A Look Inside a Modern Telecommunications Company
by Peter Pfeiffer
December 15, 2003
Personal
Reflections Appendix
Friends and editors have said that the story suffers if I express my personal involvement, but for others, it doesn’t really come to life without it.
One of the many sidebars of this story is the reaction of other people involved or otherwise affected by it. These include Nextel employees, ex-employees, stockholders, stock brokers and the millions of others who work for big companies like Nextel or invest in them. Most of those closest seem to run from it, at least initially. A lot of the others, the Silent Minority, understand it and wish they could rebel with armies and tanks.
I am okay with attaching myself to it because it is like the lesson we learn in grade school, that you should raise your hand and ask because there are probably others who also don’t know. I have been fortunate to have the time and energy to consider this and write it down. That covers one aggrieved class. The much larger one is of course the many investors who hold shares, either directly or through mutual-type funds, in Nextel or companies like Nextel. I am optimistic that not all companies are run this way and even those that are can change.
Another comment about sidebars… I considered various other titles when incorrectly thinking that a new title would somehow contribute to a newer, better story. One phase/title I went through was The Neurotic Corporation of Our Time. This reflected my thinking that some companies—organizations that provide jobs, tax money, products and services, etc.—have lost their true purpose in being. Another title is Stockholder Information in the Information Age because that is what it is really about. And it heightens the depth of the tragic fall to consider Nextel as a posterchild of the tech boom and information age.
The following are portions of the Nextel story that were previously removed or are considered inappropriate for a news article.
* * * * *
I worked for headquarters
marketing based in Reston, Virginia but lived in Colorado and had my office in
Denver. I traveled so much,
spending a good deal of time in Reston anyway, that this arrangement worked.
I had been there almost five years and was good at my job of marketing
research manager: I had direct
reports, responsibility for a large budget, and a certain amount of influence;
years of traveling, talking to employees, and listening to customers had made me
relatively senior in the cellular world. I
thought I knew and understood the company extremely well.
The circumstances of my
leaving were mutual. In the Spring
of 2001 I went on what the company called “personal leave” for a five-month
period; I called it a self-requested sabbatical. The company had almost
2,000 employees in Colorado and I assumed that when I did come back, should a
change be appropriate, there were other options.
Shortly after I went on my extended vacation, however, I was laid-off in the
first of what would prove to be many of the company’s downsizing
efforts. The
company needed numbers and I was an easy one, having already taken one step out
the door of my own volition. This
was fine by me; it was just a different spin on the same arrangement, and they
would pay me to leave.
I have nothing whatsoever
against the people that I worked with and I thought I left on good terms.
About that time I remember one small incident most of all. Big companies today have many written personnel rules and my arrangement was covered specifically by them. The primary source for these rules was the employee-only website; of course they were also printed, but published versions were not really used and they could not be counted on to be the most current . My boss, my boss’s boss, and I all had to sign the same form agreeing to the type of leave I was to take. For this particular kind there was a provision saying that if while away one’s position is eliminated that person has a certain amount of time, I think it was 30 days, upon returning to find another job. When my boss and his boss called me on my cellular phone to tell me I was to become an ex-employee, I remember thinking about this and saying that I would like to try and keep my options open for other jobs in Denver when I return; they said no, it was immediate, and I would remain an employee for only one more week. I checked the website and a newer version of the procedures had been posted, and this one did not say anything about this particular issue. I searched everywhere but couldn’t find a hardcopy version, eventually considering it not worth the effort and to just move on. Had this 30-day provision been applied it may have been in lieu of severance, but then one remains an employee and is still paid for 30 days? I don’t know, it never came up because I let it go and accepted things as they were presented.
* * * * *
In May of 2002 I looked at
the situation the best I could at the time.
My stock options were going to expire at the end of the month.
I searched the web, studied Nextel’s competitors, and thoroughly
reviewed the materials that Nextel sent to stockholders.
I compared Nextel operational data to that of its competitors.
Based as much on my personal experience as the information I could find
at the time, I wrote a loud, angry letter to the Board of Directors.
I raged mostly against marketing and operational problems, which were the
aspects of the business I was most familiar with.
I specifically asked the board if, given events, they would hold
ex-employees to the agreed-upon stock option expiration dates.
Here is one paragraph from that letter.
Tim Donohue seems to be operating in his own little world. Almost $3 billion in losses, $15 billion in debt, and thousands of stockholders losing billions of dollars are the “best financial results ever”? How many members of the Nextel Board of Directors and senior management have experience running profitable wireless companies? The skills needed to launch Nextel six years ago are clearly not the same ones needed to run it profitably today. In my reading of the 2001 financial results I do not see any references to stockholders as the primary, or only, key constituency. As a stockholder I have never received a legitimate explanation for the horrific, money-losing performance. (If I were the CEO I would seriously consider sending monthly letters to shareholders, at my own expense, explaining the situation and describing immediate fixes.) It is inconceivable to me that that an organization can operate in an industry that has grown almost five-fold in the last six years, can create almost $8 billion in revenue, yet not produce a dime of shareholder value. I have seen firsthand that it could, and should, be different, and a brief analysis of other major wireless carriers’ financial results confirms this. Why doesn’t the Nextel Board of Directors insist on accountability, and now, major changes?
As confirmation of my lack
of understanding, Nextel announced its first quarterly profit just six weeks
later, due mostly, perhaps, to some quick fixes by a new, and since departed,
chief operating officer.
Only during February of 2003
when I spent weeks putting together a chronology of events did I finally realize
what had happened. In January, 2002, at
the same time NII Holdings was missing its first debt payments and within
announcements of large Nextel customer care and IT contracts, the company
announced layoffs basically shutting down its Denver operations.
This was known in May of 2001 when I was fired.
It was all part of a longer-term plan.
So I didn’t understand
when I left. And over the course of
the following year, as I sold my Nextel stock and sought to redeem my stock
options, I learned that I knew even less. The
book How Companies Lie helped me appreciate the fact that with few
exceptions employees are not in the know; in fact, they are insulation for those
who are. In the Spring of 2001,
before I left, I had about $80,000 in shares and $70,000 in options; one year
later, when the options expired, the stock was worth about $12,000 and the
options were worthless. During this
period I followed Nextel closely and still lost about 75% of my investments in
the company. I was a stockholder,
former employee, and a very knowledgeable industry insider, yet I was completely
deceived. How did this happen?
Was it my own fault? Wasn’t
I on top of the situation?
I never received a reply to
my letter despite some communications with Paul Blaylock at Nextel Investor
Relations. I wrote again, several
months later asking for one, and still received no response.
In an odd twist, speaking with a former colleague in the Fall of 2002, I
learned that while he said he had not read it, he was aware of the letter’s
distribution within the company.
I had already
lost—irretrievably—about half my Nextel assets in the form of my stock
options and I was in serious need of understanding the situation and protecting
my other shares. I had been an
investor for about fifteen years and I never had this kind of a problem.
I didn’t expect any investment to always go up or stay up, but I
thought I could at least control, or average out, my losses if I knew what was
going on. I still had a few
thousand Nextel shares and I was looking for guidance.
I had written to mutual fund managers before and received useful replies.
And I remembered having fairly frequently received ad hoc letters
informing me about short- and long- term conditions, reasons for drops, remedies
being instituted, etc. With Nextel
I was in the dark; the company was saying almost nothing and what I did learn
always seemed positive. This was a
company and industry that I was fond of, one that I knew intimately, and one
that I followed closely.
Those of us terminated in
May, 2001, some 850 employees or 5% of the workforce at that time, received one
full year—described as a one-time extension of the normally 30-day period—to
redeem vested stock options. If I
had been forced to sell within 30 days I would have reaped a huge windfall. During
this year the Nextel stock price fell fairly consistently, reaching its all-time
lows at the end of the first half of 2002.
In reconstructing the timing of events in 2001 and 2002 it is logical to
assume that this could have been predicted; it was during the period of problems
with NII but before the announcement of Nextel’s first-ever profitable
quarter. It is difficult for a
stockholder to sell a stock as it is going down, especially when the company is
saying such positive things and its immediate prospects seem so rosy. I believe that the cost savings and/or lack of stock dilution
caused by this timing was planned. If
stock option expirations for the approximately 7,000-7,500 Nextel employees
laid-off during this period are examined a
pattern will almost certainly be evident.
Other things relating to my
investigation at that time also bothered me.
Why was Nextel saying so little about the situation with NII and why was
it so drawn out; on the one hand they said there would be a write-down of assets
but they also continued to report better than 100% international growth.
NII missed its first debt payments at the very beginning of 2002.
Certainly this must have been brewing in 2001, but not a word was
said. Nextel didn’t say anything definitive until May of 2002 and these disclosures
and comments were extraordinarily brief. Why
wasn’t anyone taking responsibility and explaining the situation?
Why was the bankruptcy filing done late in the day on the Friday before
Memorial Day weekend? And why was the company claiming “record” financial
results when its losses had nearly tripled from the previous year, debt had
risen by over $2.6 billion, its stock was under $5 (from a high of over $80),
and some 7,000 employees, or a third of its workforce, had been dismissed?
What were they trying to hide, and why?
I remember speaking at the
time with the person responsible for the Nextel stock option brokerage account.
He told me most people just don’t know what to think and that they have
basically given up because the situation was just too sad and too hopeless.
A few months ago, with the
benefit of new information, hindsight, and the continued economic and
stock market collapse, I looked again. Nextel
stock had always been prone to quick movements and wide daily swings (it was known to be
a favorite among day traders) and these fluctuations had to be a result of some
stimulus, some information that I had missed.
This time I pasted together a chronology.
I reviewed all the company’s statements, press releases, shareholder
communications, stock trades by officers and directors, and all press
coverage of the company. I
couldn’t help but think in terms of the current times:
we are now some three years into economic doldrums and the lack of
“investor confidence” is usually cited as a factor. What was causing
this lack of confidence?
I didn’t miss anything in
the first half of 2002 because there wasn’t anything to miss.
Certainly there were no direct communications with stockholders detailing
the company’s status and prospects. There
also were no pertinent press releases or major media stories in the beginning of
2002. Nextel began to report just
domestic results and directed its “spin machine” elsewhere:
giant outsourcing contracts (creating an impression of stability), new
technology, and deals or joint ventures. Nextel
issued no helpful or informative press releases. There was nothing for the major media to pick up on, hard questions
were not asked, and the story behind the sinking stock was never told.
Information on NII was
particularly misleading. NII
Holdings, Inc., formerly known as Nextel International, was a wholly-owned
subsidiary whose properties showed tremendous potential.
Developing countries were attractive wireless markets in large part due
to strong demand and poor landlines. And
unlike any I had seen before (I had previously worked for US West Cellular and
US West International, now Qwest), for its foreign networks, Nextel had majority
ownership and use of and promulgation of the Nextel brand.
Personally, I had worked for Nextel in several Latin countries and was
impressed by the relative ease of exporting known, successful
business-to-business marketing strategies.
Nextel’s South American properties appeared to be at or near an
especially attractive point for wireless companies—when they are growing
rapidly but are not yet so large that they are hurt by large numbers of
departing customers. Nextel has yet
to fully explain how or why it lost ownership control of these properties.
This time in my research I
discovered all kinds of clues, some of which I have yet to piece together.
I found Nextel ties to the PR industry, apparent sweetheart deals with XO
Communications, and huge “planned sale” announcements by Craig McCaw
entities, yet purchases by Mr. McCaw in the Summer of 2002.
I found the massive employment contract awarded to Paul Saleh, the
details of Jim Mooney’s hiring of ex-IBM executives and awarding contracts to
IBM, pages of offshore Nextel subsidiaries, and more.
There is much, much more information about this scandal yet to be uncovered.
*
*
*
*
*
Now I understood what Nextel
Chairman William E. Conway, Jr. meant in a May, 2002 Washington Post
article when he said that a reason behind the lack of forthrightness on NII was
fear of shareholder lawsuits. Ever
see the movie Class Action, with Gene Hackman and Mary Elizabeth
Mastrantonio, about lawyers and corporate executives planning and calculating
how to do things wrong? Nextel
seems to be trying to explain insider profiteering as benefiting the company.
It is odd that large
companies spend millions of dollars on marketing communications and customer
research—gauging satisfaction, testing ads, developing new products,
etc.—but improving communication with shareholders is virtually nonexistent. For
Nextel the process was more deception than communication.
It seems to have been planned, even played out over a period of years, in
a well-orchestrated public, stockholder, and investment community public
relations campaign. Is that the
modus operandi when your company value is predicated on stock speculation rather
than any particular business (i.e., profit) success?
*
*
*
*
*
One
of my favorite “soundbites” about working at Nextel, and it is also a
metaphor to me of corporate life more generally, is the reliance in the
marketing department on Powerpoint “decks.”
Some people would, literally, dedicate a year of their life to just one.
They could be on subjects as arcane as trade group user networks, moving
customers with older, less network-capable phones to newer models, or a new plan
for repair exchanges. They went
from plan to program and were distributed everywhere through e-mail and stored
in online corporate repositories. You
could spend a week working on one—and you were paid $100,000 a year to do
it—for a thirty minute presentation or meeting.
Mistakes and oversights did not happen because everything was documented
and discussed ad naseum.
This
is part of what makes me believe that events described here, events which in my
mind ultimately led to full-fledged stock swindles, did not happen by accident.
These people work hard and pay attention to the details. The
stockholder and public communications are too perfect, too consistent to be
random. The whole company operates
on Powerpoint decks and I believe this was just another one.
When I was hustled out the door in May, 2001, called on my cellular phone
and given one week, I think that was already the first part of the ultimate plan
for Denver customer care operations to begin to be shut down in
January, 2002.
The difference with this
deck, the strategic/information plan, is of course its distribution.
Only the “insiders” see it. And
it becomes really scary when you superimpose insider stock trading on it.
If you take away the insider
trading what we really have here is what I would characterize as a lack of
honesty and disclosure. Arrogance,
if you will. Then, it turned into
something sort of one notch beyond that, call it “deceit,” when an
event—Nextel international—happened to exasperate it.
The situation bears similarities to Watergate, where a corrupt and
paranoid administration was revealed, and its downfall the result of, one event
in particular. Executives sought to
delay, not disclose, not explain, and still not assure investors that
there wasn’t more to come, the situation with Nextel international.
It was finally disclosed by the necessity to release financial
statements; by then, although it is something top executives managed and were
responsible for, it could be characterized as something external, something that
just happened, something that “others” did.
By the time the situation was finally acknowledged the stock hit rock
bottom at around $3. By then, billions in equity and possibly thousands in
stockholders, had been wiped out..
At the very least, investors
suffered and insiders benefited from control over timing.
Insiders benefited by timing their trades.
Others, like me, had no way of knowing what was happening so I just sold,
quite a bit when it first turned around, and sort of dollar cost averaging out
since then. I cannot trust this
management team so my only solution was to get out.
Several hundred thousand dollars worth of options were worthless; after
all, they had dates associated with them and some degree of timing was
essential. How many people would
sell a stock going steadily down when the company is saying only positive
things?
*
* *
*
*
It is difficult to challenge. Individuals in business organizations are by their very nature self-preserving and self-promoting, and the need to perpetuate, expand, cover-up, and reinvent these wrongs makes it that much more difficult to stand up to and change. It becomes a mindset and a way of life, but only to a small extent have these evils permeated the entire company. The misguided leaders are the only ones with the power to create and sustain them. These top culprits are particularly well armored and self-aggrandizing, as they have molded the organization, at least in part, for these purposes. They live in their own isolated world of boardrooms, lawyers, accountants, submissive underlings, and enormous, undeserved perks. They have the resources and they will fight. That is what they have spent their entire careers doing.
There are so many of these stories that it is hard to make them interesting, and sometimes, even palatable. Greed isn’t exactly a newsflash, and while it may not be over money at all, we are all greedy in our own ways. Probably with time this will change in that historians, writers, performers, and others will put the period and its characters into their proper context. Funny that the period from the mid-‘90’s to the beginning of the 21st century—an amazing time of boom and man-made bust—has attracted so little attention from mass entertainment media such as movies. No one has been able to dramatize the events. People will figure out a way to bring the era to life in an entertaining way.
I would like to write the definitive technology boom novel or screenplay, but first things first. The situation is getting better due to micro, reactionary efforts such as law enforcement, media exposés, bankruptcies, etc. This is another one of those.
Sometimes it is difficult to pay attention to the details. How Companies Lie was difficult, if not painful to read, but it was worth it. People don’t want to read that their system is totally screwed-up and filled with greed. It is so established that it is almost uncontestable. Maybe it is avoidance due to a situation so pervasive and so ingrained in our system that it includes politicians, advertising, stock investing, and the dream of starting at the bottom and rising to the top of a large corporation. For others maybe the lack of interest is because of the unwanted and undeserved tendency to consider it sour grapes, jealousy, or revenge; after all, some of us know what it is like to be close to the inner circle. It is not a fun subject to write about or even to read. I would like to write a book about barbeque in the South; now that would be fun. This isn’t fun. This is tedious and vengeful. It is soothing to pretend that it isn’t there.
CURRENTLY SEEKING PERMISSION TO ATTACH THE 5/12/02 WASHINGTON POST/PEARLSTEIN ARTICLE,
EITHER FULL TEXT OR LINK, HERE
© 2003, 2004 Peter C. Pfeiffer
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