Management Turnover as Change Agent

Wednesday, January 14, 2009

A Good CEO is Not Always All that is Needed - Nortel

The news that Nortel Networks NT (TSX) has moved into bankruptcy is not all that surprising.  The telecommunications firm has been suffering ever since the 2001 recession.  The company which changed CEOs back in November 2005 had high hopes with the arrival of Mike Zafirovsky.  Zafirovsky had a terrific pedigree.  He was extremely well regarded when he heaMike Zafirovskyded the cellphone division for Motorola.  Prior to his selection at Nortel he had been passed over for the CEO job at Motorola and appeared anxious to make his mark.  He also had tremendoOne Year Stock Performance of Nortelus training while at General Electric (before his time at Motorola) which at the time was headed by Jack Welch.  When he took the job at Nortel the company was mirred in scandal and was already suffering financially.  Zafirovsky an excellent operations manager may have lacked the strategic acumen to ultimately turn Nortel around but it is hard to see what he or anyone else might have been able to do.  According to an acute analysis by Gordon Pitts of the Globe and Mail,

… Nortel’s fate was probably determined by the time the new CEO arrived in October, 2005. The global asset meltdown and recession simply hastened the inevitable end of the Nortel saga –- as it will with many crippled companies that have entered the downturn with severe competitive liabilities. 

Mr. Zafirovski was realistic in understanding it would be a tough haul. “These things do not happen overnight” he said in an interview in summer of 2007. “We are not looking for a 50-year turnaround but we did say on Day One it would be three to five years to recreate something special. We are now 19-20 months into it so obviously the time frame is narrowing.”   

 Pitts went on to state,

Mike Zafirovski was the right leader to turn around Nortel, but he came too late to the game. He expected he might have up to five years to fix Nortel, but it was less than three years until the market collapse, which has simply thrown more gasoline on Nortel’s bonfire of cash flow. 

CEOs are essential to a company’s overall success but they are just a component.  Nortel’s management and products came up against a wall back in 2001 and never really found the right exit door to help it get back on track.  Let’s hope other struggling companies can look at Nortel and come away with some ideas on how they might manage to avoid Nortel’s fate. It is likely that Alcatel-Lucent’s situation may actually improve as a result of Nortel’s new status. Stay tuned  

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