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Lucent's Next Leader

Light Reading
News Analysis
Light Reading
1/7/2002
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Lucent's finally picked the next CEO. And industry experts weigh in tepidly on the pick.

After a search lasting nearly 18 months, Lucent Technologies Inc. (NYSE: LU) has picked a CEO from the ranks of the executives who left the company within the last two years.

Patricia F. Russo, 49, is leaving her post as COO of Eastman Kodak Co. to return to Lucent to take the post of CEO, effective immediately. A Lucent veteran who joined the company in 1982, Russo quit in August 2000, shortly after the company folded the division of which she was president into one run by her old boss, ex-CEO Rich McGinn.

Current Lucent CEO Henry Schacht will stay on with Russo "for as long as I can be helpful."

Russo held the job at Kodak for only nine months. Kodak says it's not sure when or how it will fill her position. "We need to see what talent is out there," says a Kodak spokesperson. In the meantime, Kodak CEO Daniel A. Carp is doing double duty.

The industry consensus seems neutral to cautiously positive on Russo's appointment, even though some hoped to see a fresh face tackle the top spot at Lucent.

"Pat is an excellent manager, but I think the markets were looking for someone from outside the company who was more fiscally oriented," says consultant Frank Dzubeck of Communications Network Architects (no Web site). "She's a terrific person, extremely competent... The problem is she has to be able to assuage the Wall Street hordes that control debt and stock valuations."

Those hordes are key to Lucent's future, analysts say, particularly since the company faces the upcoming spinoff of Agere Systems (NYSE: AGR), a key step in the company's transformation that will probably require even further renegotiation of Lucent's current debt covenants in order to meet a June 2002 deadline.

There are signs that if anyone is up to the job, it's Russo. During her 19-odd years at Lucent, she spent eight years as a top executive, starting with four years (1992-1996) as president of the Business Communications Systems division, moving to two years (1997-1999) as executive VP of corporate operations, and finishing with ten months (October 1999 to August 2000) as executive VP and CEO of Lucent's Service Provider Networks Group.

By October 1999, ten months before she left the company, Russo was its fifth highest paid executive and owned 1,111,754 shares of its common stock.

It was during the last ten months of her Lucent tenure, however, that conflicts with McGinn reportedly reached an impasse that resulted in Russo's resignation.

Legal documents filed as part of a shareholder class-action lawsuit handled by Milberg Weiss Bershad Hynes & Lerach LLP state that Russo was fired by McGinn for allegedly warning him that his financial guidance was unattainable and that the company had problems with key customers. One complaint maintains that when Nina Aversano, who worked for Russo, was left to face McGinn alone, she too was terminated (see Nina Aversano). Aversano's subsequent highly publicized lawsuit revealed the extent to which management had allegedly struggled to convince McGinn that his sales targets were unrealistic.

Others say it was McGinn's accounting practices, such as allegedly recognizing revenue on sales that weren't final, that drew Russo's ire. "Pat herself would deny she was terminated. But she felt McGinn's accounting maneuvers were just not appropriate," one source familiar with the situation states. McGinn arranged for Russo to resign, he maintains, rather than have her voice her concerns to Lucent's board.

Lucent denies all of this. "Pat left when she saw her position compressed after we consolidated the corporate and service provider divisions," says a spokeswoman. "She left with the full support of the board to seek a CEO appointment elsewhere." She notes that Henry Schacht and others recommended Russo's appointment as non-executive chairman of the board of Avaya Inc. (NYSE: AV). Russo still holds that post, although it's unclear whether she'll continue to do so now that she's taken the CEO job.

Russo herself was unavailable for comment at press time.

Whatever the circumstances of Russo's departure from Lucent, analysts agree she's got her work cut out now that she's back. "She needs to take the bull by the horns and produce quickly," says Christopher Nicoll, director at Current Analysis. "It can't take six months for her to get the lay of the land." Nicoll says Russo's familiarity with Lucent management can be seen as a plus. "She knows the management team, she's familiar with everyone and their personality quirks, and hopefully her time away gives her new clarity of vision and purpose about what needs to be done."

"Her appointment doesn't solve Lucent's main problem, which is how to realize growth in an increasingly IP environment," says Steve Kamman of CIBC World Markets. Lucent, he notes, hasn't distinguished itself in carrier products beyond those required for "maintenance" of existing networks. The company needs a "growth platform," even as it struggles for a breakeven point in its finances.

Frank Dzubeck disagrees with this assessment: "How many new products can they invent? I believe it's not having a new platform that's key, but reassessing the value of their organization, what they already have, especially on the services side." In many parts of the world, he says, it's Lucent, not its competitors, that's viewed as the strongest integrator and reseller. "They need to reassess themselves and their mission in life."

Dzubeck says Russo could wind up "being a star," especially if she can bring in the right people, including perhaps a top-notch CFO, to help Lucent get its act together.

The rest of the Street seemed impervious to Lucent's "good" news. At press time, shares were selling at $7.02, down 0.08 (1.13%).

"It's a good thing they've hired someone. At least we know who'll be making the decisions," says says CIBC's Kamman. "The biggest risk was of someone coming in and turning the wheel a hard right. Now we know they're not going to try and redo what's been done."

— Mary Jander, Senior Editor, Light Reading
http://www.lightreading.com

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Gastroenterologist
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Gastroenterologist,
User Rank: Light Beer
12/4/2012 | 11:06:17 PM
re: Lucent's Next Leader
There is absolutely NO WAY that Pat was asked to leave because of her concern for the finances...NO WAY!!!

Why does everyone who gets canned at the upper levels use this excuse?!!!

I am horrified at the lack of analysis here!!! Did you interview her three best friends, or her children?

That consultant you keep quoting must be angling for some contracts with Lucent.

This is deplorable. Wait until you get to the truth before posting these things.
froggy
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froggy,
User Rank: Light Beer
12/4/2012 | 11:06:15 PM
re: Lucent's Next Leader
How dare you ! Doubt the opinion of Mr Dzubek President and CEO of Network Communications Architects, he is a well respected analyst and his wife can testify to that, she is the Senior Vice President of the company and ...the only other employee.

LR, come on ! You can do better than that !!
Belzebutt
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Belzebutt,
User Rank: Light Beer
12/4/2012 | 11:06:15 PM
re: Lucent's Next Leader
Legal documents filed as part of a shareholder class-action lawsuit filed by Milberg Weiss Bershad Hynes & Lerach LLP state that Russo was fired by McGinn for allegedly warning him that his financial guidance was unattainable and that the company had problems with key customers. One complaint maintains that when Nina Aversano, who worked for Russo, was left to face McGinn alone, she too was terminated (see Nina Aversano ). Aversano's subsequent highly publicized lawsuit revealed the extent to which management had allegedly struggled to convince McGinn that his sales targets were unrealistic.

Others say it was McGinn's accounting practices, such as allegedly recognizing revenue on sales that weren't final, that drew Russo's ire. "Pat herself would deny she was terminated. But she felt McGinn's accounting maneuvers were just not appropriate," one source familiar with the situation states. McGinn arranged for Russo to resign, he maintains, rather than have her voice her concerns to Lucent's board.



This is the same guy who gets 8 million in severance and 1 million/year for life from the same company... truely mindblowing...

Something's got to give here. Just like two years ago we were looking at the dot-com funding and thinking "this is ridiculous", and a year ago we were looking at telecom companies wasting money, both bubbles popped... Is this another bubble?
HarveyMudd
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HarveyMudd,
User Rank: Light Beer
12/4/2012 | 11:06:11 PM
re: Lucent's Next Leader
Russo is not a ggod choice for the following reasons:

1. Nothing ois known about her accomoplishments at Lucent.

2. When Lucent was acquring companies left and right (networking and optical)and wasting company resources: Where was Russo?

3. When new products were not coming from Lucent's Bell Labs: Where was Russo?

4. When Lucent has chosen a wrong person to be the President of Bell Labs: Where was Mrs. Russo?

5. What is her expertise: Finance, Technology Management, People Management, or None of the above?

6. What are her plans to bring Bell Labs a power house in the industry as it was before 1980s? Will she able to lay off managers and bad workers at Bell Labs? Will she able to reduce the workforce?

7. What are profitability plans? Will she make her ideas and commitment public?

8. Will she answer all questions honestly and publicly?

9. Wil she be accessible and subject to criticism rather than protect her job and tenure?

10. Lucent has always been very weak in Marketing. Will Russo adress the problem of recruitment at Lucent. Lucent's HR Department which used to be one of the best in the world has become one of the worst in the world? Has Russo any plans?

11. What is Russo's mission?

12. Who are other candidates considered for the job? In order to get a complete feedback on a candidate, the names of the candidates are announced? Lucent has violated this basic principle of recuitment?

Russo is an unproven leader. Lucent's problems are more complex. The announceed lay offs have not yet been completed. There are many facilities that should have been closed are still open.

zipple
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zipple,
User Rank: Light Beer
12/4/2012 | 11:06:09 PM
re: Lucent's Next Leader
OK I've been slow. Now I think I get it.

1. LU had one helluva time trying to land somebody for the CEO slot. Gerstner was asked, other people with turnaround reps were also asked. You can be sure that the likely suspects were asked within the first month of Rich McGinn's firing.

1a. Nobody accepted, because the company has been pushing the limits of honest on its books, its culture sucks, and the probability of success is quite small after all the internal financial damage.

2. Henry knew that he himself was not the right guy.

3. He got stuck choosing an insider since no outsider would take it. However, all the insiders have egos the size of Montana. Name one, and the rest probably take a hike.

4. Of the insiders, Pat was the logical choice. He could even paint her as a psuedo outsider.

5. While the exec team is doing the search, they all read the writing on the wall that Pat is it, so they start looking. Henry doesn't want all of Pat's former peers to disappear on her first day back, and it's worth some money to him & LU to keep a modicum of continuity until Pat completes her searches.


I consider this good news. I think it portends that a major housecleaning is in the works, but Henry wanted it to occur in an orderly fashion.

Or maybe I'm just full of wishful thinking today.
glenda
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glenda,
User Rank: Light Beer
12/4/2012 | 11:06:06 PM
re: Lucent's Next Leader
Maybe in the wake of the terrorist activities, I'm just finding it generally more difficult to have fun at someone else's expense.

I'm an ex-Lucent employee. But like many Lucent employees, information about our business leaders was not readily available to the working level. Publicly available information from the press and web sites like Lightreading made up a surprisingly high proportion of what little information we did have about our officers and executives. Maybe that too was part of the problem.

As a result, I can offer no insight about the wisdom or lack thereof in Pat's appointment or acceptance of Lucent's CEO slot. Having left Lucent because I felt that executive egos were at least the size of Montana and that these same egos would prevent the degree of cooperation I felt necessary for future success, I can't say as I would want to return to Lucent in any case. I do know I don't wish anything but success for Lucent and it's employees even if that does mean that some egos the size of Montana also get stroked in the bargain.

These days, a bit of good news about my past employer would be welcome. I wish Pat and Lucent the best on their continued difficult road to success.
Gastroenterologist
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Gastroenterologist,
User Rank: Light Beer
12/4/2012 | 11:06:05 PM
re: Lucent's Next Leader
Points well-taken, glenda. Many of us want to see this collection of largely good, promising people succeed. I probably need to stand down on the sarcasm and nastiness.

I just don't know what to do with the discouragement I feel when I see these shenanigans at the top which I think 1) initially hamstrung the company and 2) now threaten its existence.

WE NEED BRAVE, AGGRESSIVE OUTSIDE LEADERSHIP!!! NOT MORE OF THE SAME!!! SOMEBODY NEEDS TO SAVE LUCENT AND SAVE IT NOW!!!

>> Maybe in the wake of the terrorist activities, I'm just finding it generally more difficult to have fun at someone else's expense.

I'm an ex-Lucent employee. But like many Lucent employees, information about our business leaders was not readily available to the working level. Publicly available information from the press and web sites like Lightreading made up a surprisingly high proportion of what little information we did have about our officers and executives. Maybe that too was part of the problem.

Twistall
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Twistall,
User Rank: Light Beer
12/4/2012 | 11:06:00 PM
re: Lucent's Next Leader
Zipple makes some good points. One I'd like to add is that no outsider was going to take the job because they wouldn't've been able to do much. The banks are calling the shots.

Lucent sold its recovery plan to the banks, and now they must deliver. Anyone who comes in is going to stick to that plan. And, as we all know, any outsider who'd even think of taking the job would have to have an ego the size of Montana, and therefore would be unable to adhere to someone else's plan.
boozoo
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boozoo,
User Rank: Light Beer
12/4/2012 | 11:05:59 PM
re: Lucent's Next Leader
I like # 8 from HarveyMudd's post :-) :

"8. Will she answer all questions honestly and publicly?"

Boozoo
MKTG_Hack
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MKTG_Hack,
User Rank: Light Beer
12/4/2012 | 11:05:57 PM
re: Lucent's Next Leader
"...any outsider who'd even think of taking the job would have to have an ego the size of Montana ..."

Anyone interested in what happens under egoless management should read "Good To Great". For the book, author Jim Collins researched 11 companies that had 15 years of poor investor returns followed by at least 15 continuous years of returns significantly greater than the market average. One key finding was the "Level 5 Leader" - an egoless manager who drove the company based on what he understood of the market rather than on the legacy he wanted to leave behind.
Good reading.
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