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New Adobe CEO faces web challenge

Bruce Chizen and Shantanu Narayen. Photos: Adobe

It’s rare these days for a CEO to give up the top job when he’s at the top of his game — lately the highest-profile executive departures have been on less than happy terms. That’s why investors were surprised this week when Adobe Systems CEO Bruce Chizen abruptly announced that by the end of the month he’ll hand over the reins to longtime deputy Shantanu Narayen.

Why the swift exit? Chizen says there’s no intrigue behind it. He had made it known for quite a while that he’s ready to try new things, and with Adobe (ADBE) doing so well, it seemed like an opportune time to step back. Chizen will stay with Adobe through November 2008 as an adviser, and will work 24 hours a week helping Narayen with the transition. During his year as an adviser, Chizen will earn about $800,000, half of his current salary, and will be eligible to receive a bonus of just over $600,000, according to a Securities and Exchange Commission filing.

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But Chizen will not walk away with one of the hefty severance packages that have become typical of his peers. The humble exit seems appropriate; he has publicly mused that CEOs are generally paid too much.

“For a while now, I’ve been trying to figure out, when would be a time to step aside so I could think about what I want to do with the rest of my life,” Chizen told Fortune. “I don’t know if I want to run another company, I don’t know if I want to invest in companies, I don’t know if I want to sit on a bunch of boards, I don’t know if I want to just sit on the beach. All I know is, I don’t want to be sitting here when I’m 65 years old, and saying ‘Gee, I wish I would have had the opportunity to do x, y or z.’ ”

Chizen, 52, took over the top job post seven years ago, when Adobe (ADBE) was in the beginning stages of its transformation from a niche maker of digital artist tools into the company that most influences how digital information is created and shared. Adobe may be relatively low-profile but its PDF document-sharing software and Photoshop and Flash multimedia products are ubiquitous. Chizen, a plainspoken former marketing executive, was the main architect of that transformation, bringing sharper business discipline to a company that had been better known for its research and engineering culture. His master stroke was the $3.4 billion acquisition of Adobe’s closest rival, Macromedia, in 2005. Under his leadership, the company’s annual revenues have more than tripled to top $3 billion.

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Now Narayen will have to figure out how to take the improved Adobe, which has typically taken a long time perfecting popular programs such as Photoshop and Flash, and make it as successful on the Web. That will bring the company into more intense competition with larger rivals such as Google (GOOG) and Microsoft (MSFT).

“One of the things I would characterize as part of Web 2.0 is rapid pace,” Narayen said. “How do you continue to make bets and get things out there as quickly as we need to?”

Narayen will be leading the company with a set of executives who are also relatively new to their roles. Though Adobe technically purchased Macromedia, former Macromedia executives now occupy more of key roles than former Adobe executives do. Macromedia veteran Kevin Lynch, for example, leads the group responsible for advancing Adobe’s Flash Player and PDF platforms, two of Adobe’s most important strategic areas. Macromedia veterans also lead the company’s mobile and enterprise businesses.

Chart: Jon Fortt

“When Shantanu and I acquired Macromedia, we used that as an opportunity to figure out what we needed to do to make sure that Adobe was prepared to be a $10 billion company,” Chizen said. “There were a number of executives who either didn’t want to gear up for what was required, or didn’t necessarily have the skill sets for what was required. And we took that opportunity to make changes, which is why we ended up with a lot of new executives, some from Adobe, some from Macromedia and some from the outside.”

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Despite the turnover, it’s hard to argue with Adobe’s results. Third-quarter sales reached $851.7 million, up from $602.2 million the year before. And the company is realizing the benefits of the Macromedia acquisition, as recent sales of its creative software packages have soared above expectations.

All of that sets the stage for Narayen to take over. Narayen’s ascent is not surprising; Adobe’s board has had him in mind for the top job for years. But the suddeness of Chizen’s exit is out of character for a company that has typically telegraphed major company moves well in advance to build Wall Street’s confidence.

Chizen allowed that the timing was unusual. But last week, after Adobe board members saw management’s presentations about the coming year, they felt that now would be a convenient time for Chizen to take the break he had been asking for. And Chizen didn’t want to wait until the next conference call with analysts because that would mean breaking the news four days after the company’s 25th anniversary party on December 13, and he wanted employees to hear about the change before then.