June 26, 2011 § 2 Comments
I’ve been an avid user and fan of Skype for the better part of the last seven years. To me, they offered everything a customer wants: great customer service, quality product, and constant improvement and innovation. Over the years, they have managed to carve themselves a niche market in telephony – built on a solid reputation and brand that appears to stand for good things… that is until I saw the headlines this week about how they’ve treated their employees and leadership team immediately prior to their successful sale to Microsoft.
If you haven’t seen the reports yet, a quick scan of Reuters, CNN, TechCrunch, and Bloomberg will fill you in. For a more personal account, one of the employees affected, Yee Lee, has posted his experience on his blog, FrameThink.
The short synopsis is that as Skype (and its private equity firm, Silver Lake) prepared for its sale to Microsoft, the company began firing their senior executives. The industry saw it as a strategic move to avoid mass pay-outs upon deal closure: A practice, which if true is unconventionally underhanded, as those same executives were probably the reason for Skype’s high valuation, and the reason there could be a deal in the first place. Skype and Silver Lake protested, saying that wasn’t the case. However, since then, what has since come to light is the nature of their employment contracts as they pertain to employee options.
Not only are the contracts so vague and jargon-ridden that they become incomprehensible, but when the lawyer-speak gets translated, a claw-back clause is revealed. Basically any options an employee receives as part of their employment, vested or not, can be taken back by the company at the original purchase price (not current value) upon an employee’s departure. Essentially, having the options is worse than not having them, because there’s a strong chance you’ll lose them regardless of if they are vested or not, and if you do, and the company purchases the options back from you, it will mean more taxes. Lose-lose.
From the perspective of social responsibility, this kind of practice is unthinkable. To actively plan for and so severely undercut its employees for (personal) investor gain – and likely not even that significant a gain, considering the $8.5 billion sale price Microsoft paid – is on another level of poor business practices. It’s unfortunate that Skype and Silver Lake will likely get away with this in the short-term. Skype is being bought by Microsoft, so after this, the brand and management disarray from the mass departures is Microsoft’s problem. But in the longer term, Silver Lake is establishing a precedence and reputation for ruthless violation and abandon of the basic integrity the industry generally expects. It’ll be interesting to see how they’re doing years from now.