Nortel, Lucent compete for CEOs

Nortel CEO John Roth last week announced he will retire next April, prompting the company to announce that it is accelerating its search for a successor.

Roth's impending departure follows the ousting of Lucent Chief Executive Richard McGinn last October. Lucent's board installed as its interim leader former CEO Henry Schacht, who launched a search for a permanent successor.

The company's executive search continues seven months after McGinn's departure, but Schacht plans to run the financially besieged company until he can turn it around, a Lucent spokesman said.

Lucent and Nortel--two networking giants struggling amid the economic downturn--are competing for the same pool of chief executive candidates, Wall Street analysts and headhunters say. But because Nortel is in better shape financially and has what analysts believe is a stronger product portfolio, it will be easier for the Canadian equipment maker to attract talent, they say.

Regardless, with fewer quality candidates available, recruiters say CEO searches for major companies such as Lucent and Nortel could take longer than ever because the stakes are high for both parties.

"For the right candidates, Nortel and Lucent offer exciting opportunities where they can build their legacies. But Nortel would be easier to attract talent for," said Jeff Christian, a headhunter for recruitment firm Christian & Timbers. "The company has more core assets and a stronger leadership team. Lucent is in a major turnaround. The person coming into that job will have his or her hands full."

Like rival Cisco Systems, Lucent and Nortel have been ravaged by the economic slowdown and slower spending by telecommunications carriers, particularly financially struggling start-up service providers. All three giant networking companies have reorganized and laid off employees.

While analysts say Cisco's and Nortel's recent woes can be blamed on the economy, Lucent's troubles began earlier. In the past year, the former AT&T spinoff has made several profit warnings blamed in part on slower sales of its traditional voice equipment, a technology misstep with its optical networking equipment, and bad loans to start-up service providers that couldn't repay their debts.

Courting candidates
Lucent's and Nortel's efforts come as CEOs are in high demand. Christian & Timbers estimates that CEO searches in the technology industry have spiked 63 percent from 1999 to 2000. And with the economy stalling, recruiters say it's tougher than in the past to lure new executives with stock options.

Wall Street analysts say Nortel and Lucent need chief executives with similar qualities: someone with technology expertise, preferably in networking or telecommunications. Both companies are migrating to Internet-based products from traditional voice equipment. Analysts say the companies should even consider tapping executives from their biggest customers--telecommunications carriers and service providers.

"Both companies need the same thing: someone who has a data networking background who can move them to an IP (Internet Protocol) view of the world," said Salomon Smith Barney analyst B. Alexander Henderson.

Christian, the recruiter who ran Hewlett-Packard's CEO search that resulted in the hiring away of Lucent's Carly Fiorina, said Nortel will get to choose from the cream-of-the-crop candidates.

He compares Nortel's and Lucent's concurrent CEO search to HP's and Compaq Computer's synchronous search for new leaders in 1999. At the time, HP was in better shape than Compaq, giving HP first dibs on candidates, he said. Compaq later promoted Chief Operating Officer Michael Capellas to be its chief executive.

"I think HP had their choice of best candidates first, and it's my sense that would be the same for Nortel," Christian said. "Compaq has certainly come back strong, but at the time, HP was definitely more attractive. Compaq at that time had much deeper problems, seeing eroding prices for PCs and Dell beating them up in the market."

Analyst Ryan Sullivan of investment bank Landenburg Thalmann agreed, saying Nortel's position will be easier to fill.

"Nortel is less of a challenge. It's fundamentally in better shape," he said. "Lucent has so much technology, but they can't bring it all together. If you have two flat tires, it's tougher to get it going."

Patience is a virtue
Recruitment firms say CEO searches that used to last about one month in 1999 or 2000 now take six months or longer. Lucent and Nortel, however, are in no rush.

Nortel has another year before Roth steps down, although the company hopes to have a successor in place beforehand to smooth the transition. Lucent's interim leader doesn't plan to step down until the company gets back on track, said Lucent spokesman Bill Price.

"Schacht has not put a timeline on his situation. The company has one CEO, and he is it," Price said. "He did institute a search for his successor, but nothing is imminent. His priority is getting the company healthy. He wants to hand this business over to a new CEO with it back on track."