Intel CEO resigns after probe of relationship with employee

Intel CEO Brian Krzanich has resigned after a probe found a consensual relationship with an employee violated company policy.

Intel CEO Brian Krzanich has resigned after a probe found a consensual relationship with an employee violated company policy.

The head of the largest U.S. chipmaker is the latest in a line of powerful men in business and politics to lose their jobs or resign over relationships viewed as inappropriate, a phenomenon highlighted by the #MeToo movement.

"An ongoing investigation by internal and external counsel has confirmed a violation of Intel's non-fraternization policy, which applies to all managers," Intel said in a statement.

The board named Chief Financial Officer Robert Swan as interim CEO and said it has begun a search for a permanent CEO, including internal and external candidates.

Intel declined to give any further information about the probe. Its shares fell 2 percent.

The company's board was informed a week ago that Krzanich had a mutual relationship with an employee in his chain of command in the past, according to a source familiar with the matter who asked not to be named.

Intel's policy, which dates back to 2011, requires employees to report any colleague's relationship with a subordinate if they come to know about it, the person added. Intel has fired managers before for violating the policy.

'BK' out

Krzanich, who did not have an employment contract, is entitled to a US$38 million "walk-away" payment in the event of a voluntary termination, according to Intel's regulatory filings.

Of that, $31 million is in the form of accelerated stock awards and $4.1 million in the form of deferred compensation, based on Intel's share price on Dec. 29.

An Intel spokesman declined to say whether the walk-away payment applied to Krzanich's resignation.

Krzanich, 58, an engineer and Intel veteran known at the company as "BK," was appointed CEO in May 2013. He led the company's shift to focus on making chips for data centers that power cloud computing from its traditional stronghold in personal computers. Intel shares more than doubled during his tenure.

He was recently credited with containing the fallout from the discovery of security flaws in the company's chips that could allow hackers to steal data from computers, although his sale of some Intel stock before the flaws were disclosed to investors attracted some criticism.

Corporations are under increasing pressure to "walk the walk" on executive behavior with the rise of the #MeToo movement, said Ivan Feinseth, chief investment officer at Tigress Financial Partners.

In the last few months Martin Sorrell, founder of advertising giant WPP and casino mogul Steve Wynn of Wynn Resorts resigned after accusations of impropriety. Wynn has denied the accusations and Sorrell has denied any wrongdoing.

Strong bench

Temporary replacement Swan has been Intel's CFO since October 2016 and previously spent nine years as CFO of eBay. Given his short tenure and lack of experience in manufacturing, he is not likely to be named permanent CEO, Cowen analyst Matthew Ramsay said.

While Intel has successfully pushed its way into the data center business, global competitors are catching up with its manufacturing technology, said Bernstein analyst Stacy Rasgon.

"BK will go down in history as the CEO that let Intel's process leadership advantage slip away," he said, adding that a change at the top could bring in fresh ideas.

Kevin Cassidy, an analyst at Stifel, said that Intel would take the change in stride.

"Although we respect Krzanich’s efforts in redirecting Intel’s strategy from a computer-centric to a data-centric company, we view Intel as a process-driven company with a deep bench of CEO candidates that can continue to drive the corporate strategy," he said.

Intel on Thursday raised its second-quarter revenue and profit forecast, saying it expects quarterly revenue of about $16.9 billion and adjusted profit of about 99 cents per share, up from a previous forecast of $16.3 billion in revenue and adjusted earnings per share of 85 cents.

Analysts on average were expecting revenue of $16.29 billion and adjusted profit of 85 cents per share.

"There are no new payments as part of his departure," a source familiar with the company told Reuters.

(Reporting by Munsif Vengattil in Bengaluru, Stephen Nellis in San Francisco and Liana Baker in New York; writing by Peter Henderson; editing by Bernard Orr and Bill Rigby)

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