Search is on for new Paychex CEO

Matthew Daneman Staff writer Six years after hiring only the second CEO since its founding in…

Georgia (Jul 13, 2010)

Matthew Daneman
Staff writer
Six years after hiring only the second CEO since its founding in 1971, Paychex Inc. suddenly has to hunt for the third.


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A group of top executives, including founder/chairman B. Thomas Golisano, now is running the payroll processing and human resources company in the wake of the surprise resignation of Chief Executive Jonathan J. Judge.

Those executives — Chief Financial Officer John M. Morphy and senior vice presidents Delbert Humenik and Martin Mucci — "are so experienced and do such a quality job, I don't think the company is going to miss a beat," Golisano said Monday. "This company could operate a significant amount of time without a CEO."
"That's not our goal," he quickly added.

The end of Judge's tenure as head of the Rochester area's fourth-largest corporate employer, with more than 3,300 workers locally, came with almost no warning. Golisano said he had a short phone conversation on Wednesday in which Judge said he was resigning.

Golisano declined to say what issues might have preceded the conversation. But until that talk, he said, "There was no indication (resignation) was being contemplated."
Golisano said Judge's leaving wasn't related to his performance as CEO, adding that Paychex "grew significantly" under his leadership until the recession slowed its growth, as it did for most companies. Golisano pointed out that Judge was responsible for expanding Paychex's offerings to include health and benefits services in addition to its original payroll services.
However, according to financial analysts Joseph Foresi and Jeffrey Rossetti of Janney Montgomery Scott, who follow Paychex, the timing of the departure — less than a month after the company said fiscal 2011 earnings will likely fall short of Wall Street expectations — "implies that performance may have played a part."
The situation could hurt investor confidence in the company, according to the analysts with the Philadelphia financial services firm.

David Grossman, an analyst for St. Louis-based investment banking firm Stifel Financial Corp., said Judge's leaving "should not come as a total surprise." Grossman said Paychex still faces the same issue as when Judge joined the company in 2004 — how to recapture the rapid growth it previously enjoyed.

"It remains a business in need of a fresh perspective and vision," Grossman wrote Monday in a note to investors.

While Judge's resignation technically isn't effective until July 31, the executive committee of Morphy, Humenik and Mucci is now operating the company, according to Paychex. Judge remains on the board of directors but won't run for re-election when the next shareholder meeting is held in October, said company spokeswoman Laura Saxby Lynch.

Judge is out of the country on a previously scheduled vacation and was not available for comment Monday beyond the statement he issued, in which he said he and the company had "accomplished a great deal together and the company will continue to prosper."
"I have decided this is a good time for me to move on to my next challenge," he said.

In upper management ranks, people traditionally are expected to give a month's notice when leaving willingly, said Paul D. Lapides, director of the Corporate Governance Center at Georgia's Kennesaw State University.

A sudden change in leadership, such as at Paychex, "might not be a big deal," Lapides said. "But a CEO doesn't wake up one day and say, 'I'm leaving today because I need to do something else.' It raises the question about what we're not being told here."
Judge, a former IBM executive, started at Paychex in October 2004, replacing Golisano as chief executive officer. In addition to running the Penfield-based company, Judge was active in the business community. He is on the boards of the Rochester Business Alliance and the United Way of Greater Rochester and is a member of the Federal Reserve Bank of New York's Upstate New York Regional Advisory Board.
Golisano, who now lives in Florida, said he will spend more time — but not full time — in the Rochester area until a permanent CEO is hired. For its next leader, he said, the company will look at both external and internal candidates.
Judge leaves Paychex a wealthy man. According to paperwork filed with the U.S. Securities and Exchange Commission, he signed a separation agreement as part of his resignation under which he will receive a $1.9 million severance and health insurance benefits for 12 months. The agreement also provides for stock and stock options that had been promised on or before July 2007 but hadn't yet been awarded.
In return, Judge signed a non-compete and confidentiality agreement with the company.

Judge's move marks the second such sudden shakeup in the top ranks of a major local employer this year. Bausch + Lomb Inc. in March announced that CEO Gerald Ostrov had retired and was being replaced by Brent L. Saunders, a former top executive with a New Jersey drug company.


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