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Just days after Nortel Networks (NYSE: NT) said it hired a former top-ranking executive at Motorola (NYSE: MOT) as its new CEO, hoping new blood at the top will help complete a lengthy turnaround, Motorola has sued to block the hiring and protect potential company secrets.
Nortel announced Monday that CEO Bill Owens, who has held that post since April of 2004, would be replaced by Mike Zafirovski, the former chief operating officer of Motorola. The move immediately boosted Nortel shares.
But with some three weeks to go before he takes the reins, Motorola sued, alleging that Zafirovski, who resigned from the president and chief operating officer roles at Motorola earlier this year, violated termination agreements by taking the Nortel post. Zafirovski, a former General Electric (NYSE: GE) executive, was in the running to take the top job at Motorola in 2003, but that job went instead to a former Sun Microsystems (Nasdaq: JAVA) executive.
Motorola is also arguing that Zafirovski will be in a position to reveal confidential information about Motorola to a key competitor in the market for telecom network gear. The suit, filed in suburban Chicago, where Motorola is based, seeks an injunction against the hiring and seeks to prohibit Zafirovski from hiring other Motorola employees to work at Nortel.
Motorola could not be reached for comment. Nortel referred to a statement it issued that said that both the company and CEO were "reviewing the lawsuit and intend to pursue discussions with Motorola with a view to resolving the dispute over Zafirovski's appointment." Nortel is not named directly in the suit.
High Marks
Within Nortel, Owens had overseen early attempts by Nortel to recover from accounting scandals and other missteps that forced it to re-state several years' worth of earnings and led to the dismissal of its former CEO and some 10 other members of upper management.
By many accounts, he had helped guide Nortel back to solid ground, with the company turning a profit last quarter. But more recently, some top executives had departed, citing differences with Owens' choice of direction for the company.
The hiring of Zafirovski won high marks from analysts and spurred Nortel's stock higher by some 7 percent.
Telecom analyst Jeff Kagan told the E-Commerce Times that the new CEO faces a tough task ahead, especially since Nortel lost key time in the competitive race while it dealt with its in-house issues.
"Nortel is a good company, with happy customers and good products," Kagan said. "However, as they have been tied up with financial issues and cutting executives, the rest of the telecom marketplace has been blazing a new trail. I believe they could remake the company, but there is a lot of work to do, and the telecom industry is a very different place then is was when they got tied up with all these issues several years ago."
In order to remain relevant, Nortel will need to move away from being simply a telephone gear company. "I think Nortel can transform itself, but that's the job of the CEO," Kagan added. "So, Zafirovski has his hands full. He is taking over a company that has been kicked in the knees and it's his job to get it back up and start fighting again."
Changing Landscape
While Motorola's main business is mobile phones, the two companies compete head-to-head in the gear space. And the technology within handsets often dictates what happens at the back end of telecom networks, analysts noted.
Nortel faces a number of new competitors and is trying to do a better job of entering growing international markets, where it has traditionally not performed as well as it has in North America and Europe. The new CEO must find a way to grow the business again, though most doubt Nortel will ever again reach its peaks of the late 1990s. Nortel once reported US$28 billion in annual revenue, a number that was below $10 billion in 2004.
Meanwhile, the dispute is just the latest in the field of so-called executive poaching. The most recent high-profile case involved two technology heavyweights, with Microsoft (Nasdaq: MSFT) suing Google (Nasdaq: GOOG) after it hired a former executive from the software giant. Legal experts say most suits end with confidential settlements that are designed to keep trade secrets from being spread.
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