Having worked at Nortel years ago, I was interested enough to read Tim Dempsey’s book, No Fear: Tales of a Change Agent, mainly for its alternative title, or Why I Couldn’t Fix Nortel Networks! I was hoping to get more insight into the causes of Nortel’s demise. Too many other accounts focus on Nortel’s final years when little could have been done to save the company. I was hoping for more insight into what went on in the final years of the tech bubble ending about the year 2000.
Unfortunately, the book only makes passing references to the excesses of that period when Nortel made a number of choices to please analysts and keep its stock rising. Nortel hired indiscriminately to meet growth expectations and describe itself as having “over 90,000 employees worldwide.” It also grew through numerous acquisitions. But likely the most damaging activity came from trying to meet revenue and profit expectations. Nortel built billions of dollars’ worth of telecom equipment and shipped it to “customers” who had little expectation of ever paying for it. This gave apparent immediate profits but ultimately led to enormous financial losses from which the company never recovered.
This book is primarily about Dempsey’s career in human resources at Nortel. He believes that Nortel’s “colossal collapse” came because he “was unable to effectively change the leadership system.” I doubt that a better management style would have saved the company. The top level of the company made conscious decisions to boost the stock in the short term to the detriment of Nortel’s long-term health.
In the Preface, Dempsey describes Nortel in September of 2000 as “soaring” with “$30 billion in sales.” Unfortunately, in later restatements, Nortel admitted to losing tens of billions of dollars in the early 2000s. All was not how it seemed before the bubble burst.
In discussing poor acquisitions, Dempsey explains that “an HR exec did some research on specific acquisitions that we made and discovered that we had never met the business case of a single one.” But I bet the stock price went up anyway.
At a Nortel executive leadership forum in 2000, “a long-term career Nortel employee ... gets up and expounds ‘The market’s not as big as marketing says it is; I don’t believe the numbers.’ ... he was no longer seen as a ‘team player.’” Sadly, being a team player in this case means helping to prop up the stock price by not pointing out obvious truths.
At one point Dempsey describes a conversation between a business unit CFO and a corporate executive. The CFO wanted approval for a “deal that would land a big order if we were willing to finance the whole package.” The word “finance” in this context is a euphemism for shipping equipment to a customer who would never pay and pretending the “deal” is profitable. Dempsey explains: “financing of deals led to a lot of pain. We need top line growth, so we find someone who is willing to take our money to buy our equipment, thereby driving up our forecasts and, at the time, our stock price. Many of these customers did not have established business models or track records, and some were never able to pay off these bills.”
At one point Dempsey refers to “accounting mishaps.” This is a very generous way to describe false financial statements. It may not be possible to prove anything about Nortel’s intent at the time, but it is naive to think that these were just inadvertent mistakes.
For anyone who has ever played buzzword bingo, one particular sentence in the book sticks out: “we led many projects, seeking numerous objectives, hopefully synergistically and reinforcing in a systemic way, to steer us to some tipping point that would make the change inevitable.” This sentence is a good reminder that the book is primarily a story of Dempsey’s career in HR and only small parts are directly related to Nortel’s business activities.
As the tech bubble inflated and the value of stock options held by executives grew astronomically, Nortel did what was necessary to keep its stock price rising. It hired recklessly, made acquisitions, and built billions of dollars’ worth of telecom equipment and sent it to “customers” who would never be able to pay for it. Dempsey thinks the problem was leadership style and other commentators think the important mistakes were made in Nortel’s later years. Why do we need to search for subtle problems within Nortel when its actions during the tech bubble were more than enough to destroy the company?