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By brians, June 24, 2009 1:26 am

Last week Nortel finally pulled the plug on the company and is breaking it up and selling off the assets, likely for less than the value of the debts, leaving many creditors with no collateral. The board has failed Canadian shareholders and should take the blame.

During my time at SeaBoard Group, I spend time with many executives from many companies in the telecom equipment industry, including competitors Avaya, Siemens, Ericsson, Nokia as well as with a few Nortel executives. All my meetings with Nortel always seemed to focus on product details, rather than corporate strategy. It was puzzling, and frustrating. Many of my colleagues at the time agreed, because in order to understand where a technology company is going with products, you need to understand the strategy. It was my feeling at the time, and further confirmed this week, that they had none – a least none defined.

But is this the fault of the many CEOs that passed through the door of the company in the last number of years? In my perspective each of them actually did their jobs quite successfully, but their jobs (and the corporate strategy) weren’t defined and compensated for success of the company and it’s shareholders. As both Mark Evans, and the Ottawa Citizen’s James Bagnall suggest, the board didn’t do their job. I’d go further and say that the board, in fact, again and again failed the company immensly. They set the wrong targets for the executives, and then either blamed them for doing what they told them to do, or thwarted attempts to execute required changes.

Let’s look as some quick examples:

• John Roth – Hired and compensated to grow the company by acquisition (read Bubble and the Bear for specifics on this one) – Mission Accomplished
• Frank Dunn – Hired and compensated to steady the ship and bring accounting into order. – Mission partially accomplished.
• Bill Owens – Board Member who seemed to take over in the crunch when they couldn’t find anyone else. No Mission at all.
• Gary Daichendt – Hired to streamline and focus the company – Mission thwarted by board
• Mike Zafirovski – Hired to ‘turn the company around’ – Mission thwarted, we suspect, by board.

While the media and the shareholders often heaped scorn on the executives, the role of the board was often forgotten. They were the people hiring the executives they then burned later. The board’s job (and it’s a serious job, not a status role) is to hire the best executives to operate the company in the best interest of shareholders. They also should set the compensation for the executives such that as the company succeeds in the defined strategy, (the reason they hired the executive), the executive succeeds and gets paid. In each case the executives walked off paid well, but the company failed. That is the fault of the board, not the CEO who did his job as requested.

The board has been, and to some extent still is, made up with a group of executives and former government employees who knew little about the dynamics of the industry, and far less about entrepreurship. Almost none of them had ever started or grown a company from the ground up. Most were ‘big company’ or ‘big government’ guys from places like Bell Canada, CN, GE, or the US Military.

The world of technology is one where companies in this business have to constantly reinvent themselves. During my career at SeaBoard, I saw competitor Ericsson start from being a major handset manufacturer, move to become an equipment provider, and then build a solid business in carrier services – actually managing wireless networks – leaving the operators only to market their services. A dramatic restructure within a short period of time. This is called Entrepreneurship – reinventing the status quo – not trying to hold the status quo, a trait of big company executives.

So if blame should be heaped for investors losing money on Nortel, and there probably isn’t a Canadian who hasn’t lost money on this company, don’t go pointing fingers at the executives. Examine the board of directors list over the years and wag a finger at them (or file a lawsuit). They are the ones to blame.

Update: Mark Evans reports on a recent Fiancial Post article where Manley, one of the directors, talks about the decline of Nortel. I agree with Mark, his quote is appalling. It’s like he’s talking about a 3rd party tragedy, when instead he was a direct party to the death of the company.