NEWS STORY
Let Them Eat Dust
Local computer maker Casey Powell is enjoying life in the fast lane. Critics say his fun comes at the expense of employees and shareholders.

BY NIGEL JAQUISS
njaquiss@wweek.com

 

Late last month, Sequent Computer Systems--Oregon's second-largest homegrown high-tech company--stunned Wall Street and local observers, for all the wrong reasons.

The Beaverton-based computer maker announced a $12 million second-quarter loss, took a $60 million write-off to restructure operations and announced the elimination of 250 jobs, half of them local.

For shareholders, the bad news was the latest in a series of earnings surprises that have plagued the company during an era when the high-tech industry has flourished. But while corporate earnings have lagged far behind industry standards, CEO Casey Powell, who founded Sequent with a fellow Intel alum in 1983, has been living the good life. According to company filings, his compensation last year totaled more than $4.3 million.

Powell's high-rolling lifestyle was chronicled in The Oregonian July 6 in a treacly front-page story about the CEO's 19-year-old daughter, Cristen, a nationally ranked drag racer. The story, which came on the heels of Sequent's restructuring announcement, noted that Sequent's corporate jet regularly flies the Powells and corporate customers to drag strips around the country.

Shareholders, it turns out, are paying for more than just jet fuel. According to Sequent's filings, the company spent $451,000 last year to co-sponsor Cristen Powell's dragster. Sequent's sponsorship of auto racing predated Cristen Powell's involvement, and nobody disputes that she's a talented driver. But critics, including several former high-level Sequent executives, say that's not the point.

In an era when CEOs are increasingly being held accountable for their behavior and their companies' performance--just ask Nike's Phil Knight--Casey Powell has gotten a free ride. Literally.

Graef Crystal, the country's leading expert on executive compensation, is baffled by Powell's willingness to spend corporate dollars on his daughter's hobby while employees and shareholders suffer. "This thing with his daughter is mindboggling," says Crystal, who edits the San Diego-based Crystal Report. "This is the Marie Antoinette school of management."

The Sequent plane itself is also a source of controversy. Although corporate planes are often justified, neither Tektronix nor Mentor Graphics, Oregon's largest and third-largest high-tech companies, owns or leases jets. Complicating matters is the fact that Powell actually owns the jet, a 1970 Gulfstream II. The company leases it from him for $50,000 a month and picks up all other expenses, which totaled more than $1 million last year. Although Sequent's findings state that the company pays Powell a fair market rate for the plane, Crystal and former Sequent executives question whether spending shareholder funds to finance the CEO's personal aircraft sends the right message.

If Sequent's performance were stellar, critics would have less reason to quibble with Powell's perks, but the company's erratic results have caused its stock to lag badly behind the market. Since going public in 1987, Sequent's stock has risen barely 50 percent, while the Dow Jones Industrial Average has gained more than 400 percent. In the past six months, while the market has surged higher, Sequent's stock has plummeted, losing two-thirds of its value from the highs it reached last fall. Many of the company's recent woes have been blamed on a slowdown at Boeing, Sequent's largest customer.

Despite the company's results, Powell has been extremely well-compensated. Twice in the past five years, he has topped the Business Journal's list of the highest-paid executives in the metro area, even though Sequent has never earned more than a fraction of the profits of such local companies as Nike, Fred Meyer or Tektronix.

Crystal says Powell is simply overpaid. "First of all," he says, "the company's performance sucks, so on what basis did they double his bonus?" (Powell's bonus actually more than doubled last year, from $210,000 to $575,000.)

Crystal notes that Andy Grove, the outgoing CEO of Intel, a company 300 times larger than Sequent, took a smaller salary than Powell last year--$465,000, versus $578,000 for Powell. He cites Bill Gates and Warren Buffett as examples of CEOs who have a much larger percentage stakes in the companies they founded but take small salaries. In the case of Powell, who owns less than 2 percent of Sequent's stock, Crystal says, "Here you have a founder who sees almost unlimited porosity between the company and his own pocket."

Powell's compensation is set by Sequent's six-member board of directors, which currently includes Powell, two Sequent employees, a consultant who is paid by the company and a former colleague of Powell's from Intel. The only truly independent director is MIT professor Michael Scott Morton. "It's not good governance," says John Nash, founder of the National Association of Corporate Directors in Washington, D.C. "This is a CEO-dominated board. It's a rubber stamp."

Well-tanned from a weekend at the drag strip in Denver, Powell recently defended both the dragster and the plane in a meeting with WW. He noted that both expenditures are fully disclosed in the company's SEC filings and have board approval. Most customers have never been to a drag race before, he said, and can bring their families for a full-day outing, unlike typical corporate events such as golf or tennis tournaments. Powell believes that his daughter's driving skill and fame are a tremendous marketing tool for the company, "almost to the point of being exploitive," he says.

The CEO bristles at the suggestion that his expenditure of shareholder funds is other than proper. "I would never do anything that wasn't in the best interest of the company," he says. "This company is my life." According to Powell, the plane is only used for corporate business. It saves time and is an effective way to draw customers to Beaverton, he says. Powell says he originally leased the company his plane when credit was a problem and acknowledges that when the current lease expires, the company might be better off leasing from a third party. But, he says, "if the stock were at 30 or 40 [it's currently at 12], people wouldn't give a shit."

The company's largest shareholders are two mutual funds, representatives of which declined to comment.

But to Crystal, Nash and former Sequent executives, it is precisely Powell's seeming indifference to shareholders and employees that makes both the plane and the dragster sponsorship hard to stomach--particularly in view of the company's performance.

When Wilsonville-based In Focus Systems Inc. announced that it would lay off 12 percent of its work force earlier this year, it also cut the salaries of all its executives by 10 percent. And when Internet pioneer Netscape's stock tanked last year, Crystal points out, CEO James Barksdale took a salary of one dollar for the year. The point is clear, he says: "You're supposed to take care of the troops first."

But that's not what happens in Beaverton. When Sequent's stock got creamed in 1996, the board of directors lowered the price on nearly 600,000 stock options previously granted to Powell, effectively rewarding him for the company's lousy performance. And judging from his continued use of the company plane to go to drag races, even in the wake of the $60 million write-off, it appears nothing has changed.

"It's the shareholders' poor luck," Crystal says, "that the daughter has a passion for such an expensive hobby."

 

originally published July 22, 1998