Nortel Insider – by Desk Jockey

There are many who like to quip that Nortel is in a “death spiral”.  The theory is that customers may be hesistant to buy Nortel at a time when its solvency 2-3 years down the road is questionable.  Understandably this makes them wary.  After all, they want to be sure that product support, often as important as the product itself, will be available in the future.  They want insurance behind their purchase.  For this reason the competitors’ sales teams are likely exploiting this reason to gain market share, causing Nortel to lose more customers.

The loss of customers causes a further decline in revenue, thus hastening the slide towards bankruptcy.  And so the cycle continues.  

This is analysis has been so widely reported that it need no further discussion here.  But one thing that’s worth pointing out is how this “death spiral” is affecting workers.

Just the other day we became aware of an employee who said that two people were laid off from their group. With the current hiring freeze (and freeze on most other spending) there are simply no resources available to replace them, onsite, offsite, onshore or offshore.  The remaining members will just have to “pick up the slack.” Of course, this isn’t really possible, so their deadlines will slip, or product quality will suffer, further deteriorating the brand name and reputation of Nortel.

But what’s to be done? There is no easy answer, of course.  It may be that the bad management decisions of yesteryear are coming back to haunt the executives one last time.  And it may be that under the current conditions recovery is hard to unlikely.  But one thing that is for certain is that this situation is placing much more undue stress on workers who have been living in fear for many years.  Some will continue to handle it, though some will eventually crack and seek employment elsewhere.  This will further contribute to the “death spiral.”

After the most recent quarterly earnings release, Nortel released a FAQ to its employees.  One of the questions was, “What is the attrition rate of employees at Nortel?” In the answer, Nortel refused to disclose the exact numbers (as is expected since this would be valuable information to competitors/recruiters) but merely said that the Nortel employee base was “extremely loyal.”

While it is true that many be loyal, their patience is certainly being tested beyond what would be considered loyalty.  (The entire topic of loyalty deserves its own article)

Despite our skepticism over the Nortel “Energy Tax” campaign, Cisco’s pathetic response is just awful.  A series of five ultra-low budget videos meant to counter Nortel’s claim, they end up doing more harm for Cisco than good.  They are so horrible that their obvious attempt at being tacky fails miserably.

So perhaps it’s fitting that the production company that put together these videos is aptly named “Career Limiting Productions”.  Because if you appeared in these videos your career is forever halted!

Source: Cisco Attacks Nortel’s Green Initiative – AAN

As Nortel trudges onward trying to regain its footing, it’s often helpful to look back at the history of the company, if only to learn lessons from the past.

It wasn’t too long ago that Nortel, being fed by the irrational exuberance of the dot-com era, was branded as “Canada’s Darling” by the pundits.  Being catapulted into that limelight was no easy task and Nortel was not ready for it.  This was shown by the panic that ensued when the bubble collapsed.  Jon Roth stupidly mishandled things and his successor, the former CFO Frank Dunn made things even worse.  Dunn turned mere stupidity into outright criminality and him and his band of thugs were singularly responsible for the hatred and stigma that Nortel still suffers to this very day.  Many other companies cost shareholders money during the dot-com bust – but only one sticks out in its criminal handling of the matter and Frank Dunn is to blame for this.

Employees suffered the most as many were significant stockholders as well. In addition to losing their jobs, they suddenly lost much of their equity as well.  A lesson perhaps to anyone else – do not put all of your eggs in one basket! Because one day a thief could steal them all! (And steal all the eggs of many thousands of other people as well!)

Bill Owens time at Nortel was one of relative stability but the man’s heart was not in it.  This was evidenced in his short stint followed by his involvement in investing with Huawei – a direct competitor of Nortel’s! All of this while he was still receiving a pension from Nortel - something that many current employees may not have the “luxury” of experiencing! While he was certainly not a criminal, his actions are far from that of a saint.

Then we have the controversial appointment of the current leader Mike Z.  Nortel paid a hefty price to obtain this person and considering his credentials it seemed like a good move.  Hindsight is always 20/20 and no one can be faulted for this.  Mike Z. initially brought home a promise to change from the old ways by implementing strict rules on integrity and ethics.  

Unfortunately when tested on these issued MZ did less than stellar.  When faced with the Joel Hackney assault case, Mike Z. could have demonstrated his commitment to integrity.  However he instead chose his commitment to cronyism, letting many employees down.  Employees genuinly wanted to believe that this man would bring hope – after all they had endured many years of pain.  

But in the end here we are.  3 years into a 3-5 year plan with no end game in sight.  We have to do better.  The name of Nortel deserves it.

Note: The following is a reply posted in response to an article on AAN. 

Unfortunately, these are the facts, plain and simple. There are those that do not like the truth and have personally attacked broadbandbill, protosphere, yes4aapl and myself for using critical thought to explain these failures.

Let me begin by saying that I am a loyal Nortel employee. I love this company and the people that work with me. My coworkers are some of the best and brightest in the industry. It is for this reason that I am most outraged at how Nortel has performed in the past. Not because of the employees (at least the ones I know) but because of poor leadership, again and again.

I, like so many other NT employees, find AAN to be a valuable resource to share our opinions that would otherwise be ignored. Mark you have done a decent job help keep all of us informed. For that reason I found it to be distasteful when others launched personal attacks against you.

The most recent example was a poster who accused Mr. Evans of uncontrollably urinating while writing a blog post that merely linked to an analyst’s negative expectation of Nortel. I naturally found this to be outrageous and after I pointed out this flaw in the poster’s argument the poster later responded with threats of physical violence to “knock me down” and “knock me out”. This is not debate. This is bullying to suppress the facts and news about Nortel.

I came to AAN to find a neutral news source. Like many I had grown tired of the company’s continued disinformation tactics even against its own employees. As recently as this year we had an employee ask why NT stock price was so low. The only answer they got back was that it was media bias and “propaganda”. This is no way to treat employees and insults their intelligence.

I want Nortel to survive. I want Nortel to succeed. But the way to succeed is not to cover up failures, facts or the truth. The way to succeed is to learn from mistakes. Unfortunately there are many who act as mere cheerleaders, turn a blind eye to mis-management all to pump NT and maybe increase their now-worthless shares slightly.

I carry no ill-will towards anyone and wish everyone the best.

Desk Jockey

Mike Z’s long-awaited GIS was this morning.  Despite the initial negativity towards it, there is an oddly comforting feeling after hearing it.  Not comfort in that all our troubles are over, but rather that it is now obvious that leadership understands the crisis as we do.  While there was the usual talk of “turnaround” and so forth, there was a conspicous absense of the propoganda that many had come to despise.

Some key phrases used were things like “hope”, as in, “we have to hope…” Though these sound like futile words, they are not.  They are the truth.  Sometimes, when you have given all you’ve got, hope is all that remains.  So, we remain hopeful, despite the odds and despite those that hate Nortel and cheer its downfall.

Though Nortel’s past woes have been pointed out, many remain loyal to the company, and for good reason. Nortel has a 100+ year legacy of historical acheivements and it would be absurd to let this go away because of a few corrupt but powerful past leaders.  

We will continue to work our hardest until the very end.

Less than 12 hours from now our Dear Leader, Mike Z, is set to give his GIS on the state of the company.  It is hoped that he will give a real status update to address the concerns of employees who just want to know exactly what is going on.  With all the rumors and BS that has been flying around for some time, it is the least a leader can do to quell uncertainty.

However, this doesn’t solve the greatest dillemma: What can Nortel do to recover? Nortel has been plagued by a string of inept and sometimes criminal leaders, from the merely negligent Jon Roth to the criminally-negligent Frank Dunn.  Each of these has done their own part to run this company into the ground.  Perhaps Mike Z. was doomed to fail after inheriting this mess, but far too often we let our leaders off the hook with this excuse.

The biggest problem in Nortel is one of moral hazard.  The leaders who make these life-or-death decisions (life-or-death to the business) have nothing to lose from their choices.  If things turn out good, they take credit and reap the rewards in the forms of massive bonuses and payouts.  If things go bad, they still have their decent regular salary to fall back on, and in many cases, still receive substantial bonuses.  We will likely see something similar for 2008 despite all the turmoil.

Yet as this all occurs the people who have something to lose are left holding the short straw.  These are the employees who have worked their butts off to turnaround the company, only to see it run into yet another iceberg due to gross ineptitude. 

Mike Z., let’s hope you have a lot to say for yourself.

When Nortel announced the revised full-year outlook for 2008 back in September, which set us on the path to the events we have witnessed recently (and the subsequent dramatic stock price decline) they released a bunch of material to employees to keep them informed of the situation.  Included in this was a FAQ/Q&A document to address the most likely concerns.  One of the answers unequivocaly told employees to continue working normally, “Business as Usual”.

Undoubtedly, Nortel has been through tough times, such as the crisis towards the end of 2002 when buyout rumors were rampant.  But to say “business as usual” is nothing more than trying to cover a gaping hole with tissue paper.

The outlook is dreary but what is affecting employees more is knowing that the hard work they have put in to forge alliances and aim for cross-product commonality are likely to go to waste.  With the departure of the CTO and the entire office under him and the compartmentalization of the various business units into independent silos, all cross-platform and technology reuse initiatives are likely to die.  Managers who have spent much time to get a broad range of product leaders involved in these initiatives have effectively wasted their time.  No one likes to see their hard work be destroyed like this.

In the following week Mike Z. is set to give a GIS on Tuesday morning.  We don’t have any idea what he will say but he will act to address employee concerns and what he’s been hearing, at least according to the invite.  What he can say to allay fears and concerns is for time to decide.  With the various GIS’s this week by business unit leaders being less than lackluster, the expectations are not high.  Nevertheless, it is necessary for a leader to rally the troops (or at least try to) in a time of crisis.

With all the talk about bankruptcy and other doomsday scenarios, it’s clear that Nortel is turning out to be the business Titanic of its time.   While Nortel makes for a dramatic “rise and fall” story there is also one story – the real story – that gets lost in the headlines.  This is the story of the average employee.

Who is the average employee? It is the person that thought Nortel had come full circle from its dot-com debacle and accounting scandals and signed up to continue/start their career.  It is the person who has been a loyal company employee since they started working 20+ years ago.  It is even the person who emigrated from a foreign land to find opportunity in the field of telecom work.  These are the people that make up Nortel and for the most part they are honest, intelligent and hard working people.

It is these people who will suffer most from the demise of Nortel. Not the shareholders and not the creditors and certainly not the GEnius executive team.  Thus it is somewhat tragic that the people who have the most to lose in Nortel have the least say in how the situation transpires.

Even more sad is that how bad your situation can be is almost fully dependent on how loyal you have been to the company.  If you’ve stuck with Nortel through thick and thin you have certainly amassed a sizable pension that you and your family depend on for survival through retirement.  Now that very resource that you worked so hard to earn may be in jeopardy.

In particular, I was most struck by this comment recently posted on AAN:

“Those of us that have 100k plus in the pension sadly resign ourselves to the fact, we will never see it, only getting pennies on the dollar. In our department alone, poeple are actively seeking employment else where to try to get the pension before bankruptcy is declared . Sadly, it probably too late.”

By now, many people are likely wondering, “why didn’t you get out earlier?”  The answer isn’t simple, but there are a variety of reasons.  Firstly, moving is hard if one has a family and other life obligations.  Furthermore, Nortel is not a bad company in terms of people.  We are aware of many colleagues who were a pleasure to work with.  And lastly, changing your life based on something that might happen was out of the question.  However, we now know differently, so perhaps an “I told you so” is in order.

This is how bad the situation has become.  No longer are people “waiting to get the (severance) package” as many realize that time has come and gone.  It is certain that if they allowed people to volunteer to be one of the 1300 laid off this week that the number of requests would far exceed the alloted space.  No, the question has now become, “Will Nortel survive long enough for me to see my pension?”

This is the true story of the Nortel situation.  Not one of glamourous headlines and criminal CEOs, but instead one of regular folk trying hard to survive during hardships.

Speaking of actual insider trading, check out who’s been selling NT.  With the drastic drop in price over the past few days to a week-end close of $0.56 (Mkt Cap: $278.60 Million), you might think that it was haters shorting and institutions jumping ship that were the only ones thinking the price would go down.  But it turns out that almost every single insider trade in the past two years has been a sell! (Thank God for SEC Form 4, or else we would potentially not know about this ugly two-faced behavior)

In fact, the only inside buys were from directors, who likely wanted the shares for the extra votes they’d bring in the next upcoming BoD elections.  Perhaps this is how Mike Z. justified his now-infamous statement of NT being a “bargain at $20″.  The whole affair makes you sick.

In fact, according to analysis by BusinessWeek, the fact that insiders own only 0.22% of NT stock (433,722 shares – worth less than an average house today) suggests that “insiders goals could be less aligned with those of shareholders”.  Gee, who would have thought?

The same BusinessWeek link also highlights the fact that every insider trade for the past 3 months has been a sell.  How these corporate officers can continue to stand up and tell us that things will be okay and that the sky isn’t falling while at the same time dumping NT stock like it is disease is beyond me.  Their capacity to lie through their teeth astounds me. 

I mean, it’s not as if the executive team is in need of cash and thus has to sell their NT holdings, judging by the compensation they received last year - no, it is plainly obvious that they themselves do not believe in the viability of the company or their ability to lead it.  Judge a person by their actions and remember – money talks.

Another note of interest – if the GEnius executive team receives the same compensation again this year, they will earn about 7% of the total current market valuation of Nortel! Great job guys, looking out for #1.

While layoffs are generally a bad thing, the view amongst coworkers we’re familiar with is that there were not enough layoffs this time around.  Remember, this is coming from an environment where 60,000+ have lost their jobs in the past 8 years or so.  Why is this?

For one thing many believe drastic restructuring is necessary for survival.  Others just want a severance package.  Either way, though it may be odd that employees themselves want more layoffs, when one analyzes the situation it becomes clear that this may actually benefit the employees more.

Of course there are negatives.  No one likes to move and change jobs and many have families.  Moving is never easy especially if there are young ones to take care of.  

So why did Nortel not layoff more employees? The simple and scary answer may be that there isn’t enough money left for mass layoffs.