Eye on the Carriers By Johna Till Johnson, Network World, 08/14/06

You've no doubt heard about the investigations into alleged abuse of stock options at a slew of tech firms (82 so far and counting). Anyone who's lived through the WorldCom, Global Crossing and Enron scandals is justifiably concerned about what happens next - particularly because a considerable number of firms under suspicion or rechecking their own books are in the network industry: Brocade, Mercury Interactive (recently sold to HP), Verisign, Comverse, Blue Coat, Equinix, Redback, RSA Security, Foundry Networks, Sonus, Broadcom and Juniper.

These firms are under suspicion for allegedly backdating the share price for stock-option grants to key employees, thereby increasing the value of those stocks. Much of the alleged misbehavior is said to have occurred during the go-go years of the late 1990s, when Silicon Valley companies scattered stock options like confetti.

The market has punished these companies; virtually all have seen steep declines in their stock prices. But the practical fallout is just beginning: the CEO and CFO of Brocade resigned last year after an internal audit uncovered suspicious stock-option accounting. The former CEO is facing criminal and civil charges (the former CFO is facing civil, but so far not criminal, charges). Similarly, after a federal subpoena in May, the CEO and two senior executives of voice mail manufacturer Comverse quit. And finally, the recent sale of Mercury Interactive to HP may have been accelerated by the liabilities faced by Mercury's senior management.

What's an IT manager need to do? Bottom line: Stay tuned - closely. Just because a firm is undergoing investigation doesn't mean it will experience a merger or management shuffle, but it's good to keep an eye on how companies are handling the scandal. If you're in the midst of a procurement cycle, you may want to have one of your teams track breaking scandal news, because management instability or potential mergers could affect vendor viability. Not that it necessarily has to: A wellorganized company can withstand such transitions. But a poorly run company - or one that makes the mistake of engaging in a cover-up - could be in for disaster.

If you're an executive at any of the aforementioned firms, keep in mind that honesty is the best policy. If you've screwed up, say so and pay up - it's a lot less expensive than a class-action suit. In fact, here's a free piece of public relations advice. The fundamental axiom of crisis management is to follow the triple-A policy: Acknowledge there's a problem, apologize for whatever you've done to create it and act - or present your plan of action - to fix things. Throughout the process, communicate regularly with your employees, prospects, customers and shareholders.

The last big firm that ignored this advice was named Enron.