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Board Governance 101: Lessons from Alcatel-Lucent

I finally had a chance to catch up with a B-school professor friend about the recent shakeup at Alcatel-Lucent (ALU). Not surprisingly, he had a lot to say about it (so much, in fact, that he prefers not to be identified, and no, it's not Noel Tichy, who's featured in the video). We got to talking, and I suggested it would make a a great case study for his students.

He took it a step further: "It would be a terrific final exam," he said. "True, we never have all the facts [when doing a case study], but it is instructive to imagine ourselves as the executives and board members in a situation, and ask ourselves what obvious mistakes we seem to have made, what might have been the extenuating circumstances, and whether we should really be forgiven for the mistake even given those imagined constraints."

We agreed that although we know nothing of the situation other than what has been reported, even that seems like enough to provide a treasure trove of "would you have made the same decision?" questions.

For those unfamiliar with the situation, here's a quick summary: Lucent was a large American telecom equipment maker run by Patricia Russo, who had been COO of Eastman Kodak (EK) during the period when the company failed to make the jump to the new technology (digital photography) that everyone knew was destined to kill Kodak's old business (chemical development of photos).

Lucent later sold itself to Alcatel, an even larger French telecom equipment maker whose product lines were mostly not of the same type as Lucent's—but where they were, the underlying technology was different. The joint company was run by Russo, even though she did not speak French (and the headquarters are in Paris). The chairmanship was held by Alcatel's previous CEO, Serge Tchuruk. The board was split between previous Alcatel directors and previous Lucent directors— including Russo's predecessor, Henry Schacht.

Strange Bedfellows

Investors and analysts hated the idea from the outset. Reports claim that the two companies have never integrated and that the Lucent side has continued to bet on two technologies (DSL in wired telephony/Internet and CDMA in cellular) that are losing ground in the market. Analysts and investors hate the merger even more now, because the company has lost money in every single quarter since the merger (six in a row). So, the share price is down 60% from the time of the merger. At the end of July, Alcatel-Lucent announced that it lost $1.7 billion—$800 million of which was due to a single (Lucent) customer slowing down its capital spending plans.

Russo and Tchuruk both resigned, but the board asked each to stay on while it looks for their successors. The company also announced that it was restructuring the board, shrinking the number of members—with Schacht being the first to go.

So, my friend and I drew up some questions that this situation might raise.

Regions : Asia

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