Greg Enright: Enterasys begins credibility climb

Perhaps Enterasys Networks should have seen a bad thing coming when they enlisted the services of a headhunting firm called Heindrick and Struggles.

Earlier this year, the executive search outfit was charged with finding a new head for the company’s Asia-Pacific region, and it seemed they had their man in early February: former Cisco Systems Asia vice-president Gary Jackson. Such a hiring would have been yet another solid step for Enterasys since no-nonsense CEO Henry Fiallo was hired in February, 2000. It would have helped to send the message that, “Hey, we are not sitting tight, hoping for our three per cent of the market, content to live in Cisco’s shadow; we’re going for their jugular by hiring their people.”

And then all hell broke loose, and life for Enterasys has been nothing but a struggle since.

It started with some wonky accounting practices in the Asia-Pacific region, where two renderings of a US$4 million contract were drawn up for a sale, one for common viewing and another for regulators. That has led to a U.S. Securities and Exchange Commission investigation, which led to a delay in reporting fourth quarter 2001 and fiscal 2001 financial results. Before long, Fiallo, the company’s COO and its marketing chief had resigned, and one-third of its workforce had been slashed.

Even if Enterasys comes through the SEC investigation unscathed financially, a far worse kind of damage has already been done: a credibility blow. Gaining it is akin to climbing a mountain, achieved only after a long number of steady, impressive steps have been taken. With the hiring of Fiallo, with an apparently healthy mix of new products and effective marketing, and with a new image of confident humility that was divorced from the “Bad Boys of Networking” Cabletron days, Enterasys was taking those steps. Within a few short weeks, however, the company has tumbled back to the rubble-strewn mountain’s foot, where resides customer skepticism and trepidation. They’ll have to work harder than ever to start climbing again.

While there’s little place in the business world for sympathy, it’s hard not to feel a little disappointed for a company that appeared to be making some sense in an industry where so many others were behaving nonsensically. If the positive philosophy that appeared to be defining Enterasys somehow remains intact, the company will have a shot at turning things around.

The first step will be to find a new leader. With its penchant for wooing ex-Cisco people (look not further than Paul Zink, head of the Canadian arm and a nine-year Cisco vet), it wouldn’t be surprising if Enterasys is talking to some more John Chambers disciples.

And perhaps this time, for good luck, they’ll hire a headhunting firm that owns a slightly more positive name.