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Sclavos's VeriSign departure leaves many questions unanswered

Some industry observers say disagreements fueled his resignation, but others say Sclavos's abrupt departure revolved around his role in VeriSign's options accounting practices.

Speculation continued to swirl in the wake of Stratton Sclavos's resignation as VeriSign Inc.'s CEO earlier this week, while some industry observers pondered the dot-com veteran's legacy and VeriSign's future.

VeriSign announced on Tuesday that Sclavos, who led the company since it was spun off from RSA 12 years ago, had resigned. VeriSign, of Mountain View, Calif., offered little explanation for his departure, leading to lots of guesswork. Some wondered if the move could lead to a sale of the Internet infrastructure company.

Our sense, based on some of the digging we've done, is that there was a period of growing conflict between the CEO and the board.
Todd Weller,
securities analystStifel, Nicolaus & Co.

"A break like this makes me think, as others have pointed out, that it might revolve around the potential sale of all or parts of VeriSign," said Andrew Braunberg, an analyst at Sterling, Va.-based Current Analysis.

Others said Sclavos's disagreements with the board apparently fueled his resignation.

"Our sense, based on some of the digging we've done, is that there was a period of growing conflict between the CEO and the board," said Todd Weller, an analyst at brokerage and investment banking firm Stifel, Nicolaus & Co. "It's not clear to me what the exact points of tension were. Apparently this is something that had been building up for a while and ultimately culminated in his resignation."

But Weller dismissed speculation about VeriSign's potential sale: "From what I've heard, the new CEO has been pretty open that his intention is not to sell the company."

VeriSign's board of directors elected William Roper, Jr., the board's lead independent director and former executive vice president of Science Applications International Corp., as president and CEO. He also served as SAIC's chief financial officer and had a leadership role in Network Solutions from the time it was acquired by SAIC in 1995 to its merger with VeriSign in 2000. VeriSign sold its Network Solutions unit in 2003, but retained the unit's domain name registry business. The company's other businesses include SSL certificates and managed security services.

"VeriSign has a very attractive business model and is well-positioned for long-term growth. The board and I are firmly committed to VeriSign's business strategy and the exciting growth opportunities in front of us," Roper said in a statement released Wednesday.

During the next 90 days, Roper said he and the management team will focus on driving the company's business strategy, operational discipline, and completing its stock option review and financial restatement process.

VeriSign is among the Silicon Valley companies embroiled in the stock-options backdating scandal. There was speculation that Sclavos's abrupt departure revolved around his role in the options accounting practices, but VeriSign said Tuesday that a review of its historical stock option grant practices by independent board members "did not find intentional wrongdoing by any current member of senior management, including Sclavos."

Jon Oltsik, an analyst at Milford, Mass.-based Enterprise Strategy Group, said the stock option scandal may have presented a convenient opportunity for the board and Sclavos to move on.

"He was a great fit for the initial phase of the company during the Internet boom but really couldn't help the company diversify its business model and get to the next phase of growth," he said.

The executive shakeup could "set the stage for VeriSign to increase its focus around some of its core growth businesses and decrease its focus in some underperforming areas or low growth business, such as telecom," Weller said.

Paul Stamp, an analyst at Cambridge, Mass.-based Forrester Research Inc., said Sclavos led VeriSign from an embryonic stage to essentially a holding company for many different technologies and services.

"The last couple of years, they've been deciding what they want to do as a company, buckling down on a couple of lines of business," he said, adding that the challenge for the new CEO is to expand the appeal of VeriSign's offerings "beyond the core service-provider market."

But Alan Shimel, chief strategy officer at vendor StillSecure, said Sclavos was a visionary who hasn't received proper credit for his role in the early days of e-commerce. Sclavos and VeriSign, he said, helped make the Internet what it is today by enabling it with security.

"Could we have e-commerce without SSL certificates?" he said. "That was VeriSign's baby."

Shimel met Sclavos when VeriSign acquired Network Solutions; Shimel was at Interliant, a big Network Solutions customer. VeriSign/Network Solutions also was an investor in Interliant. The Network Solutions acquisition was a smart move that helped establish VeriSign and see the company through the economic downturn, Shimel said.

Sclavos "was a guy who not only rode the high of the bubble but also rode through the crash and made it through the bad times," Shimel said.

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