Skype / Silver Lake options scandal – top 5 mistakes on all sides
Over the last 24 hours since I posted on this previously, the discussion has evolved. A few more comments:
One thing that has only been briefly mentioned is Yee Lee’s history of job hopping. He’s had 9 jobs in 12 years. This is one area where I strongly believe past history will predict future results. If you’re looking for this guy to stick around, you’ve hired the wrong guy. So as bad as I feel for how he was treated, I wouldn’t hire him.
Now, on to the nature of the agreement itself. Certainly Skype and Silver Lake and their VC’s can structure their options however they want to. Given the time it can take to build a successful company nowadays, I think their 5 year vesting period is a good idea. I still maintain that the repurchase rights on vested shares, while they may be common practice among some investors, are a terrible idea.
Why? It depends what you think you are hiring employees to do. Maybe you’re hiring the CEO and CFO to sell the business. But most of the team needs to be focused on operational jobs – growing the business, improving the product, or managing costs. If they deliver value in those roles over a few years and want to move on, you’re better off to let them move on that to try to keep them prisoner to their options indefinitely. Allowing a culture of “we’re all here to flip this thing” to permeate through the company is a recipe for trouble. All other things being equal I wouldn’t want to buy a company that had been run that way. You might yet sell it, but for how much less than if it had been run properly?
If its a bad idea to structure the options that way, its an even worse idea to do it without clearly communicating it. Silicon Valley is built on innovation, hard work, talent, and trust. If you remove the trust from the picture, it creates friction everywhere in the process. Employees hiring lawyers to review their options agreements, for example. This reduces the free flow of talent and thereby makes the allocation of talent to opportunity less efficient. This is not good for Silicon Valley.
Surprising people is bad. If Skype had done a better job communicating the nature of the options agreement, Lee might not have quit, and if he did he might not have had the public fit that he had. And if it does come down to a lawsuit, if Skype had clearly and unambiguously communicated how their options agreement differed from what employees may be familiar with, they’d be on much firmer ground.
Finally, the firings right before the acquisition don’t help the optics of the situation. This hurts the reputation of the investors and the CEO, and if there is a suit, it definitely doesn’t help.
So, here are my top 5 mistakes on all sides of the process:
- Yee Lee should stick with his jobs longer – Skype and otherwise
- Yee Lee should have read his options agreement more carefully (though many people don’t)
- Silver Lake / Skype should have used more standard options terms for all but a handful of senior execs
- Silver Lake / Skype should have very clearly spelled out the nonstandard terms to avoid any possibility of surprise
- Skype should have found a way to improve the optics of the executive terminations right before the acquisition