The Missing Chair
It was cool morning that Thursday in late October 2002. The previous evening, the Giants got lucky in the fourth game of the World Series up in San Francisco, tying the series with the Anaheim Angels. All over the bay area Giants fans were breathing a sigh of relief. The Giants pitching had managed to throw water on the red-hot Anaheim bats, and a fortuitous Angel error in the eighth inning allowed the Giants an unearned run.
Tim McGarver, who called the game for FOX, quipped, “the Angels just made too many of the wrong mistakes.” Yogi Berra would have been proud.
In Milpitas, down in Silicon Valley, the talk was of nothing else among the engineers, technicians, and office personnel streaming into the headquarters of F&S Systems.
“Hey Ernie! You were right about the game last night,” yelled a tall lean bespectacled African-American with tuffs of gray hair to his colleague getting out of his car in the parking lot.
“Hi Phred. Yeh, well if you’d called me in the 3rd inning, I would have told you I was wrong. Rueter was really shaky early but he finally got the ball down and the in-field did their job,” replied Ernie with a smile. The white middle-aged man with the rounded middle, the product of a sedimentary lifestyle, stepped around a puddle left from an overnight shower to join his friend. “Still, it was a real nail biter. Not sure they can win a slug fest if it comes to that.”
“Hear anything about the RIF rumors,” Phred asked speaking in a lower tone as both men approached the doorway.
“No. But there is a board meeting today. I’ll bet Sam will have a plan to get us through. You know, cut travel; burn some vacation time; the usual. I’m confident he and Bert have a plan to keep the team intact.”
The men switched their conversation back to baseball, specifically Game 5 that evening, as they entered the building.
The talk was not of baseball in the tense F&S executive board room that morning. The company prepared to release their fourth quarter and 2002 financial year results after the market close that afternoon. Financial analysts had warned their clients it was not expected to be positive. Since the dot com bubble burst in March 2000, the technology-laden Nasdaq shed 78% of its value, erasing $4.2 trillion of wealth. The losses in Silicon Valley were astronomical. Venture capital, the life blood of the area, was anemic. The hundreds of startups sprinkled throughout the area were now scrambling to cut overhead, an accounting euphemism for firing employees, and sell anything more substantive than a power point presentation. For Lease signs, something no one could remember seeing, were everywhere. The choice business addresses snuggled up next to Cisco Systems along McCarthy Boulevard and Tasman Drive, were now offering six months free rent on a new lease. In front of many office parks, scrap heaps of technology hardware littered the parking lots in overflowing dumpsters. The same hardware that attracted investor funding to the tune of eight figures in 1999, was no longer headed toward the information superhighway. It was waiting for a final ride to the dump. The once confident scions of the new on-line economy were now nervously courting partnerships with their old brick-and-mortar competitors.
The world outside Silicon Valley had changed dramatically as well, though for a different reason. The 9/11 attack thirteen months prior had changed the mindset of the world away from ushering in the information age toward bombing an already backward country back into the strong age. Tech visionaries who preached of the openness of the internet with the religious zeal of an evangelical minister were now sermonizing on the need for a security. The urgency of securing communications fell directly on the large data centers of internet service providers filled with the routers and packet switches that F&S Systems produced.
But Sam Schlosser, mercurial co-founder, and CEO of F&S Systems was not worried. Yes, he was going to report some disappointing financial numbers. But the current business environment demanded a strategy for survival more than one for growth. And he had a solution. He and his team had been in protracted discussions with ZXI Telecom, the largest telecommunications equipment company in mainland China, about a potential merger. The Central Committee had recently released their 5-year development plan. One item on the plan that had Sam salivating like a beagle at a barbeque was the call to connect every junior and senior high school to the country’s nascent internet. Sam had checked. There were over seventy-five thousand such schools and because it was a green field opportunity (no existing infrastructure), the build out would be worth more Yuan than China had rice bowls. ZXI Telecom was well positioned through their ties to the Chinese military to get the contract but lacked the high-speed digital hardware that F&S was known for.
“A marriage made in business heaven,” he told Movita Mohan, the company’s chief in-house council as he was preparing for the meeting. “I don’t expect much problem with the board today. Bert is still having a bit of heartburn about patent protection, but I think the board will vote with me. Are we going to have any trouble with Washington?”
The corporate attorney had just returned from the east coast meeting with a DC firm that was greasing the skids and maybe a few palms to ensure the administration would not put up any roadblocks.
“Abramoff assured me with the campaign contributions he’s made on our behalf, we will not see a problem from Congress. The White House is full tilt on the war in Afghanistan, so the pitch that this deal saves jobs will satisfy them. Commerce is grumbling about potential loss of patents, but I think we can address their worries. It’s not like the Chinese are stealing IP this time, they are buying it. DoS, CIA, NSA and DoD all signed off. Oh, CIA wants to talk to Bert after the deal goes down. I think they may want a back door put in the hardware so Langley can keep an eye on things.”
“Good,” Sam said, checking his appearance in the mirror opposite his desk and straightening his tie. “We can make nice with the spies until the deal is done, then tell them to pound sand.”
As Schlosser and Mohan were about to leave for the meeting, Bud Schuller, VP of Human Resource came charging in.
“Sorry for barging in Sam, but I wanted to see if you had any questions about the annual HR performance report, I sent you. You know, before the board meeting.”
“Bud, it looked good. I don’t have any questions,” he replied, though he had not even read it. “I will go through it in detail again over the weekend and we can sit down next week on 2003 objectives.” Bud left still a little nervous. Schlosser shook his head looking at Mohan, “Panty assed boot licker. If it weren’t for the good press his diversity initiatives got us, I’d have fired him long ago.”
Schlosser commented to Mohan quietly as the two walked down the hallway toward the meeting, “You know, this deal is going to make everyone on the board a lot of money. Considering the beating the stock has taken this year, it couldn’t come at a better time.”
Timing had always been one of Sam Schlosser’s strong suits. Coming out of Cal Berkley at the height of the Tet Offensive, he deftly avoided the draft with a timely offer to join Xerox Palo Alto Research Center (PARC). His work on the ARPANet project for the Defense Communication Agency was his draft exemption excuse. His joining PARC also coincided with the arrival of young engineer out of MIT, Bob Metcalfe. Sam and Bob hit it off and worked together on several projects trying to make equipment from different manufacturers talk to each other. Bob’s simple solution, called Ethernet, worked well linking the computers from IBM and Digital Equipment Corporation (DEC) together, but when he and Sam demonstrated the solution to Xerox management, they showed little interest.
In the late 70’s, the two left PARC to form a startup to build and promote Ethernet. Bob was the engineering manager, Sam was head of sales; actually, the company’s only salesman. Using Bob’s connections, their small company, 3Com, had backing from Xerox, Intel and DEC, but convincing customers to connect their back-office computers together was a hard sale for Sam.
In late 1979 with money running short, Sam had the good fortune of stepping into a sandwich shop in Cupertino after yet another unsuccessful sales call when the power went out. While waiting for the power to be restored, he struck up a conversation with the shaggy patron in line in front of him. Though Sam initially thought the guy was homeless, he turned out to be Steve Wozniak, co-founder of Apple Computer. The ‘Woz’ was intrigued by Sam’s pitch of connecting computers together. Two days later both Sam and Bob were pitching to local group of Wozniak’s friends, all of them ‘micro-computer’ enthusiasts. Within the month, they had small orders totaling over three hundred, enough to keep the lights on. When IBM introduced their personal computer a year later, the orders suddenly were not small anymore and Sam worried more about capacity than sales.
When the Wall Street Journal declared 1988, the “Year of the LAN,” connecting computers together into local area networks had hit the mainstream. Metcalf’s Ethernet protocol was the defacto world-wide LAN standard. By then, Bob Metcalf had left 3Com having attained the mythic status of the father of an industry. Sam Schlosser had become the chief operating officer for 3Com. But even as he was running one of the fastest growing companies in Silicon Valley, it was clear to Sam he would be passed over for the top job of CEO.
Again, he had the good fortune to meet a Stanford professor looking for funding to put some of his research into practice. Bert Fitweiler and Sam Schlosser formed F&S Systems. Bert, the Chairman and chief technical officer spent most of his time in the lab. Sam, the CEO, ran the company. The partnership worked well with each playing to their strengths. Sam’s risky move to leave the thriving company he had built was eventually credited to his good timing as F&S Systems grew by leaps and bounds, eclipsing his former company by the late 90’s.
But by 2002, Schlosser’s sense of timing had been put to the test for over two years, looking for a money savior amongst the spend thrift sinners in the valley. The internet revolution in the late 90’s had made everyone in the bay area think they walked on water, but Sam knew a lot of it was driven by Y2K fears. So, day one of the new millennium, he preemptively announced the company’s first layoff, and sold off an Israeli software division for a premium to Lucent. Sam had intended to use the cash to buy a competitor with a complementary product line and solid revenue, but pickings were slim. Just as he was thinking he would have to do another haircut, Jiang Zemin, the President of China, came to the rescue. It took one phone call to his China region sales manager to find ZXI Telecom. The joint venture he proposed was quickly countered by ZXI with a much sweeter offer.
“Hi Sam,” Ernie Martin greeted him carrying a cup of coffee as Schlosser and Mohan passed the break area.
“Hello Ernie, did you watch the game last night?”
“I caught most of it. Damn lucky bounce in the eighth, wasn’t it?”
“Luck and timing win a lot of games,” Sam replied. “Take care.” Sam, smiling, signaled he had to go.
Sam had never been an autocratic, rule-by-fear, leader like many of his peers in the area. He had always maintained a casual atmosphere at F&S and felt at ease mixing with employees. Importantly, they enjoyed mixing with him. He had a reputation in the valley as a people person, which did not hurt when F&S was recruiting the heavily sought-after technical guru’s. Schlosser was a gregarious social animal with an uncanny memory for names and faces that would put Dale Carnegie to shame. His was not an uncommon face at the Friday after-work mixers in the back of Original Schrafft’s over in San Jose. He liked to pop in, usually at least once a month, and ‘check a pulse or two.’ Unfortunately, that was what led to the divorce from his first wife, Cindy. It was also where he met his second.
Though he still had to get the board’s approval, the news from Mohan was the last potential roadblock in Sam’s mind. He had stacked the board with his people over the years and did not expect any problems. Sure, he would let Bert have his say, then he would minimize the IP concerns and move for a vote. Sam was confident that the ZXI deal would catapult F&S shares beyond its five-year peak price, now almost 3 years in the rear-view mirror. So confident was Sam that he had taken a few additional steps to maximize his return.
First, when ZXI proposed the acquisition, he told his broker, Paul Luis, to buy as much of F&S stock as he was legally allowed. Paul advised against this. The stock was depressed and not expected to recover for some time.
“The smart money is in Apple, Sam,” Paul had told him. “Hell, the smarter money is probably stuffed in a mattress.”
“Run me a Nike, Paul,” Sam replied, which his chastened broker knew was Sam-speak for ‘just do it.’ Quietly over the next six months Schlosser’s well performing diverse portfolio was converted into a small mountain of underperforming F&S Systems shares.
Second, he divorced Britany, wife number two. The marriage had been in trouble for a few years, anyway. Sam, by his own admission, had never been easy to live with. Better to end it while his net worth was down, before the ZXI deal became public. With the majority of his wealth in depressed F&S stock, Britany opted for more tangible assets: the house in Palo Alto, the ski cabin in Aspen, jewelry, a sizable lump sum, clear title to the Mercedes Benz, and custody of Biscuit, their Lhasa Apso. The funny thing was she thought it was all her idea. As happy as he was to finally be free from the marriage, he could not help feeling a profound sense of loss. He was really going to miss that ski cabin. But as Sam Schlosser confidently strolled into the board room, he estimated that by the end of the day, he could afford a bigger cabin, and maybe a private jet to fly there.
Schlosser was so occupied counting his chickens, that he failed to notice that all the board members were sitting in their assigned seats. Typically, he would enter to a crowd standing around the coffee bar at the back or in groups of two or three scattered throughout the room discussing their own business deals. He always entered through the door near the head of the table and ‘worked the room’ in a clockwise fashion. He enjoyed pressing the flesh, asking all the out of town directors if their travel was alright and generally welcoming them all back to the company. This time, as he went around the room, each member turned in his or her chair, stood and shook his hand. By the time he had made it around the table to where he would normally sit next to Bert Fitweiler, he came to sudden stop. There was no chair for him to sit in.
As Sam stood at the head of the table, a looming sense of dread overtook him. Bert informed Sam what he was quickly realizing.
“I’m sorry Sam, but, at my request, the board met earlier today to review your performance and to discuss the ZXI offer,” Bert stated solemnly. “We have voted to reject the offer as it raises serious patent rights concerns. We feel that the company needs to go in a different direction than the one you have been advocating. I know you feel strongly about the ZXI deal. At my direction, the compensation committee has prepared a separation package for you.” Bert handed a manila envelope to Sam. He took it without taking his eyes off Bert; without saying a word. “Sam, I’m sure you will find that this is a very generous package. I have enjoyed working with you. I know this will give you and Britany the opportunity to spend more time in Aspen. Thanks again for all your hard work and leadership.”
F&S Systems Announces Appointment of New CEO
Wall Street Journal
November 21, 2002
Milpitas, California – Telecom equipment maker F&S Systems (NASDAQ: FSSI) announced today that the company’s Board of Directors has appointed Gene Barrows as the company’s President and Chief Executive Officer effective December 2, 2002. Mr. Barrows follows co-founder Sam Schlosser who resigned October 24, 2002.
Mr. Barrows was most recently Chairman and CEO of WyMe Communications, a wireless telecommunications software and services provider that was acquired by Cisco Systems in March 2002. Mr. Barrows joined WyMe as the Chief Financial Officer in 1995 and was elected CEO after the departure of founder Siresh Balasundaram in 1997. During his tenure as CEO, WyMe revenue grew by 75% while operating profit grew 98%. Prior to WyMe, Mr Barrows was a principle at Rockport Capital, a private investment firm based in Cupertino, California, that specializes in private and public equity investments across a range of industry sectors and geographic regions. Mr. Barrows has degrees in finance and management from Princeton and Harvard, respectively.
Madeleine Dale, F&S Systems’ VP of Communications noted, “We are excited with the appointment of Gene and look forward to working with him to continue to grow the organization. Gene is a proven leader who brings his strong financial and technical experience and leadership to F&S.”
“I am truly honored to lead such an extraordinary organization as its Chief Executive Officer,” said Mr. Barrows. “I look forward to working with the Board of Directors and all employees of F&S Systems to position this company to be a leader in the information age.”