A clash over strategy in Nortel Networks Corp.'s executive suite may have been behind the resignations of two newly appointed members of the leadership team, leaving a major gap at the top of the troubled company just when it is trying to bounce back from an accounting scandal.
Differences over business views and management styles between Nortel chief executive officer Bill Owens and chief operating officer Gary Daichendt led to the COO's departure, Nortel said yesterday. Chief technology officer Gary Kunis also resigned.
"Gary has made a major contribution to Nortel during his time here and has added value to our strategic initiatives and business plan," Mr. Owens said. "It has become apparent to Gary and me, however, that we have divergent management styles and our business views differ. I respect him for his decision and I wish him every success in his future endeavours."
Although the Brampton, Ont.-based company wouldn't elaborate, analysts said that the two former Cisco Systems Inc. executives -- who had been at Nortel for less than three months -- may have proposed some dramatic changes that were rejected by Mr. Owens and the board of directors.
The presumption is that the executives "presented a plan to the CEO and the board on how they wanted to either restructure or reorganize Nortel, and there was a severe difference in opinion on how extreme or not that reorganization was going to be," said Terry Dimock, vice-president of global equity research at TAL Global Asset Management, which holds Nortel shares.
"It seems disappointing just because these two executives had a very good profile, and seemed to be a good addition to help Nortel reposition itself in the marketplace."
Nortel investors have had little respite from turmoil since an accounting scandal was unveiled in 2004. Last week finally brought some good news as the company caught up with its financial reporting, giving shareholders some confidence that it was again on course.
However, the departure of the CTO and Mr. Daichendt, who was seen by many as a possible successor to Mr. Owens, was a shock to investors because they had been at Nortel such a short time. The loss of their extensive telecommunications experience raised concerns.
Nortel shares closed yesterday at $3.23, down 32 cents or 9 per cent.
"It's a pretty serious schism at the senior leadership level at the company, and what's troubling is Admiral Owens doesn't have much industry experience or even corporate experience," said Paul Sagawa of Sanford C. Bernstein & Co.
Mr. Owens, an admiral in the U.S. Navy, has led Nortel for just over a year, and has made a makeover of its management one of his priorities. Mr. Daichendt and Mr. Kunis, who joined Nortel in March and April, respectively, capped a series of executive appointments, which also included a new chief financial officer, chief marketing officer, and chief ethics officer. Mr. Kunis and Mr. Daichendt could not be reached for comment.
The new executive team will help carry out Mr. Owens' strategic plan, which includes expanding through partnerships in high-growth markets and cutting operating expenses to compete with some tough new rivals from China.
Analysts say Mr. Owens has to shift the focus at Nortel away from its internal issues and outward toward its customers in order to win contracts and deliver new products. They also say the company must further cut costs, a task where industry observers expected Mr. Daichendt would play a key role.
Last week, Nortel said it posted a loss in the first quarter because of an increase in certain expenses.
"I have been disappointed with the cost-cutting impact of the restructuring so far," said Steven Levy, an analyst with Lehman Brothers , which has done investment banking work for Nortel in the past year.
Culture Clash
Nortel CEO Bill Owens brought in two former Cisco Systems Inc. executives less than three months ago, but they left yesterday because of differences over business views and management styles.
Nortel CEOs
Paul Stern
March 1989 to March 1993
Credited with expanding Nortel's worldwide presence, but critics said he alienated employees, customers and shareholders.
Jean Monty
March 1993 to October 1997
Brought in from Bell Canada to restructure Nortel.
John Roth
October 1997 to November 2001
Went on a significant acquisition spree that backfired when demand for telecommunications equipment slumped.
Frank Dunn
November 2001 to April 2004
Led Nortel through a major restructuring program, but was fired after serious accounting problems were uncovered.
Bill Owens
April 2004 to Present
Responsible for sorting out Nortel's bookkeeping woes, and putting it on the right track again.
Cisco's culture
Analysts say Cisco is hard driving with sales, and fast to come to market with new products.
Nortel's culture
Nortel typically takes longer to bring new products to the market, and has close ties to the telecom carrier market.
Breaking point
Analysts said the two former Cisco executives may have presented a dramatic reorganization plan that the board of directors and Mr. Owens did not want to accept.
SOURCE: COMPANY REPORTS
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