VMware Lawsuit Against Nutanix CEO Could ‘Disrupt’ Strategy

Channel partners talk to CRN about how VMware’s lawsuit against Nutanix’s new CEO Rajiv Ramaswami could hinder the company’s market strategy in 2021.

VMware’s lawsuit against its former chief operating officer and Nutanix’s new CEO, Rajiv Ramaswami, could disrupt Nutanix’s strategy and market momentum in 2021, according to channel partners.

“This has major implications for Nutanix this year because it basically means their brand-new leader, who wants to take creative control and build a more profitable company, is going to be scrutinized by VMware’s legal team,” said one top executive from a VMware channel partner who declined to be named and who also holds executive experience at large IT vendors. “Taking a former employee to Superior Court accusing them of wrongdoing at your company is very serious and will probably take at least some time and resources away from [Ramaswami] at a time when he probably wants to hit the ground running.”

VMware has filed litigation in the Superior Court of the State of California against Ramaswami accusing him of meeting with Nutanix executives in his bid for Nutanix’s opening CEO position during the same time he was tasked with building and running VMware’s cloud business. VMware is taking Ramaswami to court for “material and ongoing breaches of his legal and contractual duties and obligations to VMware,” according to a statement by VMware.

[Related: VMware’s Lawsuit Against Nutanix CEO: 5 Big Things To Know]

Nutanix, which isn’t named as a defendant in the lawsuit, says the litigation is nothing more than an “unfounded attempt to hurt a competitor” and plans to defend the matter in court.

Channel partners said the lawsuit could slow down Nutanix’s market strategy in 2021.

“You have an executive who knows VMware’s cloud roadmap, potential M&A targets, understands the investments it’s leaning into, etc., who basically walks out the door to join your rival – of course VMware is concerned. I would be too,” said one CTO from a solution provider, who did not wish to be identified. The solution provider is a large Nutanix partner but also sells VMware.

“This lawsuit is interesting in that it’s accusing [Ramaswami] of basically being in charge of leading VMware’s market strategy while at the same time interviewing with Nutanix about how to lead Nutanix’s market strategy,” said the CTO. “As a Nutanix partner, I’m concerned. It could definitely disrupt [Ramaswami’s] plans ahead for this year for sure. … I hope it doesn’t but it’s a real possibility this slows down some things or maybe his decisions as the CEO of Nutanix leads to more litigation from VMware.”

The Palo Alto, Calif.-based virtualization and hybrid cloud software superstar is suing its former COO for failing “to honor his fiduciary and contractual obligations” to VMware, according to the complaint.

“For at least two months before resigning from the company, at the same time he was working with senior leadership to shape VMware’s key strategic vision and direction, Mr. Ramaswami also was secretly meeting with at least the CEO, CFO, and apparently the entire Board of Directors of Nutanix, Inc. to become Nutanix’s Chief Executive Officer,” said VMware in a statement in conjunction with the litigation filing. “He joined Nutanix as its CEO only two days after leaving VMware.”

Ramaswami officially left VMware on Dec. 7, 2020. He was announced as Nutanix’s new CEO two days later on Dec. 9.

VMware alleges conflict of interest breaches from Ramaswami while also attacking his personal judgement. “Mr. Ramaswami demonstrated poor judgement and had a clear and extended period of conflict of interest. He should have disclosed this conflict of interest to VMware so that the company could have taken steps to protect itself. But he did not notify VMware, and thus deprived the company of the ability to do so by concealing his Nutanix-related activities,” said VMware.

VMware said one month before Ramaswami left the company for Nutanix, the executive allegedly downloaded 2,200 files from his VMware computer to a personal hard drive without VMware’s consent or knowledge, according to a report by Bloomberg. Ramaswami reportedly said the files were personal.

Nutanix, for its part, believes the lawsuit was filed to simply hurt the company’s bottom line.

“We believe that VMware’s action is nothing more than an unfounded attempt to hurt a competitor and we intend to vigorously defend this matter in court,” said Tonya Chin, vice president of corporate communications and investor relations at Nutanix, in a statement to CRN. “It is disappointing to see VMware’s management sue him just because he chose to pursue an opportunity to become a public company CEO. … We view VMware’s misguided action as a response to losing a deeply valued and respected member of its leadership team.”

VMware is currently trying to engage with Ramaswami and Nutanix to make sure they don’t use confidential VMware information as part of Nutanix’s strategy going forward.

Chin said both Nutanix and its new CEO have assured VMware that Ramaswami “agreed with his obligation not to take or misuse confidential information.”

Ramaswami was previously chief operating officer of products and cloud services at VMware for four years before jumping to Nutanix in December to replace retiring CEO and co-founder Dheeraj Pandey. He was responsible for business units developing products, cloud services and cloud operations for VMware. During his tenure, Ramaswami led several important acquisitions and played a key role in transitioning VMware toward a subscription and Software-as-a-Service (SaaS) model.

“This starts the VMware-Nutanix rivalry in 2021 with a huge ‘bang’,” said the CTO who partners with both companies. “I mean, the second-ever CEO [at Nutanix] is already being thrown under the bus by his former employer. … I don’t think this lawsuit in particular can hurt VMware in any way but it could definitely rock the boat at Nutanix.”