The Day Ahead: Corel employees take fall for CEO's blunders

Corel struggles along with Cowpland as the albatross around its neck, while Martha Stewart Omnimedia have second thoughts about spin-offs

Corel cut 320 employees and some investors actually thought the company was headed in the right direction -- for about half the trading day Friday. Corel would have received a standing ovation if it cut 321 employees, and booted CEO Michael Cowpland.

The evidence against Cowpland isn't hard to find. Cowpland has lost all credibility with investors, botched a merger with Inprise due to profit warnings and has to fend off insider trading allegations.

Nevertheless, Cowpland still manages to lure individual investors with his buzzword-of-the-week banter. Corel shares jumped about nine percent before closing down Friday.

And now Cowpland is trying to be a martyr by not taking a salary in 2000. The scam worked for a few hours and drove up the stock briefly. By 1pm EDT (6pm GMT), however, investors figured out cash-poor Corel wasn't on the path to profitability and would need more layoffs to cut costs.

Folks, Cowpland is not Steve Jobs, who didn't take a salary when he was rescuing Apple Computer. There's a big difference. Jobs didn't take pay until he turned Apple into a Wall Street darling. Cowpland has led Corel, its good technology and dedicated workers into the gutter, and now he decides to take a pay cut.

The salary cut is a bit of a joke anyway. The company is trying to save $40 million a year in expenses. Cowpland's salary is roughly $200,000 annually. Thanks for the morale boost.

For the last three years, 1997 through 1999, Cowpland made about $200,000 a year, according to regulatory filings. Most of his compensation is stock options. If Cowpland wants to save Corel some money, he should give up some of his stock compensation.

Cowpland gets paid in US dollars, but has options that vest at $3.37 in Canadian dollars, which are weaker than US greenbacks. His vesting price is roughly $2 a share in US dollars. Cowpland, who owns 9.7 percent of Corel, lives off his holdings. Granted, Cowpland's stash is diluted these days, but forgoing his $200K isn't going to hurt him.

Meanwhile, Cowpland has made "a tough decision" and cut employees that were "highly-skilled, motivated people whose energy and dedication have contributed to the company's reputation for innovation over the years".

Translation: 21 percent of Corel's workforce took the fall for Cowpland's chaos. Corel could be viable competition to Red Hat or even a broken-up Microsoft, but the company will never turn itself around until it ditches Cowpland.

Martha's dot-com strategy

When Martha Stewart Omnimedia went public the company was portrayed by many -- including me -- as a back-door Web play. A few things have changed since then.

In Martha Stewart's IPO filing, the company said a spin-off of its e-commerce site was possible. Kleiner Perkins Caufield & Byers even invested in the company for strategic opportunities.

And then came the dot-com shakeout. "A spin-off is highly unlikely now," said Stewart at the PaineWebber Technology and Growth Conference last week. "It's integral that it's part of our overall business."

Not that it matters much anymore -- Stewart's diversified media model looks good. Deals with K-Mart's Bluelight.com e-commerce venture will drive traffic into the Martha Stewart site. Merchandising, catalogues, television shows and magazines make for a nice branding package. Martha Stewart doesn't have to spend heavily to create a brand.

Martha Stewart's Web operations lost $14.8 million in 1999 and is expected to lose $29 million. In the first quarter, the Web unit lost $6 million on sales of $10 million.

As for the Web future, Stewart was bullish. She said the company can leverage its library of content, which is all digitized. Stewart also noted that the company, which has $105 million, in cash was continually looking at e-tailing properties and complementary sites. Although Martha Stewart recently expanded its garden channel, niche sites such as Garden.com could eventually be a good fit.

"We are consistently talking and studying companies less fortunate than we are," she said, referring to the cash-crunched dot-com crowd.

What do you think? Tell the Mailroom. And read what others have said.

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