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Shaheen & Co. - An Internet-Spawned Corporate Brain Drain.

In the realm of high-tech start-ups, stories of 20-something Internet company founders scoring huge payoffs abound. But now there's a new trend - that of the experienced business leader who abandons the safe haven of an established Fortune 500 firm to gamble on the prospects of a start-up in the highly volatile Internet sector. In fact, players from virtually every business sector - from Big Five accounting firms to Big Blue - are abandoning the hard-won security of a steady climb up the corporate ladder for a ride on the rollercoaster.

Just last month, Andersen Consulting CEO George Shaheen left a 30-year tenure at the $8.3 billion privately held firm to steward Webvan Group, a Foster City, CA-based start-up. Webvan, which filed for a $345 million IPO in August, handles next-day or same-day on-line grocery and drugstore deliveries to consumers. To say that Webvan isn't in the same league as Andersen would be a dramatic understatement; the company reported a mere $395,000 in revenues and a net loss of $33.5 million in the first two quarters of 1999. It reportedly took an option to buy 15 million shares of Webvan at $8 each for Shaheen to walk away from his formidable retirement package. Webvan's growth potential? Clearly, Shaheen is betting on the firm going the route of start-ups like Ebay,, and Yahoo. Will it deliver? Maybe. While Webvan currently only serves the San Francisco market - where the 55-year-old Shaheen lives - the company just signed a $1 billion construction contract to build automated warehouses in 26 major U.S. markets.

Shaheen isn't the only big company veteran who's gone to sift for Internet gold. Andersen veterans Rudy Puryear and Greg Owens left to join firms - Web consulting services company Lante and supply chain software firm Manugistics, respectively. Gary Moore of EDS jumped ship to join a Silicon Valley start-up, and IBM executive Bob Howe departed Big Blue to join Scient, an Internet consulting firm.

AT&T has lost a slew of management talent to the allure of and Webcentric businesses, including Alex Mandl, COO and president, who left in 1996 to head Teligent as chairman and CEO. In September, Bill Malloy resigned as executive VP of AT&T Wireless, leaving an 11-year AT&T tenure to take the president and CEO post at Peapod. Others who have flown the AT&T nest for Web ventures include consumer markets' Daniel Schulman, who went to as president and COO; business services' Robert Annunziata, who joined broadband provider Global Crossing; and Lucent's Curtis Crawford, who took the president and CEO post at Zilog.

Whether these moves will pay off for the latest batch of risk-taking Internet converts is anyone's guess. Certainly hopping onto the Web train has proved lucrative for other former outsiders. Ebay's Margaret Whitman, who hailed from the staid toy firm Hasbro, picked up options at 7 cents a share when she took the CEO post early in 1998 and became a billionaire.

For more traditional firms, the exodus is intensifying the twin challenges of attracting and retaining top talent. "I've lost several executives that I wish were still here," AT&T's Michael Armstrong told CE recently, adding that the revolving door swings despite efforts to compete. "We put a retention package in place, so people don't leave for financial reasons. But if someone gets an offer that's just astounding, such as an executive did who recently left, there's nothing I can do about it. So you just have to shake the guy's hand and say, 'I understand. Good luck to you.'"

It's the exploding demand for and limited supply of Internet leaders that's spawning these extraordinary and creative packages, says Jim Citrin, managing director of Spencer Stuart's Global Internet Practice. "The critical challenge for traditional firms is to create a proposition - both financial and otherwise - that will attract the right executives, not only with the allure, but with all the resources of the organizations. Doing so can help swing the pendulum back and reverse the brain drain."
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Publication:Chief Executive (U.S.)
Date:Nov 1, 1999
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