Nortel fires top executives

CEO Bill Owens announces he can no longer work with top two execs.

Things finally seemed to be going right for Nortel, for the first time in a very long time. This past June, after thousands of man-hours wasted untangling botched accounting, the company caught up on its filings, issued a bullish view on the future and installed a new, talented management team, featuring two former top Cisco executives, Gary Daichendt, chief operating officer, and Gary Kunis, chief technology officer.

Or rather, a new management team was in place. Then, on June 10, Nortel CEO Bill Owens announced that he could no longer work with the two and that they were leaving the company–just three months after starting. Was it a personality conflict? A clash between the military culture embodied by Owens and the more informal, creative culture of the former Cisco employees? The company isn't talking. Putting the incident into context shows a disconnect between Owens' decision to hire Daichendt and subsequent strategic moves.

Daichendt was hired for his experience as the No. 2 person at Cisco, a company famously focused on network gear. His expertise would help Nortel negotiate the newly unfolding world of next-generation wireless networks, a sector in which the company has been late to market with key products. (Nortel recently lost out on a US$19 billion contract with British Telecom for new networking gear.)

But a month after hiring Daichendt, Owens, a former U.S. deputy secretary of defence, acquired government IT service provider firm PEC Solutions, signalling a wider focus than just next-generation networks. IT service provider is a different line of work than the one Daichendt signed up for, hardware, and may have been a factor in his departure.

All this leaves corporate strategy at Nortel less than clear. “The quick departure by Daichendt…raises a red flag around the company's strategic direction,” writes Morgan Stanley analyst Scott Coleman. UBS analyst Martin Cecchetto goes further. “We view this news as disruptive to the company, as it raises questions as to why the incompatibility of Owens and Daichendt was not evident through the hiring process.” For a company getting back on its feet, those are two outstanding questions.