A look inside the red ring

Lisa Endlich is the author of the revealing new book “Optical Illusions: Lucent and the Crash of Telecom.” Telephony's Ed Gubbins talked with her about the behind-the-scenes events that led to the collapse of the most widely held stock in America.

On missteps: In trying to change itself from its AT&T roots to a Cisco wannabe, they believed they'd changed more than they had. This wasn't necessarily a crowd of people dying to work on the cutting edge of telecom. They had a more conservative and slower-moving employee base than the companies they were trying to come up against. The second mistake was trying to run too fast. They bought 38 companies and hadn't integrated them, either culturally or within their accounting and product systems. There were duplicative products all over the place. The other mistake was pushing too hard. A year before they had to report poor earnings, management was telling [former CEO Rich] McGinn, “We can't do this.” They ended up stepping over the bounds of legality in a couple places and sold to customers who couldn't pay.

On Rich McGinn: You have to fault him, but you also have to fault his board. He went to his board in the summer of '99 and said, “Look how highly our company's valued and the trajectory we have to stay on.” They said, “Our research tells us this telecom boom has got two more years to run. Let's keep going.” McGinn's strength is his marketing, his ability to motivate people, his industry vision. His weakness is on the operational side. But he never brought in a strong COO. He wouldn't give Carly Fiorina the job, wouldn't raise her above the level of other senior execs because he thought the others would leave if he did. She left and they stayed, which wasn't very helpful. If you want to make the company a Cisco competitor, you need people who feel and work like that.

On Pat Russo: McGinn wanted to be the CEO of a different company than Lucent was, and he was going to make Lucent into that company. Russo wants to be CEO of the company that Lucent is. She has very realistic visions of what Lucent can achieve. She's extremely well-matched to the times. And ironically, she's made the changes that he didn't get around to making. Lucent will probably evolve to be more like McGinn's vision under her.

On why: It's important to learn about Lucent because the headlines are about the stock falling and the quarter-trillion dollars in losses, but the human costs go on for years and years: 125,000 people laid off, many in their late 40s, early 50s. Their savings and earnings have been devastated. Now Lucent is retracting much of their health insurance and death benefits. When you put this together, the cost is really quite devastating.

DOSSIER LISA ENDLICH

Occupation: Writer

Location: Westchester, N.Y.

Favorite Web site: www.nytimes.com

Device inventory: BlackBerry (“It's fair to say I've become a ‘crackberry addict.’ It's almost a constant companion.”)

Current reading: “The Adventure of English: The Biography of a Language” by Melvin Bragg

What's next: “Poking around for the next big business story that represents our time. Something undiscovered.”