This whole Nortel schmozzle

If the frustration expressed by investors yesterday at Nortel Networks' combined 2004-2005 annual meeting carried a theme, it was a call for cultural change at Nortel--an evolution that's taking place in fits and starts.

When Bill Owens admitted to a crowd of shareholders that there are probably those who feel the 65-year-old CEO should retire, a few of them in the audience applauded. And several investors lashed out at the board for allowing its recently concluded accounting problems to escape its oversight. "We feel so totally abused in this whole schmozzle," one shareholder said, using an old Yiddish word for a messy, complicated business. "We can't conceive that a board of directors, who are supposedly superintelligent, could miss what went on."

The resignation of Nortel's newest executives--COO Gary Daichendt and CTO Gary Kunis--after only three months on the job was not just an embarrassment for Nortel. (At today's meeting, one shareholder said, "The reason given was 'diversion of management style.' All of you interviewed them. Did the question of their management style never come up?") It also calls into serious question where Nortel's cultural evolution is going, and to what extent it can be pointed in the right direction. Those two executives, who both hailed from Cisco, held the promise of rapidly changing Nortel's culture to that of an aggressive seller with a strong focus on the enterprise market. What does their incompatibility with Nortel say about the company?

Too often, the ossified corporate cultures of traditional telecom firms reject injections of new, innovative thought the way antibodies attack and defeat viruses. Nortel's rival, Lucent Technologies, ran into the same sort of wall trying to transform its culture in the bubble days to something more Cisco-esque, as author Lisa Endlich describes well here.

Nortel's problem is no longer one of a sheltered, entrenched management, but it's unknown to what extent the company can be rehabilitated by new leaders. If today's meeting is any guide, Nortel's shareholders appear anxious to take a more active role in its transformation, replacing outgoing board members with new blood and holding management's feet to the flame. If investors don't see results by the next annual meeting, the schmozzle's really going to hit the fan.

E-mail me at egubbins@primediabusiness.com.