Scott McGregor is the man who tamed the once wild and unruly Broadcom Corp.
Since taking over as chief executive in 2005, McGregor has overseen the nation’s biggest fix of backdated stock options, done away with aggressive accounting and brought in a pair of fellow straight shooters as his key lieutenants.
In short, McGregor has introduced big-company professionalism to the Irvine chipmaker.
Broadcom today is an entirely different company than the one portrayed in ongoing legal proceedings involving cofounders Henry Nicholas and Henry Samueli and former financial chief Bill Ruehle.
“Scott brought in some stability, calm and normalcy,” said Cody Acree, analyst at Stifel, Nicolaus & Co. in Dallas. “He brought to Broadcom some tenured experience that it was really in need of.”
McGregor, a mild mannered executive not prone to grandstanding, acknowledges the change in his own subtle way: “Broadcom has definitely grown to more of a respected leader in the semiconductor industry.”
The ongoing legal troubles of the company’s founders,centering on backdated stock options, and, in the case of Nicholas, charges of drug abuse and other unseemly behavior,aren’t a factor for the company, McGregor said.
“Obviously we don’t like reading those newspaper headlines, but it’s not a distraction,” he said. “We are really focused on making great products.”
While criminal proceedings continue against former executives, Broadcom largely put the options issue behind it in the past year and a half.
In 2007, McGregor oversaw the implementation of a board committee’s findings by restating past earnings to include $2.2 billion in charges to account for backdated options.
The backdated options predated McGregor.
In April of this year, Broadcom paid $12 million to settle a civil suit over options brought by the Securities and Exchange Commission.
In May, two remaining executives from the backdating era, former chairman and technology chief Samueli and former general counsel David Dull, stepped down.
Cofounder and former chief executive Nicholas, who left Broadcom in 2003, is set to go to trial in the spring on fraud charges and later in the year in the drug case.
Former financial chief Ruehle, who left in 2006, faces a trial on fraud charges in the spring.
Samueli, who Broadcom said had only passing involvement in options granting, pled guilty to one felony charge of lying to investors in a deal with prosecutors that was rejected by a judge in September. Samueli is appealing the rejection.
New Leadership Style
Broadcom today looks a lot different than it did during the time of its founders, who started the company in the early 1990s.
Back then, Samueli was the company’s engineering force who went on to be one of the county’s top philanthropists.
Nicholas was notorious for calling midnight meetings, which was part of his take-no-prisoners leadership style.
McGregor has little of the flash or large personas of the company’s founders.
Broadcom’s 2,000 local employees still work hard, McGregor said, “but we also have family lives.”
“We demand a lot of people at Broadcom, but we also respect that they have a personal life,” said McGregor, who lives in San Juan Capistrano and referees youth soccer games for a league his kids play in.
The former Royal Philips Electronics NV executive has handpicked some key executives at Broadcom.
Last month, McGregor hired Arthur Chong as general counsel, replacing former legal boss Dull who left amid the options issue and is being sued by the SEC.
Like McGregor, Chong has big company experience, coming from Seattle-based insurance company Safeco Insurance Company of America, part of Liberty Mutual Holding Co.
In 2007, McGregor brought in a new finance chief, Eric Brandt, to help Broadcom’s investors get a clearer view of its books.
Brandt also brings solid experience, having earlier served as chief financial officer of Irvine drug maker Allergan Inc. Most recently he was chief executive of Aliso Viejo-based Avanir Pharmaceuticals.
Like McGregor, Brandt is a straightforward, by-the-book executive. He replaced Ruehle, who was known for aggressive accounting, including the issuing of stock warrants to customers of companies Broadcom acquired in the late 1990s and early 2000s.
“We’ve had a goal to become more transparent over time,” McGregor said. “Hiring Eric Brandt as our CFO has also accelerated that. It’s a process where we want to act more the leader that we’ve become and meet that expectation from our customers and investors.”
This year, McGregor and Brandt have overseen an epic shift in the world of Broadcom,switching to standard accounting rules.
The company now reports financial results only according to generally accepted accounting principles. Early on, Broadcom reported non-GAAP results that excluded charges for stock compensation, acquisitions and other items. Broadcom’s old executives felt non-GAAP results were a better reflection of the company’s operations.
After the Enron Corp. scandal and adoption of the Sarbanes-Oxley Act of 2002, Broadcom started reporting two sets of figures, non-GAAP and GAAP.
Starting in April, Broadcom moved to just GAAP.
When the company announced third-quarter results a few weeks ago, Broadcom also included a quarterly outlook, something it usually only gave during conference calls.
Another first for the company in the third quarter was a breakout of its quarterly operating expenses, including how much it paid for research and development costs, salaries and legal fees.
The moves are “extremely helpful,” analyst Acree said.
“The lack of information previously had made it extremely difficult for analysts and probably investors to know exactly what was being reported,” he said. “This helps them hugely in the fact that it removes some questions that investors had.”
Wall Street also likes McGregor for spurring growth. While Broadcom faces a tough market now, the company has seen sales and profits double under him.
Analysts are expecting Broadcom to post profits of about $400 million on sales of nearly $5 billion for the year.
“He has been a very steady hand at driving growth,” said Craig Berger, an analyst with Friedman, Billings, Ramsey Group Inc. in New York. “He’s done a good job of putting in processes around Broadcom’s investments and knowing which markets to target and how to best serve them.”
The company “has definitely scaled,” McGregor said.
Qualcomm Battle
Another big McGregor initative: a legal battle with San Diego’s Qualcomm Inc., a rival maker of chips for cell phones.
The two companies have sued each other over patents for cell phone chips in a battle largely initiated by Broadcom, which also has filed suit over Qualcomm’s practice of licensing technology and collecting royalties.
Some could see the fight as a costly distraction for Broadcom.
But with things breaking Broadcom’s way so far, analysts are giving McGregor the benefit of the doubt.
“Obviously I’d rather see the cash (spent on legal fees) go to shareholders,” said Dan Berenbaum, an analyst with Cowen & Co. in New York. “But an aggressive protection of intellectual property is essential to their business model. They obviously feel like the return is worth it.”
McGregor, 52, is a fairly private guy whose job demands much of his time.
His conversation doesn’t veer much into the personal,unless he’s talking about making technology easy to use for everyday folks.
McGregor’s decidedly techie side comes out when he talks about getting his kids a “Wii Fit” game for Nintendo Co.’s Wii game console, or using Apple Inc.’s iPhone. Both devices contain Broadcom chips.
As a leader, McGregor said he takes a laissez-faire approach. Most day-to-day decisions are handled by the general managers of Broadcom’s working groups.
“As a CEO, I think I’m a combination coach and cheerleader most of the time,” he said.
He said he keeps Broadcom’s thousands of engineers motivated by getting them engaged with projects that are “cool.”
“At the end of the day, it’s really cool to be working on projects like some of the ones we have,” McGregor said. “It’s very empowering.”
In some ways, McGregor’s picked up the reins where Broadcom’s founders left off,by continuing to fire up the company’s competitive streak.
“At Broadcom, we hate to lose,” he said. “Our goal is to be the leader to in the semiconductor communications market. I don’t consider my work done at Broadcom, by far.”
