so high, therefore more customers would have continued with Webvan.
I’m going to miss Webvan.
Shaheen is just another example of an overpaid CEO
who did not have the experience and smarts to deliver.
Having slogged through the advertising industry, political consultants industry, and city bureaucracy, I AM continually AM azed at how many supposedly smart people do not get that the Emperor wears no clothes. Did Webvan just look at his resume and not ask him for a business plan before they hired this dork?????
I think Shaheen did irreparable damage to his future as a business leader. The 375,000 for life that he accepted is not a very good business decision, he was making 4 million a year with a corporate giant. He will make 7 million over the course of his life, expecting that he lives to be 75, but he has caused great damage to something that is priceless in the business world and that is his reputation. I AM sure that he will find another sucker to take care of him, but I doubt that another corporate giant will pay him the kind of money that he could demand a few years ago.
Hm, here we are, several months down the road and the chickens have come home to roost.
Today, July 9, 2001 Webvan just filed Chapter 11 and canned 2000 employees. So, how is this bozo going to still pull in his 375k annual out of a company that is for all intents.. dead?
Let them both rot as perfect examples of bad business plans and worse business planners. I’ll be watching the local Yacht trader to see which one he sells first.
I agree with you 100% – Both Webvan and Shaheen did more damage to each other. It really is a shame because this is a model that could have made money if all parties were willing to do a little work instead of basking in the glory of being an internet company or internet CEO. Maybe one day someone will see the potential and put the concept to good use.
This is one of those everyone is right kind of stories. In the end, if Shaheen’s rep is tarnished it’s his own doing.
I bought stock on the belief that if anyone could cajole Wall Street into some more cash, it would be the ex-Andersen chief. He did not seem to do anything really, from my outside eyes.
On the other hand, Shaheen is right, Wall Street gave everyone too much money too fast and now look at everything. Wrecked.
A lot of good ideas are going down the drain, and yes alot of stupid ideas from lavish party throwers are going down as well.
This poses an even greater question. Can old economy successful corporates handle new economy guys? Does success in an old job guarantee success in this totally new jobs?
Shaheen as part of Anderson must have provided consultancy solutions to many Internet companies. And, he himself failed to implement a successful strategy. Does Big Five Consultants, with just consultancy and zero operational experience have it in them to run a business?
Shaheen made a deal with WebVan and both sides accepted the terms. What’s to understand? Anyone leaving a $4 million/yr job would have to be crazy not to make a deal like Shaheen did.
How many of the other employees (or those laid off) left a high-paying job to join WebVan?
I don’t imagine either side is happy with this outcome, but I think that Shaheen took the bigger risk. What happens if Webvan goes under? Presumably Shaheen’s payments would stop if Webvan goes out of business.
What was Dave Burn’s role in all of this? I believe he was a big factor in this decision. I think the board was irresponsible and irrational at time they made the hire in not adding someone who understood retail to the top position. At the end of that Webvan had a board and a CEO who were not equipped for the challenge, which was huge.
I also believe Dave and co. sold Shaheen a bag of lies about what he was expected to do. Not that I AM not pissed at Shaheen for not putting his heart and soul into the company, which I do not believe he ever really did.