'Tis the season for resignations at up-and-coming tech companies. Yesterday, Plug Power's (Nasdaq: PLUG) chief executive officer (CEO) abruptly left the company. Today, Gaston Bastiaens, president and CEO of voice-recognition software company Lernout & Hauspie (Nasdaq: LHSP), stepped aside to make room for former Dictaphone CEO John Duerden.
Bastiaens' resignation comes as the company is enduring heavy media scrutiny and numerous shareholder lawsuits over its unusual revenue streams. TheStreet.com's Herb Greenberg has long dogged the company, but recently Forbes and the The Wall Street Journal have joined in. The cause was the dramatic increase in revenue from Korea, which jumped from $1.2 million in the first half of 1999 to $127 million in the first six months of this year. The Journal questioned whether the company accurately identified its Korean clients and the size of their contracts.
We noted in our recent review of the company that questions about L&H's management don't stop there. Accounts receivable has swelled in excess of revenue in recent quarters. As Greenberg reported on Tuesday, the company's recent 10-Q made no allowance on its balance sheet for doubtful accounts among this significant pool of cash. L&H has filed an amended version that addresses this issue, but that kind of oversight is simply unacceptable at a company like this.
Duerden, Bastiaens' replacement, steps into a difficult situation. The company has lost a great deal of investor goodwill. He may, however, provide refreshing new leadership to L&H. Though he is new to the company (L&H acquired Dictaphone last quarter), Duerden has experience operating large, multinational companies. He served as President and Chief Operating Officer of Reebok International (NYSE: RBK), where he oversaw rapid growth in international sales. Previously, Duerden was an executive at Xerox Corp. (NYSE: XRX).
As for Bastiaens, well, one cannot help but draw parallels with his tenure as CEO of Quarterdeck. He left that post after producing significant growth in sales through an aggressive acquisition strategy, as he did at L&H, but Quarterdeck's profits disappeared as a result. L&H has become profitable under his leadership, but its recent large acquisitions have driven its reported earnings back into the red. Bastiaens left Quarterdeck at a delicate time, too, when investor sentiment was low, though he remained on the company's board of directors -- as he will at L&H.
Though L&H's stock fell over 10% this morning after the announcement, I see this decision as a good one. Bastiaens set the company on an aggressive path that has led to significant growth, but he has lost credibility on Wall Street. Duerden, as an outsider with solid management experience, can help regain the trust that is so essential between management and investors.
If investors' fears about the company's reported revenue prove to be true, L&H will have dug itself into a big hole. It will be very difficult to extricate itself from the situation without serious pain. Lawsuits will strike in droves and investors will flee. If not, however, and if Duerden is able to establish credibility through open and honest communication with investors, the company could again exhibit a great deal of promise. Its products have potential -- it would be nice for the company to focus on them in the future, rather than accounting issues.
Your Turn:
Is Bastiaens' resignation good or bad for the company? Does Duerden have the skills to put L&H's business back on track? Tell us your take on the L&H discussion board.
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