EDS rewarded for dumping Brown
- By Patience Wait
- Mar 26, 2003
EDS Corp. continues to reap benefits in the stock market from its announcement that Richard Brown, chairman and chief executive officer, has stepped down.
The price per share has fallen from Monday, when it hit $17.90, closing at $17.68 Wednesday. But this is the highest price for EDS since Jan. 17, when it traded at $18.82 per share. Shares remain more than 10 percent above their close on March 20 when Brown's departure was announced. A year ago, EDS' stock was above $62 a share.
News of Brown's ouster also sparked heavy trading. On March 21, more than 10.9 million shares changed hands, compared to about 1.9 million the day before. On Monday, more than 7.6 million shares were traded. At today's close the volume was about 4.3 million.
George Newstrom, former president of EDS' government unit and now Virginia's secretary of technology, praised the decision by the board of directors to let Brown go.
"There was a tremendous loss of confidence of EDS leadership in the street, the customers and the employee base," Newstrom said. Replacing Brown "was a critical and proper move for the board to make."
Since the news was released, Newstrom said, he has "heard from scores of current and former colleagues and they take this as a very positive sign for EDS."
Former government unit president Bill Dvoranchik, who retired from EDS in 2001 shortly after the company won the $8.8 billion Navy Marine Corps Intranet contract, echoed Newstrom's satisfaction.
"When Dick first came to EDS he had a great beginning. The things he was doing made sense," Dvoranchik said. "In the last couple of years he didn't adjust his style to go where EDS needed to go. I do think it was an appropriate change. I think it could have been done a little sooner."
Replacing Brown is Michael Jordan, who retired from CBS Corp., formerly Westinghouse Electric Corp., in December 1998. Previously he was a partner with Clayton, Dubilier and Rice, a private equity firm in New York. Before that, he spent 18 years with PepsiCo Inc., where he served in numerous senior executive positions, including chief financial officer and president and CEO of PepsiCo WorldWide Foods, which includes Frito-Lay. From 1964 to 1974 he was a consultant and principal with McKinsey & Company.
"I am delighted" with Jordan's selection, Newstrom said. "The credibility, the currency he has with [Wall Street] and analysts, will go a long way to provide the positive direction."
Dvoranchik said that Jordan sounds like a very senior person, who might only be in the role for three to five years, leaving open the question of long-term leadership.
Bill Loomis, managing director of the technology research group at Legg Mason Wood Walker Inc. in Baltimore, said the leadership change would not have much effect on the government unit's operation. "That business obviously has a full set of managers," he said.
Dvoranchik, on the other hand, said he thought the change would be good for the government unit, that the managers would be given the flexibility to pursue opportunities according to their strengths and priorities.
"I hope that the government business will be given more freedom than it's been under the last couple of years," he said. "I have no problem with how Dick started out, [but] the entire company has been under the same rules of engagement. Therefore you haven't been doing portfolio management."
The market appears to have shrugged off the news about the size of Brown's severance package ? a combination of cash, retirement benefits and vesting in stock totaling $37.4 million.
"The company has more than enough financial resources to pay it," Loomis said. "Whether it's justified or not ? I know there were some contractual obligations by the board when he signed up."
Jay Lorsch, a professor with Harvard Business School and expert on corporate governance issues, said investors are getting tired of executives being rewarded munificently for poor performance.
"We're paying people huge amounts of shareholders money for nonperformance," Lorsch said. "We have this situation where CEO compensation is awfully out of control. It really is time for boards to put the genie back in the bottle."
Dvoranchik was more pointed.
"I believe that in the day and age when he was hired, that's the way corporations did business. I do not think that [kind of] governance would or should be appropriate today," he said. "I would like him to be just like Bobby Knight and give it back, but I don't think he will."Staff Writer William Welsh contributed to this article.