Intel Ousts CEO Krzanich After Relationship With Employee

Ian King and Gerrit De Vynck (Bloomberg) -- Intel Corp. removed Brian Krzanich as chief executive officer after the chipmaker learned he had a consensual relationship with an employee, a violation of the company’s policies.

Chief Financial Officer Robert Swan was made interim CEO while the board searches for a permanent replacement, the company said in a statement Thursday. Krzanich is the latest in a string of CEOs forced out for having an inappropriate relationship. Lululemon Athletica Inc. and Priceline Group Inc. both had to replace their leaders for similar reasons.

Intel heard about Krzanich’s relationship about a week ago from an employee acting under company rules that require staff to report such matters when they become aware of the information, according to a person familiar with the matter. Intel has previously fired people for "fraternization" under a rule implemented in 2011 and therefore the board felt it had no choice in this case. The relationship was long-term and started years ago. It had been over for a couple of years, the person also said, asking not to be identified discussing private details of the situation. Krzanich didn’t respond to multiple requests for comment.

Krzanich’s ouster throws into turmoil the leadership of a company that’s been a model of stability and organization for 50 years. Krzanich, 58, leaves Intel at record performance levels financially but facing a group of new challengers as the computer processing market it dominates reshapes itself to deal with new trends such as artificial intelligence.

“It’s a shame for a career to end this way,” said Kim Forrest, a senior portfolio manager at Fort Pitt Capital Group. “Brian has been a strong contributor towards Intel’s success. I’m sure that a capable replacement will be found. It wouldn’t surprise me if the ex-CFO, Stacy Smith, gets the nod to be the next CEO.”

Krzanich moved up the ranks at Intel over more than three decades. Since becoming CEO in 2013 he has overseen the company through an era of intense competition and consolidation in the chip industry. Krzanich had been trying to remake Intel into a more general provider of chips, expanding into new markets such as industrial systems and self-driving cars, with the 2017 purchase of Mobileye for $15.3 billion. The mission remains a work in progress; the data-center chip business is still the biggest sales engine and will determine Intel’s success for the foreseeable future.

Known as “BK” at Intel because of the difficulties some have in pronouncing his surname (Kris-an-itch), he worked his way up Intel’s ranks as a factory manager. He joined Intel in 1982 in New Mexico as an engineer, just as the personal-computer industry was beginning to take off. Krzanich is married with two daughters.

Swan, the former chief financial officer of EBay Inc., has been Intel’s CFO since October 2016. He oversees finance, information technology and corporate strategy. He previously was CEO of Webvan Group Inc.

Intel also raised its second-quarter revenue and profit forecast Thursday. It said it’s expecting revenue of about $16.9 billion and adjusted earnings per share of about 99 cents when it reports results on July 26.

The shares fell 2.2 percent to $52.31 during afternoon trading in New York. The stock had rallied 16 percent this year through Wednesday, beating the Dow Jones Industrial Average, which was little changed in the period.

Up to and including Krzanich, Intel has appointed leaders from within its own ranks throughout its 50-year history. It’s done that through an established process of executive grooming whereby prospective top executives are apprenticed to current leaders then tested and promoted until one is made president, making the succession clear.

Intel currently doesn’t have anyone in the president role. Krzanich, who won a competition with other rivals after his predecessor Paul Otellini left early, has replaced his former rivals such as Renee James, Stacy Smith and Dadi Perlmutter, with appointees from outside, breaking with the past. His peers have left the company.

Navin Shenoy, 44, who runs Intel’s data center business, is the only current member of leadership group that came up through the system.

Boards are increasingly less tolerant of CEOs behaving badly. The number of CEOs fired for ethical lapses in the U.S. more than doubled in the five years spanning 2012 to 2016 compared with the previous five years, according to a study of 2,500 companies by consultant PwC. The data showed 14 CEOs were ousted for ethical lapses from 2012 to 2016 versus six the previous five years. The executives were ousted both for their own improper conduct or that of employees reporting to them.

Six CEOs resigned under pressure among S&P 500 companies in the first quarter of this year, according to data compiled by executive recruiter Spencer Stuart. That included Steve Wynn at Wynn Resorts as well as top executives at Perrigo Co., Dentsply Sirona Inc. and Arconic Inc., Spencer Stuart said. Not all of them necessarily had ethical lapses, but it shows more willingness to push out the CEO.