Mercury's Zingale: "Gotta Move On"

The circumstances surrounding Tony Zingale's promotion to chief executive of Mercury Interactive (MERQE) were hardly ideal. His predecessor, Amnon Landon, and two other executives -- Chief Financial Officer Douglas Smith and General Counsel Susan Skaer -- had just been ousted after an internal company investigation found 49 instances of stock-option manipulation dating back to 1995.

To company watchers, it was just a matter of time before Zingale took over the reins. Prior to joining Mercury in 2004 as chief operating officer, he had a history with big companies, including Nortel Networks (NT). Besides, he was already running Mercury's day-to-day operations.

Still, Zingale's job suddenly got a lot harder. In addition to navigating Mercury through an expected restatement, possible shareholder lawsuits, and ongoing investigations, he'll need to reassure customers and employees while reestablishing the company's credibility with Wall Street (see BW Online, 11/9/05, "Mercury Falling?"). Mercury has put off releasing third-quarter results and is declining to provide guidance for the fourth quarter, which it said would be "challenging."

Some 48 hours into the new position, Zingale sat down with BusinessWeek Online Silicon Valley reporter Sarah Lacy to discuss the challenges. Edited excerpts of the conversation follow.

Can you describe what you've gone through this week?

Wednesday [Nov. 2] was a tough, tough day for two reasons. News like that is never great to communicate, and I had to communicate it for 20 straight hours. That was challenging. The second part was, Amnon recruited me to come to Mercury. Our relationship started years ago, outside of Mercury. So that part was hard, because it was beyond the decisive action the company had to take. To everyone in the company, it had a personal dynamic to it.

But you gotta get over it, and you have to move on. There's no extended mourning. The reason you get excited is the opportunity for this company. We have 30,000 customers and great technology. Does any of that change? None of that has changed -- it's completely intact.

Yes, we've damaged the company's reputation. We've damaged its credibility with Wall Street a bit. CFO David Murphy and I are standing strong behind [a decision not to rush earnings restatements]. We get one chance to restate the company's finances -- we want to do it right. We're going to do it as quickly as we possibly can, but you know what? I'd rather rebuild credibility than a market and a product line.

Did you have any idea what you were getting into when you took the job at Mercury? Did you know any of this had gone on?

Absolutely not. I had no idea. I joined the board in July of 2002, and joined as [chief operating officer] and president in December of 2004. It became clear to me [that something was going on] when the company, along with a bunch of other companies in the Valley, got an innocuous [Securities & Exchange Commission] letter saying, "We want to look into these areas."

That was late last year. Then, midyear, they deposed a few people and, after those depositions, it became clear to me and the board that we probably needed to form this special committee. The company acted deliberately and decisively, and it was not something we had to do.

Did you have any idea it would be this bad?

I knew there was a lot of work and investigation going on, because they looked at millions of e-mails and interviewed dozens of people. I was interviewed, but I was the new guy. I didn't know what was going on in 1995. I knew they were taking a long time. That led me to believe there was something they were looking into.

When you saw results of the investigation on Tuesday, what was your initial reaction?

Shock. Yeah, shock. That's Part One. Part Two is really just trying to understand what was going through those people's heads. I knew Amnon and Doug really well.

But then I'm a realist. And, quickly, it's like, "Are you done, Tony? Because guess what? Now they're all looking to you."

Great, there it is. There are the facts. You're in a board meeting, and the board is moving to elect you as CEO. You [move] along the lines of, "How are we going to communicate this? What about my management team? What's going to be the reaction in Israel?" You quickly move to action.

How did you handle telling the employees?

I thought it was important to get [the press release] out to people and give them some time. Then I talked either in person or teleconferenced every single person in the company in the first 12 hours after this happened. We understand that it's big news and it's unfortunate, but the fundamentals of the company are a loyal customer base and great product line. Forty-eight hours later, I think we did a really good job on that.

What's the mood now?

We added eight or nine significant senior enterprise-software executives in the last 90 days. All these executives joined the company knowing this investigation was going on. Why? Because the fundamentals are intact. And why, also? Where else are you going to go? Where else is there a growth opportunity [in software]?

Yeah, you can go try your luck at a startup. Have a ball -- we're back to 1 in 13 make it. There's not a discontinuous event that's happening. There's no Web event. There's no wireless event. There's no event to generate the opportunities for startups. It's all about execution and cost reduction.

My last point is, people say they love change and they really don't. But executives who have been at it 25 years? They dig it, because they've come through it a couple of times. This is unfortunate, but let's rally around it. [My management team] is as fired up as ever. I keep going, "Really? Because I'm [fired up] -- I just want to make sure you really are."

Is this tougher for the employees in Israel, where Mercury was started?

It's going to take a little time there, because Amnon was their guy, make no mistake. But I've already fashioned relationships. I've been there a few times. I've hung out with engineers. I'm an engineer, too. Although it might not come through, I can be a tech weenie, too. I know I come off as sales-and-marketing guy, but that's not what I'm about.

What about customers?

That's where I'm spending most of my time now. They are proactive calls, saying, "Let's talk about this." You get it behind you. Customers I have talked to, despite personal feelings for Amnon, are glad to see [we're being] decisive and not taking forever or dragging this out.

What about the concern that they'll put off buying your software?

That's why we used the word "challenging" [in the press release], because that one is unknown. The greatest emotions [that drive people] to purchase software are pain and fear. So it depends on how much pain they have and how much fear of uncertainty [there is].

I don't mean to be too uncautious about the fact that there's an element of the unknown, but in general I haven't gotten this incredible [list of customers I need to call]. My inbox would've been full. The sales guys were told, "Reach out and talk to all customers now, particularly those that have an offer on the table." And I haven't gotten a backlash. I've gotten a handful [of customers I need to call.] Most are proactive -- a courtesy call.


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