Nortel's Empty Room at the Top

The executive suite's getting drafty: John Roth's retiring and the COO has left. Can NT find leadership internally?

May 11, 2001

4 Min Read
Nortel's Empty Room at the Top

Nortel Networks Corp. (NYSE/Toronto: NT) today announced the search for a new CEO. John Roth, current president and CEO, is set to retire in April 2002. And the person everybody had perceived as his key successor, Clarence Chandran, has now officially resigned for health reasons, after months of speculation (see Nortel's Chandran Resigns).

The development comes in the wake of poor financials and massive layoffs (see Nortel: Losses and Layoffs, Eh?), and some analysts think it's a bid for faith in the struggling company.

"It's a classic management move," says Seth Spalding, director at Epoch Partners. "The main message here is that someone has to be held accountable. There's a sense that a management change may help, may provide some hope of a turnaround."

But Spalding says market forces, not Nortel's management, ultimately may be to blame for the company's latest bad news. And that could mean stakeholders will just have to wait out a prolonged period of retrenchment, both for Nortel and for other companies in the sector.

Meantime, Nortel's moving its knights. "Since Clarence is no longer available in our succession planning, I'll be working with our board of directors to undertake a search for my successor," Roth said in a prepared statement. "Our priority is to have my successor in place well before I retire to ensure a smooth and orderly transition. I will not be leaving until our annual meeting next year."

Roth says he will continue to act as COO and CEO until his successor is chosen.

The issue of who will step into Roth's shoes has become a topic of widespread speculation in and around Nortel. Sources say attendees at this year's company meeting April 26 were buzzing about it, and analysts have weighed in on a range of possibilities over the past several weeks.

Many believe that Frank Plastina, the 38-year-old president of Nortel's Wireless and Core Networks business, is the likeliest internal candidate for the CEO job. In an executive shuffle back in April (see Nortel Does a Metro Shuffle), Roth made it clear that Plastina would take an expanded position within the company, and some industry sources say he's acting as a virtual COO, participating in key projects with Roth. Indeed, there's speculation that Roth may be putting Plastina through a crash course for CEO, which is why the firm isn't looking for a COO at this time.

Without officially promoting Plastina, Roth declared in an internal memo early in April that "Frank Plastina will lead an expanded Wireless and Core Networks business -- one that includes Wireless, Passport and VoIP portfolio as well as the Personal Internet and Metro Optical portfolios."

This makes Plastina boss of four leading executives: Lloyd Carney, who heads Core IP Networks; Jules Meunier, head of Wireless; Brian McFadden, head of Metropolitan Optical; and Sue Spradley, Carrier Voice Over IP.

"Most major product line executives report to [Plastina]. That's a pretty important indicator that he's the strongest internal candidate [for CEO] at Nortel," says Michael Urlocker, analyst at UBS Warburg. But is he the best person for the job? "He's young; he doesn't have the full range of experience you'd want with a CEO. I think there's actually a vacuum at Nortel, a lack of qualified people at senior levels," Urlocker says. "I think they may have to go outside to find the right person."

Others agree. "I think they would have made an announcement by now if an internal successor was coming," says Seth Spalding.

Going outside the company for a CEO isn't something Nortel's had to do since the late 1980s, when Paul Stern came to the post and created what Urlocker calls a "troubling situation" for Nortel. "Normally, Nortel's always had a clear line of succession. They've only rarely gone outside the organization. Now that's not clear," he notes.

Nortel spokespeople say any speculation about Plastina's role as other than president of his business is just that -- speculation.

The latest management kerfuffle at Nortel was accompanied by reports from several newspapers, including the Wall Street Journal, that Nortel had confirmed the closing of its DSL (digital subscriber line) business.

Analysts say the DSL closing is of a piece with the rest of Nortel's restructuring efforts and could be the first of several division cuts. "They've clearly indicated that the wireless, optical, and core switching businesses are essential," Urlocker says, speculating that anything that doesn't fall into those categories may be jettisoned.

- Mary Jander, Senior Editor, Light Reading

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