General Motors and Merck Board Member Patricia Russo On Directorship In An Era Of Disruption

The telecom crash hit early in your tenure at Lucent. How did you respond?

When I took the job—I joined on the first day of January of 2002—the expectation was that the market would decline about 5 percent. As it turned out, the market declined almost, in our case, 50 percent. So what started out as a $19 billion revenue plan ended up in one year to be $12 billion. And, I will tell you, our cost structure was set up for $19 billion. So, as you can imagine, revenue was dropping like a rock. All of this happened in my first four or five months. It was stunning.

At the same time, we were going through this Internet crash… if I remember correctly, $1.3 trillion of value was lost with this collapse in the telecommunications arena. So it was dramatic, and it was significant. We immediately had to jump into action to save the company. We ended up having to do two convertible equity raises in order not to run out of cash. I had three different firms privately come in to suggest to me that our only option was to file for Chapter 11.

Our stock price dropped from about $7 when I joined to, by the second or third quarter, 57 cents. We were at risk of being delisted. We had 95,000 retirees and 125,000 additional dependents, and our pension plans, as you might imagine, were under tremendous funding pressure. And we had an SEC investigation we had to deal with, plus a couple of shareholder lawsuits. So we were busy. But we got into action. We formed a plan. We realized early on that being perfect was the enemy of the good. Our mindset became one of survival. We had to make very tough decisions very quickly and execute them.

Along with everything you have to do from a management standpoint—decisions, actions and execution of plans—there was a whole other track of board interaction, engagement, making sure the board was aligned, making sure the senior team was aligned, having a communications plan with your employee base that kept people’s heads in the game and kept people from panicking, having a communications plan with the investment community.

We focused on the things we could control. We can’t control revenue right now. We can control costs. So we chipped away at our breakeven point. Actually, we hacked away at our cost structure because time was not on our side.

When you look back at that whole series of events, do you feel that you moved fast enough?

I have to say, I can’t look back and say as it related to getting costs out of the business that we didn’t move as quickly as we could. We reduced our force level by just about half in the course of two years. It was massive. I’m sure everybody always says, “Gee, I could have done things faster,” but we were really, literally, in survival mode.

That doesn’t mean I wouldn’t do some things differently. It doesn’t mean I wouldn’t make some different choices around some of our product decisions. But in terms of pace, fear is an incredible motivator. And the fear at that point in time was that we were going to run out of money and the company wasn’t going to make it. That was what we were focused on avoiding. And fortunately, we successfully did, got the business to profitability, got some top-line growth going and concluded that, as a result of all the damage done to the industry, the structure was no longer viable. There were way too many players, customers had been consolidating, the industry needed to be restructured, and we started that process with our merger with Alcatel.

You rattled off 10 different important stakeholders coming at you. How should companies going through that type of scenario prioritize?

It was critically important as we were going through these changes that we kept our customers with us. Large customers like A&T and Verizon wanted to make sure that we would continue to be around because the investments that they make in their network infrastructure are long-term investments. So it was critically important that we assure our largest customers that the worst thing they could do was stop buying from us, and the best thing they could do was to continue to be supportive of us. We had an interdependency, and I spent a fair amount of time on the customer front.