Rich McGinn, Lucent


The rise and fall of Lucent Technologies has been chronicled to an almost remarkable degree in the press, in business case studies, and in academic papers. How could a company that had some of Ma Bell's greatest assets—including its equipment manufacturing division and the venerated Bell Labs—that  in 1996 filed what was then the largest IPO in U.S. history, and that generated huge stock gains for its investors, fall so far just four years after its spinoff from AT&T?

Rich McGinn, Lucent

McGinn (Image source: BBC)

Most look to Rich McGinn as the culprit, although he was only one of the executives who helmed Lucent from its auspicious start to its ultimate sale to Alcatel in 2006.

McGinn was appointed CEO of Lucent in 1997, succeeding Henry Schacht, who had managed the manufacturer's spinoff and for whom McGinn had worked as COO. McGinn took the company onto an acquisition track, grabbing up CLECs and equipment manufacturers at almost every opportunity, while driving his managers to meet what some have since deemed unrealistic sales goals.

"Lucent caught the telecom boom just right, riding it to $258 billion in market value. By 2000, Lucent had more shareholders, 5.3 million, than any company around," Fortune (now CNN Money) reported in 2003.

The new management style didn't sit well with employees and didn't have the effect hoped for. Added to that were costly missteps in some market segments—for example, a paper published in Business and Economic History in 2011 by William Lazonik and Edward March, "The Rise and Demise of Lucent Technologies" (.pdf), argues that Lucent's decision to focus on ATM-based products to compete with Cisco's IP-based products was "a huge error in judgment."

Earnings results began to fall off of estimates, and ultimately McGinn was fired in October 2000. He collected $12.5 million in severance pay, an amount that would be even more troubling two months later, in December 2000, when Lucent reported that it had overstated its revenues for that quarter by nearly $700 million.

In later studies of what happened at Lucent, it's clear that the company had been taking creative liberties with its earnings statements for some time. "To give its stock price a boost, as the telecommunications equipment market continued to weaken, Lucent padded its earnings by engaging in creative accounting such as channel stuffing and excessive vendor financing of next-generation service providers," Lazonik and March wrote. A number of poorly thought-out acquisitions further weakened the company prior to McGinn's exit. "By weakening the financial condition of the company, even before the Internet bust of 2001 and 2002, these decisions had long-term consequences for Lucent's ability to compete."

Despite whistleblower reports, investigations and plenty of questions from shareholders watching their stocks nosedive, McGinn walked away from Lucent's collapse pretty much scot-free.

"McGinn's escape raises real questions about the nature of guilt in these affairs. By a definition that could rationally be plugged into every corporate dictionary, McGinn did do wrong--by demanding too much. In 2000 he pushed his managers for results they could not deliver--not, apparently, without some crossing a legal line," the Fortune article said.

McGinn moved from Lucent a role as senior adviser at RRE Ventures. Since then he's been largely out of the telecom industry spotlight, except as yet another cautionary tale from the dot-com bust.