Skype mess: How far will this go?

31 thoughts on “Skype mess: How far will this go?”

  1. There is one more thing that is being missed. When Silverlake and the other investors took over, all options issue to employees became null and void. Seniority and time was not recognized when they issued the new shares 3 years ago. So if you started 8 years ago, you got the same amount of stock as someone who just walked in the door.

    1. It is not an excellent point, it was wrong. That isn’t shafting anyone, that is the nature of a spin-out. Presumably the eBay options the employees had were cashed out if they were in the money. Unvested options presumably terminated but new options at Skype were granted

      No one had “Skype” options pre-spinout. Why would new owners grant options to cover a prior period and a predecessor company? The new owners granted equity commensurate with value/perceived value of the employee, position or a combination. Tenure may be a factor in that value, but it doesn’t drive how many options someone gets.

      1. “.. equity commensurate with value/perceived value of the employee …”

        This is just another way of saying the new managers/owners decided who got what based on their own opinions. You make it sound like it’s some kind of fact-based business assessment when in fact it’s completely subjective. The new managers basically just decided who got screwed.

      2. Based on this article and your comments, there’s a good case to be made that stock options and for similar reasons, pensions, should be outlawed. There’s clearly too many complications that result in cheating and lying of this type. It’s only a fair labor market if compensation is clearly explained and subsequently made. That was not done. Same with pensions, too often companies are not faithful to their commitments and responsibilities and the greedy bastards that made money on stocks and bonuses instead of paying into pension funds don’t go to jail due to corporate law. Companies go bankrupt and then leave the gov’t to pick up the pieces. It’s a suboptimal non-capitalist outcome. Our economy is breaking down due to lack of visibility and controls, not just due to digital media.

        Skype is clearly not to be trusted, and since MS is mostly buying a brand name, the value of their acquisition is plummeting. Software companies are only as valuable as their brand and their developers, and they’re going to lose both.

      1. That’s not the point…The point is that the company is treating it’s employees like scum. Do you think a company that does that is going to foster loyal employees? Good luck with thinking that Skype can be successful by treating their employees like s***.

      2. Isn’t that the point of this article? That if you actually did decide to quit and move on, your options, which you had previously thought had been at least partially vested, will be taken away from you. Try reading the contract language in Dan Primack’s article – it is impossible to understand.

  2. Not to take sides, but those who invested in Skype’s re-incarnation took a huge risk, so I would expect nothing short of a harsh term sheet. On the upside, they saved the company from Death by Meg. It remains to be seen whether Skype will save itself from Death by Steve (Ballmer).

  3. is it thank goodness there are lawyers to protect Lee and co, or it is a case of fetching lawyers 30% of the proceeds for avoidable litigation from unnecessary greedy behavior?

  4. Outrageous behaviour. The CEO and CFO have been with the company for less than 12 months and under they’re watch we’ve witnessed 3 serious outages since the end of Dec last year. Why do they deserve such large payouts when they’ve mismanaged the company so badly and achieved nothing but downtime. It’s no wonder Skype breaks down so much if this is how they treat their teams and it’s no wonder so many of them want to leave.

    One thing is for sure, I don’t see Skype being able to compete with Google in the future as no one is going to want to work for these people. Even under Microsoft ownership, these 2 ungrateful thieves will still be in charge.

  5. The “you have to be in it to win it” line from Skype’s spokesperson is one of the most disingenuous (or stupid) things I’ve heard in a long time. Skype fired most of its top executives in order to avoid paying them bonuses. They didn’t choose to resign before Microsoft took over, as Yee Lee did.

    On the other hand, I don’t see how Microsoft is responsible for actions of the current investors, given that Microsoft doesn’t yet own Skype. Silver Lake and its partner investors are solely responsible for the decision to fire the executives, as well as the decision to slide in the clause into the options agreement allowing the company to buy back options at the issuance price.

    1. I agree about the statement. What “in it to win in” says to me is the investors are former dumb jocks who are gleeful and giddy with having had the smarts to get their attorneys to pull over another scam on the geeks that create the company value.

  6. Why does Silverlake receive all the investor vitriol? Media darling Andreesen Horowitz is just as guilty here. Surely they (or their counsel) read all of the docs before they wired the money on this one.

    Question for valley workers: why would one ever work for a Silverlake or Andreesen Horowitz portfolio company if this is how they treat people? Move on. There are many other interesting start ups backed by investors that treat their portfolio company employees more fairly. If you do work for one of the investors’ portfolio co’s, time to check our own option plan.

  7. One thing managers and employees have to realize is that an investor is *never* on your side. You may be lulled into believing such when they pitch your company or even when you’re one of the lucky ones to cash out, but they are *never* on your side. Not anything evil; it’s just against their interests.

    Although private equity firms like to position themselves as growth capital versus buyout capital, they are by and large buyout capital. What does this mean? A bit of history for Silicon Valley private equity virgins: Buyouts started in the ’60s with mainly smokestack companies as investees. The game was never to grow the company or help it operate better. The goal was to leverage it up, retain as much of the equity as possible for investors (through leveraging, i.e. debt), and to *quickly* sell it off. This is a financial engineering exercise and not growth, operational improvement or creating a new business (venture capital). Ah, but you say, they reduced expenses. Doesn’t this mean operational improvement? Not really. This is a temporary ploy to make something look better than it is. And note what NOT growing the pie means: A zero sum game between managers, employees and investors. Guess who wins?

    During the smokestack buyout days, investors routinely fired workers, rescinded their vesting and their pensions, put in new managers, sold off lagging divisions or assets. Trouble is there aren’t that many “smokestack” companies left to buyout so there’s now the tech buyout. That’s why there’s Silver Lake and Andressen and that is how they make money.

    A buyout means there’s a new owner and that is more equivalent to a venture down round: A lot of people get fired; their stock gets diluted to nothing versus outright voiding of vesting in a buyout. Think of a buyout as having no pretensions of foreplay.

  8. The Skype stock option situation is even worse than conveyed –

    Prior to the recent terminations of these 6 executives; who comprised most of the executive team, there were also selective dismissals of employees based upon various trumped-up justifications. These dismissals enabled Silver Lake/Skype to reclaim “vested” options from employees who had contributed valuable services to build Skype but whose talents were not needed down the home stretch. As you note, the reclaiming of vested options is massively inconsistent with Skype’s use of the legally operative term “vested”. Let’s just say Microsoft should insist on an equally massive amount of seller’s indemnification ….Lots of litigation will be coming!

    As was correctly conveyed above, the details of the Skype stock option plan were willfully obscure and not well-communicated to rank and file employees. What the story missed is that employees did not actually receive stock options at all, but rather shares in a Cayman Limited Partnership, Skype Management Partnership, LP. This complex partnership arrangement was concocted by SLP solely to avoid the possible application of California and Luxembourg employments laws. I suggest that anyone currently working at a Silver Lake invested company to reflect on this arrangement and consider their own situation.

    The “comings and goings” chart is correct in noting that the CEO, CFO, etc., were all fired at Skype during SLP’s period of oversight. However, it omitted the following….

    – A COO was fired
    – Two different CTOs (not one) were fired
    – The General Counsel was fired.

    I am not going to point fingers at any one specific at SLP, but I will say that among the remaining execs at Skype are a few of the most integrity-challenged people I have encountered in my long professional career.

    Enough said…

    1. There’s been quite a bit said about SLP. What about Andreessen Horowitz in this mess? I’ve always viewed them as good guys and entrepreneur friendly. Has anyone from A16Z come out with anything on their role and position?

  9. I am normally not a fan of litigation, but this is a case where I hope the employees who got shafted sue the shit out of the company. It seems clear to me that Skype intentionally misled employees about the nature and value of their non-salary compensation. Considering the amounts of money involved, some people are probably deserving of jail time on this one.

    I hope the people who were wronged in this deal sue the crap out of Skype, and through the discovery process, drag the bad actors out in public view so the rest of us can avoid these people. Life is too short to work with/for people who have no integrity.

  10. Without sounding like a unionist, this bad behaviour by the management, silver lake or whoever, can easily be pulled into line if all the employees just “down tools” until the matter is resolved. Once Skype service quality goes down the gurgler faster than the round brown one you did this morning, Silver lake’s investment will start heading in the same direction..

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