Skin in the game matters and Intel’s CEO doesn’t have much

It does not look great that chief executive Brian Krzanich sold half his Intel shares for $14m at the end of November

Brian Krzanich, chief executive officer of Intel.

Brian Krzanich, chief executive officer of Intel.

 

As cyber security issues go, a design flaw that could allow hackers to access virtually every server and PC on the planet sold in the last decade is serious. It also sits uneasily with the sale of a large block of shares by the boss of the world’s largest chipmaker.

On Wednesday, Intel issued a statement in response to “inaccurate media reports” saying that it and other chipmakers were working to provide software and firmware updates to reduce vulnerability. The company told investors on Wednesday that there should be no material financial impact from the security scare. Its share price initially fell as much as 7 per cent before ending down 3 per cent.

In retrospect, it does not look great that chief executive Brian Krzanich sold half his Intel shares for $14 million at the end of November. The transaction was executed under an automatic trading plan. These allow executives to issue instructions in advance, to avoid any suggestion that they are selling on the back of non-public information. But the plan was set up at the end of October, according to a regulatory filing — four months after Intel was informed of the weakness by security researchers from Google.

There is no suggestion the two events are related, and the automatic trading plan ended up selling the stock at a slightly lower level than the post-scare share price. But the long-term impact on Intel remains unknown. While the company (and the Google researchers) stress this as an industry-wide issue, calling out by name other chipmakers such as AMD and Arm Holdings, it is not clear that their products are affected to the same extent. AMD says there is “near zero risk” to its products and its shares rose 5 per cent on Wednesday.

Even without storms on the horizon, it is an open debate whether chief executives should sell large amounts of shares they are awarded while they are still in post. Of course, there is concentration risk in holding; the circumstances in which your stock price tanks are also those that might lead to you being fired.

But skin in the game matters. Citigroup under Sandy Weill imposed a “blood oath” on the management team to hold the entire lot. Mr Krzanich has sold down to 250,000 shares, the bare minimum required by Intel’s own policies. It is not exactly a ringing endorsement.

– Copyright The Financial Times Limited 2018

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