Nortel's Bankruptcy: Are Boards Too Patient With Turnarounds?

Last Updated Jan 15, 2009 12:53 PM EST

nortel-restructuring.jpgCentury-old Nortel Networks, once a networking behemoth with a whopping market cap of over $300 billion, has filed for Chapter 11 bankruptcy protection.

Nortel never recovered from the dot-com bust. The aftermath included a devastating accounting scandal that resulted in the firing of CEO Frank Dunn and the departure of ten executives and five directors.

While the bankruptcy wasn't entirely unexpected, the board's continued patience with CEO Mike Zafirovski is surprising. Back in November, in How Do These CEOs Keep Their Jobs? I wrote:

Mike Zafirovski, Nortel
The man credited with remaking Moto's handset business appears to be ineffective at Nortel. Since taking over in November of 2005, operating performance has shown little improvement and the stock is down over 95%.
Jerry Yang -- replaced at the helm of Yahoo by Carol Bartz just yesterday -- was also on that list.

In all fairness, Zafirovski did make several attempts at restructuring the troubled company, but this was a tough gig for any CEO. Still, I think boards of directors are overly patient with turnarounds, and Nortel's board has been guilty of this accusation more than once.

I think insiders should know within one year, if not sooner, whether a planned turnaround is effective or not. Of course, a complete turnaround might take longer, but boards and executives should be able to read the tea leaves fairly rapidly. In any case, it shouldn't take three years to make a determination.

What am I missing here?

Now, Nortel investors, creditors, and employees will pay the price. Unfortunately, this sort of thing happens all too often -- and 2009 is expected to be a banner year for corporate bankruptcies.

(Image courtesy of Nortel Networks)