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AlcaLu Seeks CEO Dismissal Rule Change

Alcatel-Lucent (NYSE: ALU) shareholders will vote on May 30 whether to change the rules regarding the dismissal and appointment of the company's chairman and CEO.

The proposed change comes as speculation surrounds the future of AlcaLu's current CEO, Pat Russo. (See Is AlcaLu Seeking a New CEO? and AlcaLu's Next CEO?)

Resolution 13 at the company's planned Extraordinary General Meeting (EGM) on May 30, which will be held jointly with the regular Annual General Meeting (AGM) in Paris, concerns the "Removal of the qualified majority rule for dismissal and appointment of the Chairman and the Chief Executive Officer."

Currently, that "qualified majority rule" means a two thirds majority is needed at a board meeting for the CEO or chairman to be dismissed and a replacement appointed. As the vendor's board has 14 members, the votes of at least 10 directors would be needed to facilitate the dismissal or appointment of a CEO or Chairman.

The AlcaLu board includes Russo and the Chairman, former Alcatel CEO Serge 'The Merge' Tchuruk, seen here with Russo.

It's standard practice for French companies to require only a simple board level majority to make such decisions. The Alcatel-Lucent board, though, notes in its 'Notice of Meeting' report to shareholders that a decision was taken in September 2006, a few months ahead of the November 2006 Alcatel/Lucent merger, to introduce the two-thirds majority rule "in order to enhance the stability of the senior management during the inevitably difficult transition period following the merger."

Now, though, the Board is "of the opinion that the transition period is mostly over, that the Company now has a well defined strategy and homogeneous teams, and accordingly this qualified majority requirement is no longer a necessity."

In addition, "dialogue with shareholders and investors has verified that they would appreciate the return to the generally applicable principles of corporate governance."

In other words, the company believes the worst of the post-merger integration problems is over, and the introduction of a new CEO and/or chairman would not rock the AlcaLu boat too much.

So, if the shareholders vote in favor of Resolution 13, "the dismissal or appointment of the chairman of the board or the chief executive officer will again be a decision to be taken by the Board under a simple majority vote of the directors present or represented."

An AlcaLu spokesman says the decision is purely based on the desire to bring the company back into line with standard French corporate practice, and is not linked to any impending decision or planned change of corporate management.

The company's board of 14, which has not changed since AlcaLu was formed, comprises six that were proposed by Lucent, six by Alcatel, and two independent European directors.

Disappointing performance
AlcaLu has been dogged by disappointing financial results since it was formed, and recently announced that 2008's revenues are expected to dip compared with last year. (See AlcaLu Posts Loss, Warns on Full Year.)

Those results have weighed heavily on shareholders, who have seen the value of their AlcaLu stock lose more than half of its value since the merged company opened its doors for business on December 1, 2006, when the share price stood at €10.12.

Earlier this year, the share price hit a low of €3.24 on the Paris Stock Exchange, but it has been recovering recently, perhaps reflecting the Board's confidence that the worst of the post-merger blues are over.

In the past month, the share price has gained 34 percent and currently stands at €4.80.

The consensus among a handful of industry executives (with past or current links to AlcaLu) verbally polled by Light Reading in recent weeks is that Russo will likely be replaced before the end of the year.

Those same executives, though, doubt that the outgoing CEO of BT Group plc (NYSE: BT; London: BTA), Ben Verwaayen, whose name has been linked with the position, will take over the AlcaLu hot seat.

If Russo is to be replaced, a vote by shareholders in favor of Resolution 13 on May 30 would make it easier for the vendor's Board of Directors to make such a decision. That, of course, also applies to Chairman Tchuruk.

To pass the resolution, a two thirds majority of shareholders present, or represented, at the meeting will be required: That same majority level is required for all six of the EGM resolutions proposed for May 30. Resolutions for the AGM, of which there are eight in total, require a 50 percent plus one majority of shareholders present, or represented, at the meeting.

— Ray Le Maistre, International News Editor, Light Reading

jayja 12/5/2012 | 3:40:48 PM
re: AlcaLu Seeks CEO Dismissal Rule Change Pat Russo, the Isaiah Thomas of Optoelectronics. A miracle she's kept her job this long.
St-Kitts 12/5/2012 | 3:40:43 PM
re: AlcaLu Seeks CEO Dismissal Rule Change Pierre-Henri Leroy, president of shareholder consulting firm Proxinvest in "La Croix" [1] this week recalled that Ms Russo received 15 MGé¼ (~ x1.5 to get the equivalent value in US$) in 2007. It is the total of her remuneration "all inclusive": her fixed and variable salary, stocks, bonus, complementary retirement plan and miscellaneous other advantages.

The public opinion, shareholders and employees in Europe are increasingly "infuriated" by the continuous executive pay rise, when at the same time they observe poor corporate performances, sharp stock decline, and thousands of jobs eliminated or off-shored. "Le Monde" [2] stated that finance ministers in europe are "looking for ways of discouraging scandalous executive remunerations and golden parachutes" (good luck in your mission !). The newspaper cited the case of "Mr Tchuruk (today the non executive president of AlcaLu) who will receive an indemnity equal to twice the average of the highest annual remunarations received by him during the period of five years before he leaves the position". The final joke: Mr Sarkozy even promised last year during the french presidential campaign that, if he was elected, he would "outlaw golden parachutes payouts to chief executives" [3].

Sources:

[1] "Challenges" (french financial magazine),
"La r+¬mun+¬ration de la direction d'Alcatel excessive ?", 16 may 2008, citing an interview of Pierre-Henri Leroy, president of shareholder consulting firm Proxinvest in "La Croix" (french roman catholic daily newspaper).

[2] "Le Monde" (no need to present it), "Le d+¬bat sur les primes de d+¬part des patrons relanc+¬"

[3] "Washingtown post", "Sarkozy may outlaw Golden Parachutes"
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