VeriSign CEO ran afoul of Wall Street

Stratton Sclavos' far-ranging plans led VeriSign to become an industry giant, but also put him at odds with the company's board

After a dozen years serving as the chief executive of VeriSign, Stratton Sclavos resigned on May 29, leaving some onlookers wondering why, even as longtime critics on Wall St. openly praised his departure.

The 45-year-old CEO's abdication of his leadership position at Mountain View, Calif.-based VeriSign -- a technology company with a business model so diverse it defies simple definition -- produced an immediate vote of confidence in the company from some in the investment community.

Yet, at the same time, people who did business with the executive and claim to know him well contend that the predisposition toward controversial acquisitions and far-ranging business plans that led to Sclavos' push-out at the hands of the company's board, was undeniably the same vision that has allowed VeriSign to become the IT industry giant it is today.

In the company's most recently reported financials, for fiscal year 2006, VeriSign reported $1.58 billion in annual sales.

Through its many acquisitions, including such brand names as Internet registrar Network Solutions for roughly $15 billion in 2000, VeriSign created a business model that fused its original expertise in Web security technology with everything from network connectivity services to online domain name registrations.

Other buy-ups led by Sclavos over the years of his tenure included providers of mobile phone ring tones, online content aggregation tools, and even blog site publishing capabilities.

In many cases, Wall St. critics questioned the need for such diversification, even when the companies the CEO was buying were adding to VeriSign's bottom line.

With the executive gone, some institutional investors began calling for the firm to pare down its interests rapidly to discard many of the company's far-flung additions.

In a report published on the same day that news of Sclavos' resignation emerged, analysts at investment bank Credit Suisse First Boston noted the CEO's departure "removes a significant overhang related to investors' general view of VeriSign's senior management as a historically under-performing team."

Among the immediate benefits of Scalvos' departure would be the opportunity for VeriSign to sell off some of the "non-core assets" that the CEO had brought under the company's auspices, according to the report.

In a similar note that at least conceded that VeriSign "benefited from Sclavos' strategic vision," analysts at Wall St. stalwart Merrill-Lynch pointed out that the resignation could lead to the sale of all or parts of the company.

The investment firm also speculated that VeriSign's Board may have "viewed [Sclavos'] unbroken tenure as an obstacle to fundamental changes to the business."

With VeriSign officials denying that the resignation had anything to do with an ongoing review of the company's historical stock option grant practices -- being carried out by a group of its board members -- onlookers who know Sclavos well said that the executive's drive to keep VeriSign relevant with the latest trends in information technology is what ultimately led to his exodus.

Neil Creighton, chef executive of managed security services firm Chosen Security, was CEO of digital certificates vendor GeoTrust when Sclavos and VeriSign bought the firm for $125 million in May 2006.

Creighton said he was surprised and even saddened by the news of Sclavos' stepping down, and that he spent much of the day Tuesday wondering how it ever came to pass.

"When you look at the company and what it has done over the last twelve years, it's hard not to give Stratton credit for building VeriSign from a $10 million security provider into a company doing $1.6 billion in sales," Creighton said. "Other security companies who were competing with VeriSign in the nineties are either gone or have market caps of $200 million right now."

Creighton said that a combination of Wall St. demands for more clarity in VeriSign's business model, along with recent turnover on the company's board, most likely forced Sclavos to move on in the face of mounting criticism.

A desire by those parties to shift the strategic direction of VeriSign wouldn't easily gel with its former CEO's aggressive long-term vision, he said.

Creighton feels that a lack of understanding for where Sclavos wanted to take the company in the future probably led for some VeriSign insiders to echo investors' calls for a clearer short-term focus.

"He is a very visionary guy, and people like that aren't usually right all the time, but VeriSign may be sacrificing the long-term journey he's been planning for years in favor of meeting short-term goals," said Creighton. "There's a lot of pressure to look short-term versus long-term and he was a long term-kind of guy; perhaps his vision was ultimately too big for other people involved with company."

While some outsiders might speculate where VeriSign would be today if it had stuck to the lucrative security market, Creighton, whose company directly competes with the firm, said he has no doubts that Sclavos made the right call.

"His old competitors aren't even around anymore for the most part," he said. "If he sat there as a pure security player, VeriSign would have been a much different company, and it would have struggled a lot more than it has."

Other business relations of Sclavos' said that the executive may have been wiser not to stray so far from the security segment, but observed that it remains hard to argue with the results of the CEO's work when considering the scale of VeriSign today.

"If VeriSign had stuck with its core competencies and worked around fringes of all that, with security comes high margins, and maybe it could have been more profitable, but this company also has high margins with its security, registry and digital certificates businesses today," said Georges Yared, chief investment office for Yard Investment Research and a former senior partner directing international sales for both Wessels, Arnold and Henderson, and ThinkEquity Partners.

"The only real issue was with the company's board; the stock has had some issues these last four to five years, and Stratton wanted to expand the business beyond the most profitable areas, and therein lies the rub," said Yared, who is also the author of several financial self-help books and writes a blog for AOL's Money & Finance portal.

Yared, who has known Sclavos since before his days at VeriSign and said he often brought European investors to meet with the CEO in Silicon Valley, claims that on Wall St. the departed business leader was a polarizing figure, with some buying into his vision, and others extremely unhappy with his performance.

After Sclavos resigned, Yared said, several institutional investment firms that have never before purchased VeriSign's stock immediately began to buy in.

"It seems like people either loved Stratton or they didn't like him very much at all, and he was certainly a fossil by Silicon Valley standards, staying on top for 12 years," Yared said. "The knock on him will be that he was overly acquisitive, that he wanted to acquire whatever he saw as vital to growing VeriSign, and with that came a few mistakes and overpayments."

Creighton and Yared uniformly agreed on one point -- predicting that it likely won't be long before Sclavos finds a new effort to lead.

"I wish he could have back last five or six years, that he would have conducted the company a bit differently, because I'm a big fan and I'm sorry to see him go," Yared said. "But I wouldn't imagine it will be very long before we see Stratton in Silicon Valley again."

Copyright © 2007 IDG Communications, Inc.

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