Tanium’s Family Empire Is in Crisis

(Bloomberg) -- A predominant theme in Silicon Valley over the past year involves powerful founders behaving badly. Uber Technologies Inc. and Zenefits, a maker of human resources software, are two companies whose public reputations have been partly undone by such conduct. Now the same destructive dynamic appears to be playing out at Tanium Inc.

Orion Hindawi, who founded Tanium with his father a decade ago, helped build it into the world’s most valuable cybersecurity startup. Its software is used by government agencies and many of the largest global companies, including every major bank, to monitor and protect their networks of devices. Hindawi, Tanium’s 37-year-old chief executive officer, began heralding plans last year to take his Silicon Valley company public and predicted that preparations would begin this spring.

But Tanium is facing a crisis. At least nine senior executives have left in the past eight months, including the company’s president, chief marketing officer, chief accounting officer and the chief of operations and finance. Interviews with more than two dozen current and former employees, investors and business partners, along with text messages and staff contracts seen by Bloomberg, also suggest the CEO has fired workers before they could cash in their stock options—a practice that had the effect of fortifying his control over the company. The reporting also shows he alienated employees by ridiculing them in front of their colleagues. In staff meetings, Hindawi would frequently call workers stupid or fat, and he spread rumors about a junior staffer’s sexual promiscuity and a former executive’s drug abuse, said ex-employees, who witnessed or were subjects of the insults but asked not to be identified for fear of retribution.

One of the most unnerving aspects of life at Tanium is what’s known internally as Orion’s List. The CEO allegedly kept a close eye on which employees would soon be eligible to take sizable chunks of stock. For those he could stand to do without, Hindawi ordered the workers to be fired before they were able to acquire the shares, according to current and former employees. The alleged process, which would help Hindawi defend his ownership by limiting the number of stakeholders, is notorious inside Tanium. Employees refer to it by various names. Some of Hindawi’s deputies tastelessly called it Schindler’s List.

Tanium said it previously investigated the allegation and found no pattern of terminating employees based on stock option schedules. “We hold our leadership and our employees to the highest ethical and professional standards,” Tanium wrote in an emailed statement. “We face all employee concerns head-on and have uncompromising and rigorous processes in place to investigate them. In the few instances where investigations uncovered employee behavior that crossed lines, we have exited those people without hesitation.”

Since Hindawi succeeded his dad as CEO last year, problems have persisted, said the people who have worked for him. As he rose to power, his bullying management style was flagged as a potential liability by its largest investor and has contributed to the exodus from Tanium’s top ranks.

The situation at Tanium underscores the risk of venture capitalists placing near-absolute power in the hands of a company’s creators. Orion Hindawi and his father David control more than 60 percent of votes on Tanium’s board. Similar structures have worked for Facebook Inc. and Snap Inc., but investors take on increased risk by ceding authority, said Jesse Fried, a professor of business law at Harvard University: “If you have a CEO who generally is doing a good job but is acting bad on the margins, you’re not going to get in their face.”

David Hindawi is an Iraqi-born Jew who moved with his family to Israel when he was young. He served in the Israeli Air Force before emigrating to the U.S., where he earned a Ph.D. in operations research from the University of California, Berkeley. He then settled down in the Bay Area with his wife Hanna and had kids.

In 1997, during the dot-com boom, David started a technology company in Emeryville, California. The startup BigFix helped other businesses manage the software on their PCs and servers. Orion, who enrolled as a Berkeley undergrad that year, dropped out of school after six months to work for his father at BigFix. Then the dot-com market crumbled. David managed to find new investors in late 2002 but was forced out as CEO within a year.

David and Orion realized there would be a big opportunity in doing for the cloud what BigFix had been providing for corporate networks. They set up a new company in 2007 called Tanium to incubate the idea. From the beginning, Tanium was a family affair. The father took the role of CEO while the son served as chief technology officer. Hanna Hindawi handled various administrative tasks early on, including picking out furniture and handling basic HR matters, said people who worked there. She would sometimes prepare kosher lunches for staff.

In 2010, IBM acquired BigFix for as much as $400 million. Meanwhile, the Hindawis were funding most of the work on Tanium, with small contributions from friends. That lasted until 2014, when the 46-person startup was approached by Andreessen Horowitz. The relatively young VC firm had quickly risen to prominence thanks to the extensive operational support it provides to entrepreneurs and its reputation for pledging unwavering loyalty to company founders. Steven Sinofsky, a longtime Microsoft Corp. executive who had recently joined Andreessen Horowitz as a partner, convinced Tanium to take a $90 million investment, and he received a seat on the board of directors. It was the venture firm’s second-biggest investment at the time. Sinofsky described Tanium in a blog post as “magic.”

The Andreessen Horowitz machine kicked in almost immediately. The firm introduced Tanium to its network of big corporate allies, and within a year, Orion Hindawi said half of Tanium’s customers were coming through Andreessen Horowitz connections. The company drew plaudits from customers and has become an essential tool in many IT departments because it’s fast, simple and can handle a massive number of devices, said Dan Conde, an analyst at research firm ESG. Headcount grew sevenfold in 2014, Orion told the blog Strictly VC. Andreessen Horowitz invested another $52 million the next year. Bloomberg LP was an early investor in Andreessen Horowitz.

Orion’s intellect dazzled investors and employees. He delights in personally stamping out bugs in Tanium’s code, sometimes spending hours on the exercise. Between coding sessions, he spontaneously introduces parlor games in the office, including one where he selects a topic and asks somebody to argue the opposing viewpoint. But some found Orion’s tactics at times to be counterproductive. He joined meetings in progress, entered without saying a word and stared intensely at people in the room, current and former employees said. Orion’s presence would change a meeting’s dynamics; people were reluctant to bring up ideas in front of him because he’d dismiss them out of hand. Then he would leave abruptly before the meeting was over.

Tanium’s technology is a source of pride for Orion, but salespeople bristled when he would suggest their jobs were easy because the intellectual property could sell itself. Robert Stevenson, who was Tanium’s managing director for Japan before he left last year, said: “I’ve never been with a company that is so infatuated with its own IP.”

As Tanium’s value soared, Orion Hindawi developed an unseemly habit: He took to frequently reminding people that he’s on the Forbes Billionaires list. Orion and his father were added after Tanium received a $148 million cash infusion from Andreessen Horowitz and several new backers in late 2015. Tanium’s valuation shot up to $3.5 billion after the investment.

The company’s successes didn’t do much to lift morale. Orion berated workers in front of colleagues until they broke into tears and used all-hands meetings as a venue to taunt low-level staff, current and former employees said. In one call with the sales teams, Orion blamed a failed deal on a former employee who he mentioned by name and accused him of having a cocaine problem. He now works for a competitor.

Even those in Orion’s inner circle weren’t spared. On multiple occasions, he mocked a senior executive for being overweight, said former employees. One promising sales recruit decided not to pursue a job opening at Tanium after attending a steak dinner, where Orion made jokes about the executive’s eating habits, said two people in attendance.

Early last year, Tanium held an event at San Francisco’s Westin St. Francis hotel. With an all-male group of staff clustered near the elevator, Orion snickered when a junior female employee walked past. The CEO asked whose room she would be staying in that night, said two people present. After especially harsh outbursts from Orion, the elder Hindawi made the rounds to apologize on behalf of his son, former employees said.

Andreessen Horowitz made note of Orion’s managerial flaws and presented them to partners at the firm early last year. The report said Orion’s behavior risked interfering with the company’s operations if it hadn’t already, according to people who have seen or were briefed on the memo. Andreessen Horowitz declined to comment.

In February 2016, Orion said he was taking over as CEO from his dad, who was transitioning to executive chairman. “We need to focus on building a world-class board, which requires that David spend more time on that aspect of leadership than he has in the past,” Orion wrote in a blog post. The next month, Sinofsky was replaced on the board by Ben Horowitz, a founder of Andreessen Horowitz. Tanium is one of the VC firm’s largest investments, totaling $143 million.

As CEO, Orion Hindawi began publicly entertaining the idea of going public. He told the Financial Times that preparations would begin by April 2017. It was welcome news for staff, many of whom had agreed to take large amounts of their compensation in the form of equity, hoping for an eventual payday.

This dream was dashed for the people who found their way onto Orion’s List, said employees who were fired or asked to carry out dismissals. In some cases, a group of designated staffers were relocated to different departments before being informed by their new managers that their positions had been eliminated. On multiple occasions, the firings came within weeks of an employment anniversary, when workers’ stock options were due to vest. Five employees told Bloomberg they were dismissed from Tanium in such a way.

Tanium declined to make Orion available for an interview. A spokesman said the firings were made for inappropriate conduct. “Tanium remains committed to taking quick action to ensure that every employee is held to our high standards,” the spokesman wrote in an email. “We recognize that maintaining those standards often requires our leadership to make difficult decisions and that not everyone will agree with those decisions.”

The majority of Tanium employees never appeared on Orion’s List and were able to acquire stock. But in many cases, the company denied people’s requests to resell those shares, and when it arranged a deal to allow some stockholders to cash out, the Hindawis accounted for most of the sale. Soon after, Orion purchased a $10 million home in Yountville, California, nestled among Napa vineyards with sweeping views of the surrounding hillsides and a short drive from the Michelin star restaurant French Laundry.

David Hindawi, 72, still comes to the office occasionally and interviews job candidates but is largely removed from day-to-day business. Tanium hired Anna Gilstrap from big data provider Splunk Inc. to help oversee operations early this year, but she lasted just six weeks. A parade of senior departures since July led to the exit last month of Eric Brown, chief of operations and finance. Chief Accounting Officer Kandis Thompson departed last week. Thompson and Gilstrap didn’t respond to requests for comment. Brown declined to comment.

Tanium said Tuesday that it hired Fazal Merchant from Comcast Corp.’s DreamWorks Animation to be the new operations and finance chief. Merchant is now tasked with helping take the company public, which isn’t likely to happen soon. Hindawi told Fortune that he needed executives better suited to large companies and that he knew Merchant was a cultural fit after their families met for an afternoon brunch in Napa Valley.

To contact the authors of this story: Lizette Chapman in San Francisco at lchapman19@bloomberg.net, Sarah McBride in San Francisco at smcbride24@bloomberg.net.

To contact the editor responsible for this story: Mark Milian at mmilian@bloomberg.net, Alistair Barr