Directors Approach Former Chief of BT, But Are RebuffedAlcatel-Lucent is kicking off a global hunt for new leadership this week, after former BT Group PLC boss Ben Verwaayen rebuffed an initial approach from the company a few days ago, people familiar with the matter said.
The search, to be run by executive recruiter Korn/Ferry International, is aimed at bringing a firm management hand to the big telecom-equipment maker and easing cultural tensions after two years of tumult that led to last week's decision to remove Chief Executive Patricia Russo and Chairman Serge Tchuruk.
Details of the sudden decision are just beginning to emerge. Alcatel-Lucent's board decided Ms. Russo, an American, and Mr. Tchuruk, a Frenchman, should leave after each of them told the board separately at a July 27 meeting that they could no longer work with the other, according to people familiar with the matter.
The CEO and chairman have been at odds over their respective roles and strategy, these people said, since soon after they engineered the 2006 merger between Alcatel of France and Lucent Technologies Inc. of the U.S.
The company isn't likely to seek successors for Ms. Russo or Mr. Tchuruk internally, and the two highest posts may also be combined into one, people familiar with the matter said.
Among the candidates, said people familiar with the board's thinking, are Thierry Breton, a former French finance minister and ex-chairman and CEO of France Télécom SA, and Philippe Germond, CEO of information-technology company Atos Origin SA. Stephen B. Burke, chief operating officer of U.S. cable operator Comcast Corp., is also under consideration, these people said.
Messrs. Germond and Breton didn't return phone calls and emails seeking comment. Mr. Burke declined to comment, as did Mr. Verwaayen.
In addition to cultural rifts, Alcatel-Lucent's new management team will face tough business decisions. The company, which makes telephone and Internet equipment for telecom operators like AT&T Inc. and Sprint Nextel Corp., has lost nearly two-thirds of its market value in the two years since the merger. Last week, it posted its sixth consecutive quarterly loss as its core equipment business wilted under competition from low-cost Asian rivals.
A spokeswoman for Alcatel-Lucent declined to comment on the board's discussions, saying they were confidential, and she disputed the suggestion that Ms. Russo and Mr. Tchuruk had a difficult relationship.
But the two corporate leaders had been at loggerheads since the merger, which has failed to deliver on its promise of creating a global telecom-equipment player with the scale and strength to survive in an increasingly competitive market.
Mr. Tchuruk, reached by phone, said he didn't want to comment beyond the news release Alcatel-Lucent issued Tuesday, which presented his departure as a voluntary resignation: "There is nothing to add," he said.
Ms. Russo, through a spokeswoman, declined to be interviewed for this article. In an interview Tuesday, she denied there had been pressure on her to leave. "No one is getting fired here," she said. "The only pressure on me to leave has been in the media."
The tension between Ms. Russo and Mr. Tchuruk centered largely on how to handle the crisis that engulfed Alcatel-Lucent in 2007 as the telecom-gear market cratered. But Mr. Tchuruk also found it hard to step back from day-to-day management, according to people who worked with him. Ms. Russo felt she would never earn Mr. Thrum's respect, these people said.
The merger between Alcatel and Lucent was largely the brainchild of Mr. Tchuruk, who believed both companies were too small to survive alone. He had tried to merge Alcatel with Lucent in 2001, but the deal fell apart over price and how to share power between the two sides. Years later, Mr. Tchuruk saw in Ms. Russo someone who shared his vision and, in April 2006, they announced the merger. But their relationship quickly hit the rocks.
In January 2007, and again in April, Alcatel-Lucent was forced to issue warnings that its performance would be worse than expected. Mr. Tchuruk put pressure on Ms. Russo over these missteps, according to a person familiar with the matter. Although he wasn't meant to have a daily operational role at the company, Mr. Tchuruk kept calling heads of business units and other middle managers, something that irked Ms. Russo, this person said. Mr. Tchuruk criticized Ms. Russo to others at the firm, according to a person familiar with the matter.
Meanwhile, the telecom-equipment market was deteriorating. Alcatel-Lucent's main clients were consolidating and squeezing their budgets. Chinese manufacturers were developing low-cost alternatives to the equipment Alcatel-Lucent was selling.
In mid-September 2007, pressure mounted on Ms. Russo, as she issued the company's third profit warning, and some investors and analysts called for her head. Around that time, a few board members privately approached Frederic Rose, Alcatel-Lucent's head of Europe, Africa and Asia, to see whether he would agree to take over Ms. Russo's job, according to a person familiar with the matter. Mr. Rose, who didn't return calls or emails seeking comment, has since left the company to take the helm at French digital-video company Thomson SA.
Ms. Russo weathered the storm, and the board approved her turnaround plan, which included shrinking the management team to seven people from 21, more layoffs and further cost cutting.
But the respite was temporary, and talk of Ms. Russo's removal remained in the air. In 2008, Alcatel-Lucent reported two quarters of losses, and its share price stagnated.
A few weeks ago, the Alcatel-Lucent board sounded out a "facilitator" to work out the details of a possible management reshuffle, including legal options should it seek to remove Ms. Russo or Mr. Tchuruk, according to a person close to the board.
When the board met July 27 for an informal retreat at a hotel near Lucent's former headquarters in Murray Hill, N.J., discussions quickly tensed up after turning to the issue of the relationship between Ms. Russo and Mr. Tchuruk, people familiar with the board meeting said.
At one point, Ms. Russo and Mr. Tchuruk were summoned to speak to the board separately, according to one person who was present. In succession, the two executives were asked whether they could stay on and work with the other, this person said. Ms. Russo told the board she wanted to keep her job, but felt the time had come for Mr. Tchuruk to go. Mr. Tchuruk said he wanted to stay but that Ms. Russo should leave, according to this person.
Without Ms. Russo and Mr. Tchuruk present, a majority of directors decided by 9 p.m. that Sunday that it would be in the company's best interest for both executives to go, people familiar with the meeting said. Last Tuesday, the company said that Ms. Russo would stay on until the board found a successor, and that Mr. Tchuruk would step down on Oct. 1.
Henry Schacht, a former Lucent CEO and longtime friend of Ms. Russo, resigned his board seat after he disagreed with the majority's decision to replace his protégé, according to a person familiar with the situation. Reached by email Monday, Mr. Schacht said, "I do not comment on board matters."
By: David Gauthier – Villars, Joann Lublin & Leila Abboud
Wall Street Journal; August 5, 2008
