Arrow CEO steps down: Scricco's sudden departure raises questions

Electronic News, June 17, 2002 by Rob Spiegel

Much to the surprise of the electronics distribution industry, Francis Scricco last week stepped down as president and CEO of Arrow Electronics Inc.

The company said the move was a "mutual agreement" between Scricco and Arrow's board of directors, but it set off a flurry of speculation because Scricco was widely regarded as a competent executive who was delivering one of the best performances by a distributor during the downturn. Immediately following the announcement of his resignation, Arrow's stock price fell to about $19 from almost $24.

Chairman and former Arrow leader Stephen Kaufman will resign as chairman and rearrange his schedule as senior lecturer at the Harvard Business School in order to retake the reins of the company until Sept. 15, which is the target date to assign anew CEO. A search for Scricco's successor is being conducted by Christian & Timbers, which specializes in executive recruitment in the tech sector.

The span of time Kaufman will lead Arrow matches the break in classes at Harvard. Daniel Duval, an outside director since 1987, will succeed Kaufman as chairman, effective immediately. Prior to retirement in 1999, Duval served as president and CEO and a director of Robbins & Myers, a fluids management systems manufacturer.

The search for Scricco's successor could easily extend beyond the Sept. 15 target. "These searches can take 90 to 150 days," said Robert Klatell, Arrow executive VP. "If we don't get it done by Sept. 15, then Duval will be in place. We'll have experienced leadership in the corner office."

Scricco weathered a considerable revenue fall through the recent downturn. The company produced $1.9 billion in revenue during Q1 2002, down from $3.28 billion during Q1 2001. The revenue drop allowed archrival Avnet Inc. to edge ahead and become largest distributor as measured by sales. Yet Scricco effectively bolstered Arrow's bottom-line and balance sheet, winning praise from Wall Street for his ability to avoid red ink completely during the downturn while driving $1.8 billion in cash flow over the past year.

"He outperformed Avnet in every metric," said Rob Damron, executive VP and equity analyst at SWS Securities Inc. in Milwaukee. "Yes, the earnings are down and sales are down, but it's down for everyone." Damron noted that he believes Scricco was ready for a break from his responsibilities as CEO. "I don't think he was pushed out by the board. I think he burned himself out, and he doesn't know his family."

The abruptness of Scricco's departure has led to wide-ranging speculation on the reasons behind the resignation. In a statement to company employees, Scricco cited his need to spend more time with his family. Some industry watchers accept this explanation, but many others question the statement, especially because the company stated the decision was "by mutual agreement with the board of directors," which suggests the decision was not Scricco's alone.

Industry analyst Matt Sheerin, VP of research with New York-based Thomas Weisel Partners, doesn't accept family considerations as the reason for Scricco's resignation. "We speculate the board decided that with Kaufman on the verge of leaving in just a few weeks, it had better either commit to Scricco for the long run or move in another direction while Kaufman was around to help with a new CEO transition," Sheerin said in a statement on Scricco's move. Kaufman's contract with Arrow was scheduled to end in July.

Thomas Weisel maintained its "attractive" rating of Arrow's stock, citing the company's strong position and its well-experienced senior management, but not all investment firms were as generous. New York-based Merrill Lynch & Co. downgraded Arrow's stock to "reduce/sell" for the near term, down from "neutral." In a note to clients, Steve Fox said the surprise resignation of Scricco creates "uncertainty" for the company.

The announcement was certainly a surprise among fellow distributors. Even rival Avnet Chairman and CEO Roy Vallee acknowledged Scricco's performance at the helm of Arrow, noting his ability to shake outsider status. "From what I could tell, Fran had adapted to our industry pretty well." Vallee said hadn't anticipated the change since he thought the transition from Kaufman to Scricco was going well. "I was surprised; I thought it was clear that Steve was on his way to Harvard."

While a few industry insiders speculated that there was a clash between Scricco and Kaufman, others discounted this claim based on the fact that Kaufman handpicked Scricco as his successor. Klatell insisted Scricco really does want to spend more time with his family, but some analysts don't see any evidence of this in Scricco's past behavior. "I think he clearly was in this thing for the long run," Sheerin said. "So I would be surprised if it was just the family. I think it was a decision by the board about the direction of the company's leadership."