The saga of embattled venture firm Safeguard Scientifics, which has ceased investment in new companies and looks to divest its stake in about 25 companies, continues to unfold: CEO Steve Zarrilli and two other C-suite execs at the publicly traded Radnor firm will be stepping down, the company said Friday in a press release.
Zarrilli, who became CEO of the company in 2012, will leave Safeguard in September. The downsizing, which Safeguard says is part of an “aggressive cost-reduction initiative,” continues with the departure of Senior Vice President and Chief Financial Officer Jeffrey McGroarty, who will leave the company in June, and Senior Vice President of Investor Relations and Corporate Communications John Shave, who will leave the company at an “unspecified date”
“I believe Safeguard is on the right path to maximize the distributions of capital to our shareholders,” said Zarrilli. “With Safeguard’s new strategy well underway, the Board and I felt it was important to substantially reduce our management and make further cost reductions to align our organization and expense base with our new strategy.”
In Zarrilli’s place, the board of directors has appointed former COO and Managing Director Brian Sisko, a Penn lawyer who joined Safeguard in 2007. He begins his term in July.
News of the shakeup, first reported by Inquirer reporter Joseph DiStefano, comes one month after the company — founded in 1953 by investor Warren V. “Pete” Musser — announced it had entered sell-off mode at the behest of its investors (which in turn have soured with the Radnor VC over dim financial results: the firm posted 2017 losses of $88.6 million).
Surprisingly, one of the investor groups that had clamored for Zarrilli’s departure — and asked not to be named — was not pleased with the news that the three senior execs would depart.
“We’re disappointed that they left basically the same management in place,” one investor said. “The guy they’re putting in there [COO Sisko] is one of the two who have been in charge and the results have been horrible. The sidekick [Sisko] we hear, is the [Dick] Cheney behind the [George W.] Bush.”
The investor said Safeguard had not conducted a search process to replace the CEO with a new executive.
“It’s just for show,” the investor said.
Another investor, Maplewood Capital Managing Director Darren Wallis, told the Inquirer that the move to shake up top leadership was insufficient, and questioned Sisko’s management experience.
“We further wonder what the new CEO’s pay package will be and what the severance packages for the outgoing executives look like. When will they be disclosed?” Wallis asked.
Through a spokesperson, the Radnor company declined further comment.
Robert Rosenthal, chairman of Safeguard’s board, put his trust behind Sisko as an heir, and said the board had committed to “executing on the company’s new strategy” and making the organization a leaner operation that can best distribute its value to current investors.
Regardless of what happens with leadership at the firm, the unwinding of the company’s operations and subsequent offloading of the stake in 25 companies across a range of verticals will take some time. TL Hill, a Temple University professor and director of the its Fox Management Consulting Practice, estimates a range of three to five years.
“These are very illiquid investments,” Hill said. “You need someone to buy you out by selling the stake to someone else, more likely another operating company that needs the software or product for their portfolio. At that point of purchase, money changes hands and a company can go back to investors with the returns.”
The process is routine for firms like Safeguard, Hill said. What’s uncommon is announcing the entry into selloff mode, which according to the researcher, normally occurs when investors aren’t seeing results they like. But announcing the move could be detrimental for returns in the long run.
“It puts them in less of a strong negotiating position,” Hill said.