McAfee ushers in new CEO

After watching its boardroom partially emptied by a stock options backdating scandal, McAfee reloads with a new CEO: former EMC and Documentum executive David DeWalt

McAfee introduced its newest chief executive on Feb. 5 in its latest step to rebuild the firm's leadership ranks after a 2006 stock options backdating probe that led to the departure of several top officials.

The security applications vendor named David DeWalt, 42, a former executive with storage giant EMC, as its latest president and CEO. DeWalt is the fourth individual appointed to the top job at McAfee in only the last six years.

The new CEO steps into the role that was being occupied on an interim basis by McAfee board member Dale Fuller, who will step down from the job on April 1, 2007, but will retain his role as one of the firm's directors. DeWalt was also named to McAfee's board.

Fuller, who had only joined McAfee's board in Jan. 2006, was called upon to steer the company when its president, Kevin Weiss, was fired in October 2006 after it was discovered that he had engaged in options backdating.

The scandal -- through which executives illegally pre-dated their stock options to maximize personal gains -- also led to the resignation of longtime McAfee chairman and CEO George Samenuk.

Charles Robel, the former COO at venture firm Hummer Winblad Venture Partners, signed on as Samenuk's replacement as McAfee chairman.

DeWalt joins McAfee at a time when the company has reached a crossroads not only in terms of management, but also regarding its future. While the software vendor has long held a leading role in the desktop security market, trailing only Symantec in the massive antivirus segment, market forces have led company leaders to reshape the firm through a long series of mergers and acquisitions.

Over the last several years in particular, McAfee has aggressively expanded its holdings in the market for compliance automation applications and services, which are used by businesses to stay in line with federal regulations, including the Sarbanes-Oxley Act.

Perhaps taking a page from Hewlett-Packard, which replaced colorful CEO Carly Fiorina with Mark Hurd -- a veteran of the stodgier data storage market at NCR -- McAfee clearly views DeWalt as someone who excels at management of both operations and business diversification.

At EMC, DeWalt served as executive vice president and president of customer operations, including sales and services, and headed the company's software division, which the storage market leader has been pushing to grow aggressively.

The executive came to EMC via its $1.7 billion buyout of Documentum in 2003, a deal which represented a strategic move by the firm to expand beyond its home turf in the storage space into the enterprise content management software arena.

Immediately prior to the sale, as part of only a two-year tenure at Documentum, DeWalt is credited with leading the software company through 13 consecutive record quarters of financial performance, and he also worked previously at Oracle.

"When I look at this company, I see no shortage of assets and a billion dollars in revenue as a pure play security vendor, which should give us a lot of potential opportunities," DeWalt said of McAfee "There's no debt, and the ledger is pretty positive. There were problems with the stock options, but the company has been getting stronger in a lot of intriguing areas such as compliance; we will be a top company worldwide when we come out at the other end."

DeWalt specifically pointed to work done by CFO Eric Brown, who took on the additional responsibilities of COO in the wake of the stock scandal, as crucial to McAfee's recovery from the executive debacle. 

The company said on March 2 that it plans to take an additional fourth-quarter stock options charge of roughly $1.8 million, lowering its net income by approximately $1.1 million, related to the backdating incident.

The new CEO would not say whether or not McAfee will be more likely to become a buyer of smaller security companies or market itself as a potential acquisition to larger vendors but said that neither alternative is being ruled out.

In the last year alone, a handful of security larger security technology makers have been swept up by larger infrastructure players, such as with IBM's acquisition of ISS for $1.3 billion. DeWalt's former employer EMC bought RSA Security for $2.1 billion in June 2006.

While the executive said he was not planning to shop McAfee to potential buyers in his first days on the job, which officially begin on April 2, he said that the firm wouldn't rule out any possibilities until further exploring all of its options. DeWalt said he helped lead three different companies that have been acquired and that he's completed nearly 50 similar transactions from the buyer side.

"These are all possibilities, I'm no stranger to the consolidation game -- mergers and acquisitions are a way of life, and the security space is one of the last not to go through that type of change," said DeWalt. "We could be the consolidator, or some larger companies could look at us as a pure-play security provider that they need. It's a good position to be in."

Industry watchers observed that DeWalt is taking over at a time when McAfee must make some tough decisions about its future.

While rival Symantec moved heavily into storage technologies via its massive acquisition of Veritas in 2004, McAfee has yet to stake as serious a claim with its roadmap, said Andrew Jaquith, an analyst with the Yankee Group.

Pushing into the compliance sector is a good short-term bet for the firm, he said, but McAfee will need to define more far-ranging goals for where it aims to take its business tomorrow.

"It all boils down to figuring out what McAfee wants to be when it grows up, even while it sharpens its existing message on anti-threat technologies," Jaquith said. "Symantec has clearly planted a flag in terms of becoming a broader systems management company; McAfee has stayed as more of a pure play -- they'll have to decide if they want to remain as a specialist, broaden through acquisitions, or become the security division of a bigger company."

Jaquith, who said he isn't personally acquainted with DeWalt, indicated that the comparisons to HP's hiring of Hurd may be fair.

He indicated that giving the impression of a more conservative leadership approach may have been part of the message the security company's directors wanted to send investors regarding the direction they would like to see the firm head in. If that is the case, said the analyst, it may have been a wise move considering the company's recent history of executive upheaval combined with ongoing shifts in the security market itself.

"The hiring strikes as me as one way they may be looking to make security appear a little more boring, which is good, because boring means operations, and that's what customers are concerned about," Jaquith said.

Copyright © 2007 IDG Communications, Inc.

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