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 headed 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 tremendous 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  

For more:

Bloomberg

Update to New CEO and Chairman for Alcatel-Lucent

Alcatel-Lucent ALU (NYSE) which recently hired a new CEO and chairman, Ben Verwaayen and Philippe Camus respectively (see earlier blog), have begun to make management related changes.  Supervisory directors Ed Hagenlocker and Jean-Pierre Halbron have resigned.  Hagenlocker's resignation is effective immediately and Halbron's resignation will be official shortly.  These changes are only the beginning.  Expect far more as the two top executives begin to get their feet wet and re-examine how to make the firm more effective both business-wise and culturally.

Defying Rumors - Alcatel-Lucent Fills CEO and Chairman From Outside

Alcatel-Lucent ALTU (NYSE) surprised many by going outside the world's largest fixed-line telecommunications gear manufacturer to replace outgoing CEO (Patricia Russo) and chairman (Serge Tchuruk).  Last week rumors were rampant that the firm might make former COO, Mike Quigley, who at one time had been considered for the top position, as the new CEO (see earlier blog).  Instead the company made two very exciting picks.  The board picked former British Telecom CEO (2002 to June 2008) and Dutch national Ben Verwaayen.  For non-executive chairman the board chose former European Aeronautic, Defence and Space Company (EADS) co-CEO Philippe Camus.  Camus held the EADS job from 2002 - 2005.  He is also a co-managing partner of Lagardere since 1988, and since 2006 has been a partner at Evercore Partners, Inc.  According to a story by Rudy Ruitenberg for Bloomberg, 

(Verwaayen) boosted sales of business services to 7.9 billion pounds from 4.5 billion in six years as revenue from retail and wholesale services plunged.  Under Verwaayen, BT's sales outside the U.K. grew to 17 percent of the total from 8 percent in fiscal 2002.

... Verwaayen has the advantage that he has been the CEO of a network operator, so he knows what Alcatel-Lucnet's customers want," said Exane BNP's Peterc.

Camus when he was with EADS managed to bring a number of different cultures together to make the high tech operation succeed.  He may be just the right person to do the same for the Alcatel-Lucent merger that has been faced with some of the same problems that EADS faced in relation to different corporate and personal cultures in one organization.  According to Peggy Hollinger who wrote a piece for the Financial Times,

Mr. Camus may well be placed to help reconcile the cultural differences.  As EADS

 co-chief executive he had to navigate often difficult relations between the French and German shareholders, which exploded into acrimony after his departure.

The new duo are already working on ways to fix the troubled telecom manufacturer.  According to Jennifer L. Schenker of Business Week  in a blog today,

During our discussion, Verwaayen mentioned a five-point plan he has already worked up to fix Alcatel-Lucent.  Among the key ideas: greater embrace of so-called "open innovation," an emerging management concept also practiced by companies such as Philips, that aim to do away with the most "not-invented-here" syndrome in corporate R&D.  Instead, companies partner--sometimes even with their rivals--on development of key technologies, and look to startups that may have fresher ideas than the stuff coming out of in-house research labs.

... Healing the company's wounds will take time, but Verwaayen has a long track record of winning over employees and creating a sense of common purpose.

While the task ahed for these two top executives is fraught with problems, the choice to pick them was terrific.  Stay tuned for an interesting ride.

For more:

The Deal.com

New York Times

Barron's Tech Trader Blog

Associated Press

Guardian

Silicon.com

Telecom UK

Reuters

Unconfirmed Reports Indicate Alcatel-Lucent Will Name New CEO

Alcatel-Lucent ALU (NYSE), which forced its CEO, Patricia Russo and Chairman Serge Tchuruk to resign back in July, is rumored to be ready to announce the appointment of former president of science technology and strategy, Mike Quigley as its new CEO.  Quigley, who at one time was considered a prime candidate for the CEO position of Alcatel, left the company back in August of 2007 and moved back to Australia.  According to a story by Mary Lennighan for Total Telecom,

Former Alcatel-Lucent executive Mike Quigley will likely succeed CEO Patricia Russo, having secured the backing of the vendor's nomination committee, it emerged Wednesday. 

Quigley, who held the position of technical chief at Alcatel-Lucent until he resigned last August, is the favourite to replace the outgoing chief executive, Reuters reported, citing a piece in French weekly Le Canard Enchaine.

The market has responded positively to the rumor. 

For more:

BusinessWeek

Telecom Tiger

Canadian Press

Barron's Tech Trader

CEO Watch - The Inevitable is Inevitable - Alcatel-Lucent CEO and Chairman Out

Probably a year overdue (see earlier blogs), the CEO and Chairman of French telecommunications giant Alcatel-Lucent ALU (NYSE), Patricia Russo and Serge Tchuruk have announced their resignations.  Chairman Tchuruk will step down as of October 1 and CEO Russo will leave by the end of the year or earlier should a replacement be found.  Along with the departure of Russo and Tchuruk, will be board member Henry Schacht, a former Lucent CEO.  

Alcatel-Lucent which merged in late 2006 has been struggling since its inception.  The company just announced its sixth straight quarterly loss.  According to Information-Age,

...the company revealed that it lost €1.1 billion during its second financial quarter of the year – its sixth consecutive quarterly loss. That is roughly three times the €336 million loss that Alcatel-Lucent reported in the same quarter of last year.

Alcatel-Lucent's ill-fated CDMA division continues to be its biggest loser. The company wrote down the value of its division that sells technology based on t

he wireless transfer protocol by €810 million.

Stacey Higginbotham from the GigaOm blog summed up the company's situation succinctly,

Alcatel-Lucent is seeing falling demand for its equipment while its carrier customers contemplate the slow migration to 4G technologies such as LTE and WiMax. The next generation networks are coming, but are still several quarters out with LTE networks coming on line in 2010 and full deployment closer to 2012. 

WiMax is growing now, but is a smaller market. Another wrinkle is that some carriers such as Vodafone in the UK are content with their 3.5G networks, and don’t plan to move to LTE for even longer.

Russo who is known as a strong figure continues to make a case for herself.  She was quoted in today's corporate press release as follows,

“I am very pleased with the progress we are making especially in light of a difficult market environment,” ...  “Our strategy is taking hold and our results are demonstrating good operational progress.  That said, I believe it is the right time for me to step down.  The company will benefit from new leadership aligned with a newly composed Board to bring a fresh and independent perspective that will take Alcatel-Lucent to its next level of growth and development in a rapidly changing global market. "

While there may be positive news about the company it is very small and limited.  Chairman Tchuruk also gave his own pitch for the work the two have performed particularly in relation to the giant merger.  He is quoted in the press release in which he states,

“The merger phase is now behind us.  I am proud that Alcatel-Lucent has become a world leader in a technology which is transforming our society.  It is now time that the company acquires a personality of its own, independent from its two predecessors.  The Board must also evolve and the Chairman should give the first example, which I have decided to do,”...

For the moment, the market was very happy to see the announced executive changes.  In early trading the company stock was up.  The real question is who the company can find to replace the two.  Today's management change announcements can be viewed as acknowledgement of the merger's failure.  While so far, both Russo and Tchuruk failed to right the ship and get the real savings from the merger they intended, the problems facing the telecommunications sector still mean there is potential for this merger to succeed.  Hopefully, the right management may still have a chance to turn the company around.

Keep a close eye on who the company chooses to replace the Russo and Tchuruk.  The company needs to find executives with deep knowledge and expertise in the telecom sector.  While financial expertise is essential Telecom expertise is paramount.  Stay tuned.

For more:

BusinessWeek

International Herald Tribune

NY Times DealBook

Reuters

MarketWatch

Yahoo

TheStreet.com

PC World

AFP

Times Online

International Business Times

BloggingStocks

TheDeal.com

NPR Marketplace (audio)

CEO Watch - Alcatel-Lucent, Patricia Russo, Update 4

Is there more bad news for Patricia Russo, CEO of Alcatel-Lucent?  For months now I have been writing about Russo as one of the top CEOs at risk for their position.  Carol Matiack wrote a piece in Business Week that focused on a proposed rule change to be voted on by shareholders, 

at their annual meeting on May 30, shareholders of the world's largest telecommunication equipment maker will vote on a resolution that would allow the board to remove the CEO or chairman by a simple majority vote, instead of two-thirds as currently required.

Matiack went on to write,

... Against that backdrop, the proposed bylaws change looks ominous for Russo. Alcatel-Lucent said in a statement that the existing two-thirds majority rule, put in place at the time of the merger, was intended as a temporary measure "to enhance the stability of the senior management during the inevitably difficult transition period." But the provision was to have stayed in place for three years—and now the board likely will jettison it after only 18 months.

We will just have to wait and see what happens with the vote and whether it will ultimately result in Russo's undoing.

CEO Watch - Alcatel-Lucent, Patricia Russo, Update 3

Alcatel Lucent ALU (NYSE) has continued to disappoint.  The company's latest earnings results remained negative and even below expectations.  Alcatel-Lucent's CEO, Patricia Russo, remains on the hot seat.  Today's Evan Newmark piece in the WSJ's Deal Journal examines the difficulty two large transnational companies face when they try to merge.  

The integration of the two companies has

 been painful. ... A clash of cultures and personalities is inevitable. Yet, a year or so into these deals, you always hear about “underestimating the difficulties of integration.”

At Alcatel-Lucent, the senior management team chart from the “Day One” Investor Presentation was a labyrinth of reporting lines and 24 smiling European and American faces. I am surprised investors didn’t run screaming from the room when that slide was put up. In the first year of the combination, Russo lost three of the company’s top executives, including President Mike Quigley and Chief Financial Officer J.P. Beufret, both highly regarded by investors.

Newmark examines whether Russo is at fault for the problems or whether there is far more to the problem.  Considering Russo's results so far, she must bear a large portion of the problems.  I remain skeptical about her staying power at the top of the firm.  Keep a close eye on what happens.

CEO Watch - Alcatel Lucent, Patricia Russo, Update 2

Alcatel-Lucent CEO, Patrica Russo, continues to walk on thin ice. Despite her efforts to revive company earnings and sales results have been lacking. How much longer can the board and shareholders keep her at the top. Scott Morris in a piece for TheStreet.com wrote,

The Paris telecom-equipment maker posted an adjusted quarterly loss of $73 million, or 3 cents a share. While that was an improvement over the 36-cent pro forma loss in the year-ago quarter, it was well below the profit of 15 cents analysts surveyed by Thomson Financial were expecting.

For the fourth quarter, sales were up 18% from a year ago to $7.6 billion, but for the full year, the top line of $25.7 billion was a 2% decrease from 2006 levels. Analysts expected $7.3 billion in sales for the fourth quarter and $24.8 billion for the full year.

In story in today's Bloomberg, Rudy Ruitenberg wrote that Alcatel-Lucent,

...reported the biggest quarterly loss since its creation in 2006 and scrapped the dividend after cutting the value of a wireless-networks unit.

The loss swelled to 2.58 billion euros ($3.74 billion) in the fourth quarter from 615 million euros a year earlier...

Russo will definitely remain on the CEO Watch list unless she can find a real solution to the company's problems. Keep a close eye on the firm, this cannot continue.

For more on the company's problems:

Reuters
Barrons
Times Online
Financial Times
Business Week
International Herald Tribune

CEO - Watch -- Patricia Russo, Alcatel-Lucent

Rumors continue that Patricia Russo, CEO of telecommunications firm Alcatel-Lucent ALU (NYSE) is under pressure to present a restructuring plan or may be on her way out.

For more see:

Financial Times
Barron's Blog
TheStreet
Newsvine
Wall Street Journal
Trading Markets
Reuters