Carly Fiorina's troubling telecom past

[Oct 2010] Carly Fiorina's had a three-year run as a top executive at Lucent Technologies. Lucent reported a stream of great results beginning in 1996, after Fiorina, who had been a vice-president at AT&T, helped oversee the company’s spin-off from Ma Bell. By the time she left to run HP in 1999 revenues were up 58 percent, to $38 billion. Net income went from a small loss to $4.8 billion profit. Giddy investors bid up Lucent’s stock 10-fold. And unlike HP, where Fiorina instituted large layoffs -- a fact Sen Barbara Boxer (D-CA) loves to mention whenever possible -- Lucent added 22,000 jobs during Fiorina’s tenure. Dig under the surface, however, and the story grows more complicated and less flattering.

The Lucent that Fiorina walked away from, taking with her $65 million in performance-linked pay, was not at all what it appeared. Nor were several of her division’s biggest sales, including the giant PathNet deal. Whatever the exact extent of Fiorina’s role, Lucent was soon sucked in deep, making big loans to sketchy customers. In an SEC document filed just after Fiorina’s departure, the company revealed that it had $7 billion in loan commitments to customers -- many of them financially unstable start-ups building all manner of new networks -- of which Lucent had dispensed $1.6 billion. Such vendor financing deals would have much the same impact on the telecommunications industry that sub-prime mortgages eventually had on the housing industry. In both cases public companies extended loans to customers who were gambling that the good times would keep rolling (and who were especially glad to make those bets with the lenders’ money). In both cases the loans helped puff up lenders’ short-term financial results and stock prices. In both cases the market inevitably turned and the pile of debt collapsed. (PathNet, after taking on another slug of vendor debt from Nortel, filed for bankruptcy protection in 2001 as the industry collapsed.)