Fall 2017 C-Suite Edition Who Runs Silicon Valley NUTANIX (NASDAQ: NTNX) is the latest SV150 IPO © 2017 Lonergan Partners. Who Runs Silicon Valley: C-Suite Editi(oSneptember, 2016) 1 of 1 SV150 Trends to Watch Continued double-digit losses in SV150 ranked com- panies due to acquisition (see page 5) • Intense public company acquisition activity impacting all sectors • Silicon Valley based IPO activity remains light in 2017 • Revenue cutoff for SV150 ranking has fallen by $43 million, many newly added companies below the 2015 revenue threshold Low CEO turnover in the SV150 (see pages 6-7) • More CEOs “acquired out” than replaced in 2016-17 • 2016 CEO replacement rate of only 8.7% versus 12.6% in the S&P500 • New SV150 CEO appointments often paired with exiting CEO appoint- ed as Chair Declines in (the small base of) female CEOs (see pages 8 and 24-26) • No new female SV150 CEOs in 2016-17 • Loss of several women SV150 CEOs due to acquisition • Only one female Founder-CEO in the SV150 Short tenures/rapid turnover in functional leadership roles (see pages 10-20) • One-third of functional heads new to their role since the start of 2016 • Median tenure for all functional roles in range of 2-3 years High levels of executive voting power (see pages 22-23) • Dual Class Stock Ownership companies provide opportunity for found- ers to retain high levels of control after the IPO • SV150 voting power of management much higher than in the S&P100 © 2017 Lonergan Partners. Who Runs Silicon Valley: C-Suite Edition 1 of 33 Who Runs Silicon Valley 2017 C-Suite Edition I Mark Lonergan n our fourth annual review of leadership in the Silicon Valley, the funda- mental shift in the landscape of the Silicon Valley 150 (SV150) is the rapid disappearance of many established public companies, with so few new Silicon Valley IPOs taking their place. Why have so many boards of direc- tors and CEOs opted to sell in 2016-17? And what is happening to tech leadership in the face of all this M&A activity? “Management is doing things right; leadership is doing the right things.” Peter Drucker (1909-2005) In this C-Suite edition of our annual SV150 report, we dip into the ranks of the senior functional executives running the top public technology companies in the Silicon Valley, to better understand the people in these important roles. One thing is clear: Chief Executive Officers have more direct reports than ever and SV150 functional specialists now outnumber Mark is the Founder and Managing the generalist heads of business units by more than 3 to 1. Partner of Lonergan Partners, Silicon Valley’s largest independent search We learned a lot about how the SV150 thinks about leadership from build- firm. In this role, he has advised ing the dataset for this report. From our research, we calculate there is CEOs and boards of directors on an average of 11.5 leaders per SV150 company1. While all companies had leadership issues for over twenty-six CEOs and CFOs in place, there was considerable variation in what other years. senior roles were designated. For example, we found Chief Operating Officers at only 34% of SV150 companies, and they were most likely to be found at the largest public companies (42% worked at a Top 50 ranked company). Likewise, General Managers/Presidents of business units were most likely to be found at Top 50 ranked companies (55% of them worked Mark is also Chairman of the Board at a Top 50 ranked company). of the Silicon Valley Directors’ Exchange, a network of corporate Our research focuses on the functional managers in the leadership team. directors whose mission is to pro- The average number of functional managers reporting directly to the mote the education of Silicon Valley CEO has more than doubled since the 1980s, and three-quarters of the boards of directors. SVDX programs increase has been attributed to functional managers2. Our report profiles are jointly sponsored with the the functional managers of the SV150 running finance, engineering, sales, Stanford Rock Center for Corporate Governance. marketing and HR—all roles of increasing importance in the management team, and with ever-evolving responsibilities. © 2017 Lonergan Partners. Who Runs Silicon Valley: C-Suite Edition 2 of 33 Who Runs Silicon Valley Contents Notices SV150 Trends to Watch ..........................................................................................................................1 The analyses, opinions, and perspec- Contents ...........................................................................................................................................................3 tives herein are the sole responsibility The Silicon Valley 150 .............................................................................................................................4 of the author. Silicon Valley Leadership Population .........................................................................................5 The copyright for this report is held by Lonergan Partners. The material in this SV150 CEO Changes ...............................................................................................................................6 report may be reproduced and distrib- CEO Demographic Profile ...................................................................................................................8 uted without advance permission, but only if attributed. If reproduced sub- CFO Demographic Profile .................................................................................................................10 stantially or entirely, it should include Heads of Engineering Profile ..........................................................................................................12 all copyright and trademark notices. Heads of Sales Profile ..........................................................................................................................14 For information regarding this report, contact Lonergan Partners at Heads of Marketing Profile ..............................................................................................................16 [email protected] Heads of HR Profile ................................................................................................................................18 Summary Demographic Profile ....................................................................................................20 Compensation & Voting Power......................................................................................................21 Women Leaders In the SV150 ......................................................................................................24 SV150 Leadership Diversity.............................................................................................................26 Concluding Thoughts ..........................................................................................................................28 Appendix .......................................................................................................................................................29 Footnotes ......................................................................................................................................................30 About Mark Lonergan .........................................................................................................................33 © 2017 Lonergan Partners. Who Runs Silicon Valley: C-Suite Edition 3 of 33 The Silicon Valley 150 Are we witnessing a public company extinction event? W hile SV150 acquisitions are a normal occurrence, 2016-2017 repre- sents a spike in public company consolidation. In 2016, eighteen public companies were acquired and removed from the roster of top Silicon Valley tech firms. As of the study date of this report, fourteen more companies on the SV150 list (compiled annually by the Mercury News) have been acquired. Combined, over 20% of the compa- nies on the SV150 roster have been removed due to acquisition in the last two years. While acquisitions have been most frequent in the semicon- ductor sector, the graph below makes it clear this activity is impacting all 2017 Acquisitions industry sectors. Completed On the new public company generation side of the equation, 2016-2017 Yahoo—SV#23 has been sluggish for Silicon Valley tech IPOs or public spin-offs. In 2016, Brocade—SV#38 (est. by Nov 30) only two IPOs were added to the SV150: Nutanix (SV#80) and Twilio Linear—SV#51 Solar City—SV#74 (SV#116). The revenue of the bottom ranked company on the list declined Intersil—SV#84 from $181 million in 2015 to $138 million in 2016. Of the 19 companies Rocket Fuel—SV#88 newly added to the list in 2016, 10 would have been below the cutoff rev- Nimble—SV#94 enue in the prior year. Zeltiq—SV#104 In 2017 the new tech IPO rate has picked up, but numerous high profile Shoretel—SV#105 Invensense—SV#113 tech IPOs have been outside the Silicon Valley (for example Snap in LA Jive—SV#133 and Blue Apron in NYC); and none of the most eagerly awaited Silicon Ultratech—SV#136 Valley unicorns have gone public this year to date. Local IPOs that have AMCC—SV#144 launched that could make our SV150 roster next year are Mulesoft (NYSE: SciClone—SV#148 MULE), Cloudera (NYSE: CLDR), Okta (NASDAQ: OKTA) and Roku (NAS- DAQ: ROKU). Acquisition Pipeline by Sector 2016-2017 Clean Tech 2017 1 Web-centric, Social Media 2016 2017 2 Networking/Telecom Completed 2016 Completed 2017 5 Enterprise IT Completed 2016 Completed 2017 7 Consumer IT Completed 2016 3 Health, Medical, Biotech Completed 2016 Completed 2017 5 Semiconductor Completed 2016 Completed 2017 9 © 2017 Lonergan Partners. Who Runs Silicon Valley: C-Suite Edition 4 of 33 Silicon Valley Leadership Population W ho are the leaders of the SV150? In order to answer this question, we took as our population the 1,626 executives who were listed as leaders on the company websites and proxies of the top 150 largest publically traded companies headquartered in the Silicon Valley3. Leaders of the Silicon Valley 150 By Industry By Company Ranking By Function/Role Clean Tech Consumer IT Web All Other Top 50 Biotech / Health Networking & Telecom Mid 50 Chief Functional Heads Semiconductor The 100% bars to the right provide a breakdown of the over 1600 website- designated leaders of SV150 compa- nies (as classified and ranked by the Enterprise IT Bottom 50 COOs/GMs/BU Heads San Jose Mercury News, based on 2016 revenues). CEOs Our profile focuses on the CEOs and functional heads of finance, sales, marketing, engineering, and human resources. We wanted to know who these leaders are—are they men or women, how old are they, where do they come from, and how were they educated? We also wanted to know how long they had served in their role, were they hired from the outside or promoted into the role, and how well were they compensated. Our information is all based on publically available data, primarily from the company website, press releases, and proxy filings. We supplemented this information when necessary with business bios from Reuters and Bloom- berg and biographical information posted publically by the executives themselves. We did not run any ‘background checks’ on these executives, so we only know what has been provided to the public. The dataset we created is also a snapshot in time, with our population being executives listed on their websites as of August 1, 2017. Changes since that date are not reflected in our data. © 2017 Lonergan Partners. Who Runs Silicon Valley: C-Suite Edition 5 of 33 SV150 CEO Changes A t the end of 2016, SV150 CEOs managed $849 billion in revenues, $3.5 trillion in market capitalization, and more than one million employees. They also averaged $6.7 million in 2016 compensation, according to their latest proxy filings. Over the past four years we have profiled the CEOs of the SV150 on sev- eral occasions. In this edition, we examine new CEO trends and compare CEOs to their functional heads (for a complete rundown of CEO demo- graphics and role statistics, see the table on page 20.) New CEO Leaders In 2016, a total of 13 new SV150 CEOs were appointed, for an overall replacement rate of 8.7%. This is much lower than the same year compa- rable S&P500 replacement rate of 12.6%4. The following profile focuses on these 13 SV150 CEO succession events. Incoming 2016 SV150 CEOs: Kevin Mandia Replaced experienced CEOs with significant concentration of power CEO, FireEye—SV#76 The replaced CEOs averaged 9 years in position; 46% were also Chairmen Appointed 2016 of the Board, 38% were considered founders, and 62% had reported voting Kevin Mandia, age 46, grew up in power of over 1% (those with reported voting power averaged 6.8%). Rochester, New York, and attended Were somewhat younger than the CEOs they replaced Lafayette College on an Air Force The average age of incoming CEOs was 49 versus 53 for those they re- ROTC scholarship. After graduation he became an intelligence officer placed. for the Pentagon with a focus on Were all male CEOs, replacing all male CEOs cybersecurity. There were no women among the new 2016 CEOs, and with the departure Kevin’s security focus led him to of several women CEOs due to acquisition, the total number of women found his own company, Mandi- SV150 CEOs has fallen. See the section on Women Leaders in the SV150 ant, where he would eventually be (page 24) for a roster of remaining women CEOs. named one of America’s top private cybersleuths by Fortune magazine Were more likely to have been promoted internally than to have after he revealed the role of a secret been hired/acquired in Chinese military unit in hacking US 54% were promoted versus 31% hired in and 15% acquired in. companies. Were not usually experienced public company CEOs Mandiant was purchased by FireEye 23% of the new CEOs had prior experience with running public companies in December, 2013, for over $1 billion. —this includes two CEOs who were running public companies that were Kevin served as Chief Operating acquired, prior to transitioning into the CEO role of the new parent com- Officer at FireEye before being ap- pany; this also includes one hired in CEO with prior public company CEO pointed its new CEO in June, 2016. experience. The photograph on this page is provided for informa- tional purposes and does not represent an endorsement or recommendation of this report, its opinions, authors, advisors, or sponsors. © 2017 Lonergan Partners. Who Runs Silicon Valley: C-Suite Edition 6 of 33 SV150 CEO Changes continued... Were highly likely to serve with the outgoing CEO as their Chairman of the Board While none of the 2016 appointees were made Chairman of the Board upon appointment, almost one-third (31%) had the outgoing CEO serving as their Chairman of the Board, and one was appointed to serve alongside a co-CEO who is also Chairman. In the SV150, 20% of companies have the last CEO replaced serving as the current Chairman. This differs dramati- cally from the S&P500 where only 6% of companies have the former CEO as Chairman of the Board5. Outgoing CEOs of Acquired Companies In addition to the 13 CEOs who were replaced in 2016 profiled in the analysis above, 18 CEOs were ‘acquired out’ of their jobs in 2016, for a total 20.7% disappearance rate for SV150 CEOs. ‘Acquired Out’ CEOs in 2016: Shaw Hong Were experienced CEOs with significant concentration of power The outgoing CEOs averaged 9 years in positon; 22% were also Chairmen CEO, OmniVision—formerly SV#58 of the Board, 28% were considered founders, and 56% had reported voting Shaw Hong was founder, CEO & power of over 1% (those with reported voting power averaged 3%). Chairman of OmniVision, an image sensor developer founded in 1990 Were among the oldest CEOs with over $1 billion in revenue prior The average age of outgoing CEOs was 56, with 82% Baby Boomers born to its 2016 acquisition. Among the 18 before 1965. CEOs exiting the SV150 roster in 2016 due to an acquisition, he was the lon- Were mostly men gest serving (with over 20 years as There was only one woman CEO in this group, Selino Lo of Ruckus Wire- CEO since he was appointed in 1995), less. In 2017, two more women SV150 CEOs have been acquired out: Ma- as well as being the oldest (at age rissa Meyer of Yahoo (SV#23) and Elisa Steele of Jive Networks (SV#133). 78) at the time of the acquisition. Shaw holds a BS degree in Electrical Engineering from Jiao Tong Univer- A note on 2017 CEO changes to-date. Through the end of sity in China and an MS degree in September, a total of only 7 new SV150 CEOs have been Electrical Engineering from Oregon appointed, and 13 more CEOs have been fully ‘acquired out’ State University. of their roles. More than half the newly appointed 2017 CEOs will serve with the outgoing CEO as their Chairman of the Board, continuing that trend. The photograph on this page is provided for informa- tional purposes and does not represent an endorsement or recommendation of this report, its opinions, authors, advisors, or sponsors. © 2017 Lonergan Partners. Who Runs Silicon Valley: C-Suite Edition 7 of 33 CEO Demographic Profile Compared to the functional heads on their teams, the typical SV150 CEO: Is more likely to be a man Only 4% of SV150 CEOs are women, with only one qualifying as that rarest of unicorns, the woman Founder-CEO: Lynn Jurich of Sunrun (SV#90). Only Heads of Engineering were as unlikely to be a woman. Is more likely to be a Baby Boomer The average age of CEOs is 53, which was higher than the average of any of the functional heads profiled. In fact, more than half (54%) of the ranks of SV150 CEOs qualify as Baby Boomers (born before 1965). Currently the youngest CEOs in the SV150 are: Aaron Levie of Box (SV#95) born in 1985; Mark Zuckerberg of Facebook (SV#9) born in 1984; and Has- sane El-Khoury of Cypress Semiconductor (SV#45) born in 1980. Two currently-serving CEOs share the spot as being oldest: Jerry Rawls of Jeff Lawson Finisar (SV#52) and Philippe Courtot of Qualys (SV#135), who were both 72 as of the filing of their 2017 proxy. CEO, Twilio—SV#116 (IPO 2016) Is more likely to be from outside the US in origin Jeff Lawson, age 39, is Founder, CEO & Chairman of Twilio, one of the 30% of CEOs are from outside the US. Only the Heads of Engineering have newest IPOs on the SV150 roster. a higher rate of foreign origin, at 39%. Jeff is a serial entrepreneur who has Among the 44 CEOs whose foreign origin could be confirmed, there was a been starting companies since he two-way tie for top country of origin: India and Taiwan. was in middle school. Is more likely to have a STEM degree Jeff grew up outside Detroit and went to the University of Michigan 57% of known CEO undergraduate majors were STEM, and 57% of known where he earned his BS in Computer graduate degrees were STEM. The most popular undergraduate major Science & Film/Video. Prior to co- for CEOs was Electrical Engineering, with 31 of 101 known undergraduate founding Twilio, Jeff was involved in majors in this field. the founding of Nine Star, Stubhub. Only Heads of Engineering, were more likely to have a STEM degree. The com, and Versity. He was also one of the original product managers for functional head with the next highest rate of STEM education was Market- Amazon Web Services. ing, with 40% of known degrees in a STEM field. Jeff exemplifies a new breed of CEOs—Diversity Stats Founder-CEOs who, with the benefit of dual class stock ownership struc- Women 4% tures, retain significant voting power even after the IPO. As of the April, Under Age 45 12% 2017 Twilio proxy, Jeff retained 20.3% voting power. Foreign Origin 30% Recent 7% (Recent Hire 2016-17) The photograph on this page is provided for informa- tional purposes and does not represent an endorsement or recommendation of this report, its opinions, authors, advisors, or sponsors. © 2017 Lonergan Partners. Who Runs Silicon Valley: C-Suite Edition 8 of 33 CEO Demographic Profile continued... Is more likely to have an MBA Only CFOs were more likely to have an MBA, with 48% of CFOs having an MBA versus 23% of CEOs. CEOs who had MBAs, however, were more likely to have earned an elite MBA from either the Stanford Graduate School of Business (7 CEOs) or the Harvard Business School (6 CEOs), than any of the other functional heads profiled. The MBA is least popular with CEOs who are also founders, (9% of found- er-CEOs had earned an MBA). Percent of MBAs Awarded by Stanford or Harvard The low representation of MBAs in the SV150 is markedly different from the Fortune 100, where according to U.S. News & World Report, the top CEOs—39% graduate degree is the MBA, with 39% of CEOs having earned one6. Marketing—29% Has the longest tenure by far, especially if a founder Sales—21% SV150 CEOs have an average tenure that is multiples that of their func- tional heads. Founder-CEOs have an average tenure of 14 years, while CFOs—13% non-founders have an average tenure of six years. Engineering—13% Were the least likely SV150 leader to be new to his or her role in HR—6% 2016-17 Only 20 SV150 CEOs have been appointed in 2016-17 to-date. This is far lower than the ratios for any of their functional heads. Receives more than 2X the median compensation reported for the most highly-paid functional heads (those whose compensation is listed in the proxies) CEOs enjoyed a median 2016 compensation of $5.1 million, or more than double that of the function with the second highest median 2016 compen- sation, which was CFOs with $2.1 million. CEOs by Years of Tenure Under 2 Years 13% 2—4 Years 22% 5—6 Years 14% 7—9 Years 14% 10 + Years 37% © 2017 Lonergan Partners. Who Runs Silicon Valley: C-Suite Edition 9 of 33