AnalysisBig shoes to fill: Check Point's Gil Shwed will cast giant shadow over successor
Analysis
Big shoes to fill: Check Point's Gil Shwed will cast giant shadow over successor
The retirement of the founder of the cyber giant from the position of CEO after 31 years poses a significant challenge to his successor. On the one hand, the company is at its peak from a business standpoint. However, it needs a vision to move to another level and Shwed, who will be appointed as Executive Chairman, is not going anywhere
The retirement of Gil Shwed from the position of CEO of Check Point is by definition a dramatic event, but on the other hand, it is also the most expected thing in the life of the cyber giant and one of the cornerstones of Israeli high-tech. It is hard to imagine Check Point not under Shwed’s scepter due to the very fact that this has never happened in its 31 years of existence. On the other hand, as Shwed himself admitted at a press conference held on the occasion of the event, "Since Check Point went public on Nasdaq in 1996, I have continually been asked when I am retiring."
At the beginning, Shwed, who was not yet 30 at the time of the IPO, was too young and too inexperienced, then he was too geeky and too technological, and over the years he became too old and too conservative. Seemingly, other than when he came up with the idea to secure the Internet when it was not yet really clear what the Internet was, let alone why it needed to be secured at all, questions always arose as to why Shwed is still managing Check Point. In the meantime, it has become one of the largest Israeli companies, both in terms of sales and market value, as well as one of the largest in the world in its category. In fact, it can be said that Check Point led by Shwed is the company that invented the cyber market. After all, when Shwed met Shlomo Kramer and Marius Nacht in the corridors of the Unit 8200 base in Gillot, the cybersecurity world did not exist.
"I started exactly this week 31 years ago on a journey called Check Point. Those were amazing years, we achieved every possible achievement, we created a new industry, we participated in this thing called the Internet which has become the center of life for many of us ," said Shwed. "In the first years we still had to convince people that it was something real and that it would happen. We were able to bring consistent results that have no equal, we proved that Israeli companies can not only trade at a value of billions, but also sell in billions, which used to be a glass ceiling for Israeli companies. Of course we could grow bigger and we can still be more aggressive in marketing and sales. The invention of the firewall created a new industry - and what's amazing is that even after 30 years, when many industries fade over such a period, our industry is actually more vibrant. It may be the fault of the attackers, but it also causes all companies to constantly innovate."
Shwed, who is today the longest-serving CEO on Nasdaq even though he is only 55 years old, is a rare combination of a technological visionary and inventor who over the years has become a business manager with his own vision in this field. There are those who agree with his principles and there are those who disagree, but Shwed is the one who invented a technology that reached the market at the perfect timing, managed to turn it into a product, which many of the Israeli entrepreneurs, especially of his generation, were unable to do and also navigated the company after the departure of his partners. Under his leadership, Check Point reached annual sales of $2.4 billion, a net profit of $997 million and has another $3 billion in cash on hand - all of which were generated from the cash flow and not from fundraising.
Gil Shwed is Check Point and Check Point is Gil Shwed. This is also the challenge and even the trap that will accompany Check Point's board of directors in the search for the new CEO. On the one hand, this is a large company with a value approaching $20 billion and sales that should reach $2.5 to $2.6 billion this year, so it is clear that it needs a person of stature to manage its activities for its 6,700 employees. On the other hand, Shwed, who will be appointed as Executive Chairman of Check Point, is not going anywhere and as he emphasized more than once during his press conference, he will continue to be very involved in what is going on at the company.
"I want to focus more on the future, maybe meet more with clients and partners to understand more what they need and be less involved in the day-to-day management. I do hope to find someone who is a visionary to be a partner for me. I know how to work with partners, as was the case at the beginning of the company and I know how to go through stages in my career. My management style today compared to 10 years ago and 20 years ago is completely different."
Shwed, known over the years as a centralized, strict and conservative manager, failed to grow around him a management team with a potential successor. His co-founders left a long time ago, Shlomo Kramer back in 1999, who went on to establish several new and successful cyber companies starting with Imperva and currently with Cato Networks, which is expected to go public on Nasdaq in the coming year. Marius Nacht, who remained in the position of chairman of Check Point until 2020, also moved further and further away from the company. Many executives who accompanied Shwed over the years in senior positions "gave up" waiting to replace him in the position of CEO and moved on. The technology leaders went on to set up independent ventures such as Orca Security, which became a cyber unicorn.
One of the few who can be thought of as a possible candidate to replace Shwed is Nataly Kremer, but she only joined Check Point recently. Kremer was brought to Check Point a year ago from AT&T Global after she managed development there and currently served as Chief Product Officer. In most companies of Check Point's age and status, CEOs usually come from CFO or marketing positions, but Shwed himself hinted that he would like to see someone more technological in his chair. "I am not looking for a copy of myself and the values I provide the company, I will continue to give and help the CEO. But it will have to be someone who has a great passion for security," Shwed explained.
Referring to Check Point's continued commitment to maintain its image as an Israeli company, even though less than half of its employees are currently employed here, Shwed said that "we are looking for the next CEO on a global level, but we would like them to be based in Israel and therefore the Israeli identity is important. We would be happy of course if it will be someone Israeli. If I had a perfect candidate from within the company, we would have already announced it, but we still want to examine candidates from the outside as well." Shwed estimated that the search for the new CEO could take between six months and two years and the feeling is that he is not in a particular hurry.
The essence of Shwed within Check Point can also be easily sensed from the style of his response to questions about his successor. Most of the questions were referred to in the singular, "I". Shwed is also still the largest shareholder in Check Point with a holding of about 23%. This is an unusual holding compared to what is customary in companies that are traded on Wall Street, most of which, especially the technology companies, are characterized by a wide dispersion of shareholders, except for a few cases like Mark Zuckerberg in Meta. Contrary to the trend, Shwed’s holdings only increased over the past few years as the company continued to buy back its own shares. Following the retirement announcement and alongside the publication of the good financial results for 2023, Check Point's stock jumped to a new record market cap of almost $20 billion. At the current market value of the company, Shwed’s share is worth over $4.5 billion, and this is in addition to the fixed and blind sale of shares (at predetermined dates) that Shwed has pocketed from over the years. Shwed has not drawn a salary from Check Point for many years and receives "only" capital compensation that increases his share in the company and amounted to hundreds of millions of dollars over the past decade.
The increase in the stock was also due to the fact that Shwed announced his retirement when Check Point is at a peak from a business standpoint. From a company that invented the firewall, the firewall that enables a secure connection between a corporate network and an employee who is at home or between a customer and their bank account, through the establishment of a kind of virtual bridge, Check Point has expanded into a platform company that is able to provide almost all the security needs of organizations. It did take some time and it even got there late compared to younger and bolder competitors, but Shwed insists that Check Point is still the "gold standard" in the industry. "I was 24 years old when we started the company and now, especially in the last quarter, I feel that the timing is perfect because we are on a positive trend, the results are excellent and I am confident in the company's performance. I do not feel regret for anything because the results speak for themselves. I hope that in the next decade we will be able to show that we know how to reach much higher growth rates," Shwed said, referring to the annual and quarterly financial reports.
In accordance with Shwed’s vision, Check Point maintains its exceptionality on another level - its profitability. In the boom years, Wall Street investors were angry with Shwed and thought it was excessive. The punishment was that younger and much smaller cyber companies overtook Check Point in terms of value, but now the wheel is turning the other way and the market likes that on revenues of $2.4 billion in 2023 Check Point generated a net profit of $997 million. Although the company is still growing slowly, only 4% in the past year, in the current macroeconomic situation and considering the large numbers, it is not bad. In 2024, Check Point hopes to increase the pace towards 6%, which will bring the revenues to $2.6 billion. The abnormal profitability has led to Check Point now sitting on a cash coffer of $3 billion and this even after it spent $490 million on the purchase of the Israeli startup Perimeter 81 in one of the largest transactions in the company's history which was completed at the end of 2023.
Check Point is known as a conservative company relative to its competitors, also in compensation in options and blocked shares, which made it difficult for it to recruit and retain employees in the past. But unlike most others, the company has never made cuts or layoffs that often occur in high-tech companies. In recent quarters, against the background of the change in the macro environment and waves of layoffs in high-tech companies, Check Point has become a more desirable workplace and in 2023 it recruited 700 employees. "My first indicator of the state of the industry and the economy is the rate of employee departures, and as of November 2023, employees have stopped leaving Check Point," Shwed noted.
Referring to the state of the Israeli high-tech industry, Shwed was careful to convey the message that he adheres to the preference of profitability over other variables: "We have a great tech industry in Israel and Israel will continue to be a world leader, but many of the Israeli companies do not know how to make money and therefore constantly need investors' money. When this money runs out, companies are also running out of oxygen and this is a dangerous situation. The more the industry is based on unprofitable companies, the higher the risk, and therefore Israel is also at higher risk. But this does not detract from my appreciation for Israeli companies," concluded Shwed, one of the founders of the industry and its tone setter.
Shwed insisted that he will not go into politics and he even said in the past that the fact that he knows how to run a company does not mean that he also knows how to run the country. It will be interesting to see if he will be able to detach himself enough and hand over the reins to his successor to lead Check Point to a new phase in its life or if the next CEO will actually be a type of VP of Operations, while Shwed will continue to shape the company in his image and according to his vision.
