Lucent Replaces CEO Richard McGinn

September 21, 2000 by Jeff Shepard

Lucent Technologies (Murray Hill, NJ) named Henry Schacht as the company's new chairman and CEO, replacing Richard McGinn. In a formal statement over the weekend, Lucent's board of directors thanked McGinn for his term as CEO, but was adamant that "an immediate change in leadership was necessary." Representing the board, Franklin Thomas, Lucent's senior director, maintained that "this was a difficult decision made after considerable deliberation. However, the board felt a different set of skills was required at this point in the company's life." Lucent then proceeded to replace McGinn with his predecessor, Henry Schacht.

During McGinn's first few successful years as Lucent's CEO, shares rose 180 percent. He made 11 critical acquisitions in 1998 alone, including seven in data networking. By 1999, McGinn had been named one of the top 25 executives in the US by Business Week. On the more pecuniary side of things, he was granted a $12.0 million cash bonus by Lucent's board of directors.

However, Lucent was slow to venture into the fiber-optics market. The company continued to earn approximately 85 percent of its revenues from traditional telephone-switch networks, an area that is rapidly becoming outdated. As a result, Lucent's stock, which began this year at about $80 per share, plummeted 74 percent and by mid-October was sitting at $21.50 a share. Three earning warnings had to be issued earlier this year, and a fourth was issued today.

With things looking so bleak, McGinn's dismissal is regarded as no great surprise. Rumors of McGinn's replacement had been circulating for months, and some analysts are calling the decision to fire McGinn long overdue. Chase, Hambrecht and Quist analyst Michael Neiberg stated, "I think everybody's been waiting for Lucent to acknowledge they need a change."

Schacht, 66, had held McGinn's post from 1995, when Lucent first spun off from AT&T, until 1997, when he ceded that role to McGinn. He returns now after stepping down from his position as chairman of the Lucent subsidiary, Avaya, which he acquired only last March. He will continue as a member of Avaya's board of directors, but is resigning immediately from his role as chairman.

Schacht served as chairman and CEO of Cummins Energy, spending 31 years with the company before being named chairman and CEO of Lucent Technologies. He currently serves on the board of directors of Johnson and Johnson Corporation, the Chase Manhattan Corporation and Chase Manhattan Bank, the New York Times Company, Knoll Inc., and Alcoa Inc.