The news about Broadcom’s former chief executive, Henry Nicholas III, is just stunning. It’s a rise-and-fall story with salacious details of prostitutes and ecstasy that will make the tabloids, not just the tech pages. It’s all the more stunning to me because I met “Nick” at his company and witnessed his imperial brilliance.
The FBI accused him in a 21-count indictment of fraud, conspiracy and drug charges. The agency alleges that he spiked the drinks of other executives with ecstasy. It also said he had several residences that were used to distribute illegal drugs, including cocaine and methamphetamine, and allegedly threatened to kill people if they talked about his activities. One of the nuttiest details is that Nick and his companions were smoking so much marijuana on a private jet flight to Las Vegas that the pilot had to wear an oxygen mask.
The FBI also accused Nicholas and former chief financial officer William Ruehle of improperly backdating stock options. Both men have said they are innocent of the charges, according to press reports. What’s stunning to me is that the shadow has even extended to Henry Samueli, who has always played the role of the good cop as Broadcom’s chief technology officer. In May, Samueli resigned as chairman and took a leave as CTO after the Securities and Exchange Commission named him and others in a backdating complaint. To fix its books, Broadcom took a $2.2 billion charge to account for the backdating.
I read profiles of Nick and was astounded at the details about temper tantrums. When I interviewed Nick, he was polite and answered questions directly. He was polite, but intense. He was a lot like Andy Grove in that way, almost making me feel like I was the one on the spot. I couldn’t put anything past him. But I could tell that people walked on egg shells around him. You could tell that the PR people were wondering if they were going to have some kind of media nightmare on their hands.
You have to wonder what it was like to work in such a place. Could employees have not known about the kind of behavior that Nick allegedly engaged in? Would they have to cover it up? What should the board of directors have done? When there is poison at the top, it flows down and touches everything. It leads to tip-toeing, shielding, evasion, rationalization, and, at worst, cover up.
Broadcom was always a different kind of company. It was one of Orange County’s few home runs in chips, started by a couple of brilliant, tall men with electrical engineering doctorates. Samueli was the college professor who, with Nicholas, first started PairGain Technologies and then Broadcom in 1991. Nick was the former Air Force pilot who ran things. Samueli had a great sense of humor and was always gentlemanly when he gave his technical speeches.
They designed chips for the emerging era of wired and wireless communications. Profiles painted Nick as a kind of Darth Vader character, driving his engineers to be more paranoid than Intel engineers. Samueli inspired his people to be brilliant and he helped contain Nick’s rages. They became billionaires. Broadcom’s stock price had so much momentum that Intel had to start worrying in the 1990s. It’s easy to see why people put up with the tough behavior of Nick, because he was making everybody else rich too.
Broadcom could simply buy up networking chip start-ups by giving them stock. It paid $2 billion for tiny little SiByte, during November 2000, just as the tech bubble was falling apart. Intel countered, spending $30 billion of its own on communications acquisiitions. That led to poor execution in Intel’s core business and an opening for Advanced Micro Devices. Broadcom’s stock value thus distorted the whole chip market. Broadcom’s chips went into almost everything, from set-top boxes to mobile phones and Wii consoles.
But the heady days came to an end, the stock collapsed, and growth slowed. By 2003, Nick dropped another shocker. I listened to that analyst conference call as he said he was resigning as CEO so that he could save his marriage. Nick’s wife had filed for divorce.
Now the government alleges that Nick kept an “equestrian estate” in tony Laguna Hills, where he had ordered built a series of tunnels and underground rooms including a “secret and convenient lair” to practice his “manic obsession with prostitutes.” This story is a tragedy all over. You can measure that by the brilliance of the people involved, the potential of what they created, the gravity of their mistakes, and the bottomless abyss that now awaits them as they work through the justice system.