April 13, 2001 6:00 PM PDT

Webvan chief executive steps down

George Shaheen has resigned as chief executive of Webvan after less than two years in the driver's seat of the beleaguered online grocer.

"A different kind of executive is needed to lead the company at this time and as such, it no longer makes sense for me to continue in my role and I will be leaving the company," Shaheen said in a statement late Friday. A company spokesman said Shaheen does not have any immediate plans to join another company.

Robert Swan, chief operating officer of Webvan, will lead the company until the board of directors appoints Shaheen's successor.

Webvan spokesman Bud Grebey said Shaheen's departure did not come as a surprise to many inside the company.

"Given the change in environment here we've also sensed the need for leadership in the day-to-day operations," Grebey said. "He's made his decision with the company's best interest in mind."

Shaheen, 57, served as chief executive starting in October 1999 and as chairman of Webvan's board of directors beginning in February 2001. He left a $4 million-a-year job as CEO of consulting company Andersen Consulting to become Webvan's chief executive.

His decision to leave Andersen shocked many in the business world. He had led the consulting company since it became an independent unit in 1989, and during his tenure its revenue increased from $1.1 billion to $8.3 billion.

Though U.S. Securities and Exchange Commission records indicate that Shaheen never sold any of his Webvan stock--he received 125,000 shares and 15 million stock options--he could still walk away from the company with a bundle.

Shaheen earned an annual salary of $500,000 and a bonus of $250,000. His contract states that if he is terminated or resigns for "good reason," he will receive a severance package of $1.5 million and two years of additional vesting on his stock options.

His tenure with the company has been rocky from the start. Almost immediately after joining Webvan, the SEC delayed the company's IPO while it looked into reports that Webvan had shared information with analysts that it did not provide in its prospectus.

After the brief delay, the IPO was launched in November 1999 with Webvan selling 25 million shares at $15 each, raising $375 million. The stock opened for public trading at $26, giving the company a market value of $8.45 billion, and the shares climbed as high $34 on their first day.

Since then the stock has plunged, as investors have turned sour on many Web companies and e-tailers. The shares closed Thursday at 12 cents, giving Webvan a market capitalization of $57 million.

Webvan attracted Trading on thin icemore funding than any e-tailing company other than Amazon.com. Today it faces Nasdaq delisting and has a revamped business plan that still shows the company running out of money by the end of the year; a recent audit expressed doubt that the company would survive.

As part of its leaner business plan, Webvan announced in February that it was delaying plans to open in three cities and ending service in Dallas, laying off 220 people there and focusing on making its other nine markets profitable.

Sources told CNET News.com on Thursday that Webvan executives told employees the company has turned a profit at one of its distribution centers for the first time--a glimmer of hope for a company that has long sought to reach profitability in at least one of its markets.

With Webvan due to run out of money near year's end, it needs to show profits in at least one of its operations if it has any chance of convincing investors to back the company, analysts have said.

But Shaheen's departure could hurt the company's chances of obtaining new funding. As an experienced leader of an established and successful big-five consulting company, Shaheen helped lift the company's credibility with investors when it first sought funding, analysts said. His departure may have the opposite effect.

"The company that has lost its CEO without a funding event could be in trouble," said Vernon Keenan, an analyst with San Francisco-based Keenan Vision. "The thinking there is the CEO's main job is to raise the money. If he's gone, they have to solve two problems at once: They have to find a new CEO and new funding at the same time...This looks like the moment of truth for Webvan."

Shaheen was one of the last high-profile, Old Economy executives who jumped to the Internet during the go-go days to remain in the job. Most of the others have stepped down or moved to other companies as stock prices dived and the economy soured.

Among the executives wooed by the Net who later quit are Joseph Galli, who left Black & Decker for Amazon.com and later VerticalNet; Heidi Miller, who left as chief financial officer of CitiGroup to go to Priceline.com; and Bill Malloy, who left AT&T for Peapod.

 

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