The Grapes of Roth

Frank Dunn is sweating in a hot seat that should feel like a throne.

Less than 24 hours after Nortel’s CFO was named the surprise successor to outgoing Nortel chief executive John Roth, Dunn spent a busy day Wednesday courting the business community via CTV, CNBC and ROBTv. After a while, the interviews start to look like a rerun: Nortel has woken up to market realities, the company is tightening its belt and cleaning oddball acquisitions out of its closet.

This is the kind of message you’d expect when they put the numbers guy in charge.

The shock that greeted his appointment came in reaction to the wide speculation that had preceded it. At one point, there was every reason to believe the job would go to Clarence Chandran, Nortel’s former chief operating officer. Then, in 1997, Chandran was the unfortunate victim of a stabbing in Singapore. He survived, but ongoing medical problems led to his departure from the Brampton, Ont.-based phone equipment maker in May. At the time, Nortel issued a statement in which Roth tried to reassure investors that it would have a replacement on deck well before his planned retirement in April 2002.

The recruiting drive was handicapped somewhat by the fact that Nortel’s key rival, Lucent Technologies, was looking for a leader of its own after Richard McGinn was more or less ousted almost a year ago. Even with all the financial woes that preceded Tuesday’s announcements of another 20,000 layoffs, Nortel probably looked like the better of the two.

Sometimes the whole situation resembled the back-biting gossip that circulated on Parliament Hill when Paul Martin seemed ready to take on Jean Chretien’s mantle in the 2000 federal election. To some it might have seemed more significant, considering Nortel’s role as a bellwether for the Toronto Stock Exchange and the networking industry as a whole, and particularly John Roth’s decisive, committed vision during his tenure. Nortel became a Canadian success story following its bold, aggressive move into optical networking, leaving Lucent to play catch-up once the market had already started to fall apart. Though Dunn now faces criticism for Nortel’s acquisition-heavy appetite, this was the kind of behavior its investors demanded during the boom era of 1999-2000.

Indeed, before the job cuts started to escalate, some candidates may have been daunted by the thought of picking up where Roth left off, now that almost everyone is struggling to stay profitable. There would also have been intense competition for top positions with other, less challenging companies. Christian & Timbers, the executive recruiting firm who stole away Carly Fiorina from Lucent to helm Hewlett-Packard, has cited a 63 per cent increase in the number of vacant CEO jobs at U.S. companies.

Given the economic climate, a bottom-line personality like Dunn might well be the best person for the job, particularly given his quarter-century with the company. His promotion is not without similarities to the rise of Michael Capellas to the chief executive position at Compaq Computer a few years ago, or, on a much smaller scale, Derek Burney’s replacing Michael Cowpland at Corel Corp. These are companies where the management was so established that it was hard not to associate one with the other.

For many investors and customers, John Roth and Nortel Networks were one and the same. Dunn’s quiet ascent is a much safer, more Canadian approach to the succession than we might have hoped for in Nortel’s glory days, but his focus on core assets may allow him to prove those days are not completely behind it.

sschick@plesman.com

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