Four Questions for Seagate Board From a Faithful Investor

This letter was written by Sunil Shah.

Four Questions for the Seagate Board
Subject: Severance Pay for Mr. Watkins.

To the Board of Directors of Seagate (STX):

I have been a professional fund manager for 20 years and a Seagate Shareholder for close to a decade. I cannot remember when I have been as aghast as when I read the financial disclosure [that we published under the title: Golden parachute for Seagate’s Former CEO Watkins].

I would like the board to address the following points of concern:

• The issue of Mr. Watkins lack of performance is unambiguous: the share price performance (vs. WDC); the loss in HDD market share; the write-down of Maxtor’s entire purchase price of $1.9 bn to zero, the acquisition he presided over and implemented. If this is in doubt, I would like a clarification.
• 
  What is the principle underlying your remuneration policy? I believe a basic tenet would be to reward merit and penalise incompetence. Why does the Executive Officer Severance Policy not show even the slightest reference to the basic principle?
• 
  I understand there has been a blanket 10% pay cut for all employees. Does the board have any inkling how this severance payout rankles investors and employees alike? Have they considered the effect on morale of existing STX staff? I suggest they read some of the comments on the Barron’s website, from employees that have risked being exposed as ‘disloyal workers’ to voice their indignation.
• 
  On the issue of restrictive covenants that hinge on the severance package, does the board feel $5 m is a good price to prevent Watkins walking to a competitor? After his record? Does the board feel he has the clout to attract competent staff away? After his tenure, are these ‘Watkins-loyal’ employees worth keeping? Has the board noticed the unemployment statistics, the number of companies in distress, the number of highly qualified executives looking for a job? I suggest the board seriously reflect on these issues before they face a shareholder revolt.

I look forward, eagerly, to your prompt response.

Disclosure: Long position in Seagate