Why The Skype/Silver Lake/Andresson Debacle Matters

I posted this in response to Kara Swisher’s attempt to justify Skype’s behavior towards Yee Lee and wanted to preserve it.  I edited out some opening remarks.

I believe some people are conflating the issues around Skype and I want to clarify how I see it, and why it will have a significant, long lasting impact in Silicon Valley.

Point 0: clawbacks in general. There are good cap table reasons for them, and most of us understand that. Few people I’ve seen are decrying clawbacks in general, especially at fair market value, as a bad thing. Impact on Silicon Valley: Good, more education and awareness

1.  Executives being let go post M&A announcement, who get to keep 75% of their share value. Perhaps a bit distasteful, but ok, possibly not a horrible thing; maybe a personality clash or not needed in the MSFT world, or didn’t want to be handcuffed in a key man provision. Impact on Silicon Valley:  Low

2.  Employees who resigned, who had vested options that were taken away by being repurchased at strike price rather than the FMV established by MSFT. Saying that options have intrinsically no value as I have seen stated elsewhere is bogus–if they have no value, why offer them as compensation?  Impact on Silicon Valley Culture: HIGH, because now employees will look unfavorably upon options as compensation, demanding higher salaries in return.  I’ve heard some finance folks say that employees who leave after a year are “tacky.”  Ok then, make the cliff at 2 years or 3 years or whatever you think you need to not feel cheated, but keep in mind that having an unhappy work force trying to vest is not an atmosphere conducive to success.

3.  Employees who were misled by deliberately confusing language, and not having access to the partnership agreement in question, as it appears so far. This deck for the reasons others have described is not evidence of disclosure.  Impact on Silicon Valley Culture:  EPIC because it undermines a trust that has been working quite well between employees and management and finance.

4.  Combine all of these practices together and you have a pattern of behavior that gives any thinking person pause before doing business with people like these again.  I know we certainly took a good hard look at our options agreement after this and we had to communicate with our staff what our position was, and I doubt we were alone.

  • http://framethink.wordpress.com Yee

    Thanks for the cogent summary, Melinda! I really do hope that we’ve all, collectively, raised the awareness level of Silicon Valley employees to these kinds of compensation pitfalls.
    -Yee