Shaheen and Webvan Take Each Other for a Costly Ride

The parachute glitters even more when compared to the company's other fortunes. More than 800 people have been laid off from the company, for example, and not one was guaranteed lifetime payments. Except for ex-CEO Shaheen.

Naturally, the press loves the contrast. And, no doubt, the people Webvan laid off in Atlanta, Georgia and Sacramento, California in recent weeks see red when they think about Shaheen's deal. Yes, that's right, US$375,000 per year for life.

To some, it is the French Revolution, digital economy style. Let them eat cake ordered online and delivered straight to their doors.

But the fact is that Shaheen earned his pay. Every last penny of it. He did it all by just showing up.

He Earned It

Make no mistake, this is a costly, long-term payout. Shaheen is 57 years old, so if he lives to be just 75, a pretty modest life expectancy these days, he'd collect close to $7 million. That's a pretty conservative bet, since his wife will get the payments should she outlive him.

Naturally, the question of how a company that has laid off hundreds of workers and cut back on the cities it serves can afford $7 million for a guy who doesn't work there anymore is on a lot of people's minds.

Webvan is a struggling company, likely to face Nasdaq delisting any day now. In addition to all the displaced workers, what about all the investors holding stock worth pennies per share?

The fact is that when Webvan made the deal, it couldn't afford not to.

Up Front Deal

Shaheen needed some pretty substantial financial assurances to leave his $4 million a year job at Andersen Consulting and to take the wheel at Webvan. After all, leaving an established Goliath, like Andersen, for a startup is a risky proposition.

Add in the fact that Webvan is a company in an incredibly uncertain niche of a still nascent industry, and you understand why Webvan had to weigh down the scales with long-term promises of cash in order to win a CEO.

Essentially, Webvan was paying up front for Shaheen's cachet, his experience and his connections in the high-technology and financial worlds. The move to hire him was a strategic one.

Credibility Gap

Not every dot-com made the same choice, but those that did -- including Amazon and Priceline -- had to pay dearly to get their executive of choice.

In the end, it hasn't worked as well as hoped. Among the factors that Shaheen blamed (on his way out the door) for Webvan's woes is a cold shoulder from Wall Street. A lack of belief, if you will.

Maybe Shaheen could have done more to convince investors that Webvan and the home grocery chain are viable long-term plays. But Webvan didn't hire him to cheerlead. Webvan hired him because he was George Shaheen. And he came with a price tag.

Is it fair? No. But it is reality. Crying foul isn't going to change that.

Out of the Club

But what did his year-and-a-half tenure at Webvan do for Shaheen's long-term career prospects?

Perhaps he'll recover just fine and the Webvan payments will simply be a little something extra each year -- a $375,000 stocking stuffer, if you will. But the fact is he stepped out of some pretty rarified air as a leader of a Big Five consulting firm to join Webvan. He won't be able to jump back into that exclusive club immediately.

Even when he is re-admitted, he'll always have Webvan on his resume. While there was a time when being a dot-com executive -- even at a company that suffered the cruelest fate -- was viewed as a positive, those days are over.

The Final Cost

The business world is a lot more savvy about these things now. Distinctions are being made and deeper looks being taken.

Stock answers about gun-shy investors and the difficulties of running a pure-play Internet company aren't going to cut it when people ask what happened to Webvan on Shaheen's watch.

For years to come, Shaheen will cost Webvan a great deal of money. But even if you shed no tears for him, one might also wonder what Webvan will cost Shaheen?

What do you think? Let's talk about it.