Nortel CTO Quits as Woes Mount

Nortel CTO William R. Hawe has left under a cloud of speculation

February 21, 2001

3 Min Read
Nortel CTO Quits as Woes Mount

Nortel Networks Corp. (NYSE/Toronto: NT) has confirmed the departure of CTO William R. Hawe, in what seems to be the latest event in an escalating crisis at the company.

Nortel says Hawe was replaced February 19 by Jules Meunier, a 22-year veteran of Nortel who's been serving as president of its Core Networks division.

Hawe was CTO at Bay Networks and came along for the same job when Bay was purchased by Nortel in 1998. Previously, he'd been CTO at Digital Equipment Corp.

Nortel's not sharing the reason for Hawe's departure. "I'd prefer to let Mr. Hawe comment on that himself," was all a Nortel spokesperson would say today. Hawe did not respond to voice mail messages at his Billerica, Mass., office.

"He's probably been briefed by his lawyers not to say anything," said one analyst, who asked for anonymity. But when pressed, the analyst refused to divulge anything further, even anonymously.

Analysts and reporters are intrigued but not surprised by hints of a darker reason behind Mr. Hawe's resignation. This morning, Canada's Ottawa Citizen and Montreal Gazette newspapers reported that Hawe made about US$18.4 million by cashing in 602,000 of his stock options on February 12, prior to leaving the company -- and three days prior to a call in which Nortel CEO John Roth drastically reduced the company's earnings guidance (see Nortel's Nasty Surprise).

Nortel acknowledged in a press release yesterday that Hawe sold the shares, stating, "It is not unusual for executives to exercise options once they choose to leave the Company" (see Nortel Explains "Option Activity")

In the same press release, Nortel defended separate option sales by two other executives, F. William Conner, president of Nortel's eBusiness Solutions division, and Chahram Bolouri, president of global operations. Both of these transactions -- Conner's for 240,000 options and Bolouri's for 120,000 -- are reportedly mentioned in at least one of three class-action lawsuits brought against Nortel earlier this week. The lawsuits were launched in the U.S. by shareholders claiming Nortel misrepresented its financial status in order to inflate its stock price.

Analysts concede that none of the Nortel executives' transactions was out of the ordinary, but they say the timing looks very bad. "All they're doing is giving the ambulance chasers more fuel," said one analyst, anonymously. "There's the perception out there that Nortel executives took the money and ran, leaving shareholders holding the bag."

Nortel may face other legal hassles, including a review by the Ontario Securities Commission, as reported in today's Toronto Globe and Mail newspaper. Reporters there say officials are looking into allegations that Roth "appears to have telegraphed rising concerns about the company's prospects" during a Webcast with RBC Dominion Securities Inc. on February 12 -- three days before the disclosure call, and while Nortel's deal to buy a key components plant from JDS Uniphase Inc. (Nasdaq: JDSU; Toronto: JDU) was still in the works.

-- Mary Jander, senior editor, Light Reading

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