Conversations From the Corner Office

FULL INTERVIEW TRANSCRIPT

Lucent Technologies CEO Patricia Russo talks with Kai Ryssdal

KAI RYSSDAL: Pat Russo, welcome to the program.

PATRICIA RUSSO: Thanks, its good to be here.

RYSSDAL: This is plus or minus a ten-something-billion-dollar-a-year company. What's the easiest way for us to understand what it is that this company does?

RUSSO: The easiest way to understand it without getting into the technical detail is to think about how you communicate, whether it's on your cell phone, home phone, PC and know that in order for you to connect to someone else, or for you to connect to information or information to get to you, it requires a communications infrastructure. And what we do is invent, design, develop, manufacture and deliver the elements of that infrastructure that enables communications.

RYSSDAL: I didn't hear the word "sell" in there. Hopefully you sell all that stuff?

RUSSO: We sell it, too. Yes, it's a good catch and yes, we do sell it and we service it and we support customers, but in the main we are the creators and deliverers on behalf of our customers of communications infrastructure.

RYSSDAL: We're sitting here at noon in the middle of the week — what do you do day-to-day?

RUSSO: Oh, I do lots of things if you think about it from the context of our constituents. So I spend a lot of time with customers. You mentioned selling. Spend a lot of time with customers making sure that I'm listening and understanding the issues that they're dealing with, the opportunities that they see and how we can be helpful to them. I spend a lot of time meeting with our folks, engaging with our folks, doing business reviews, understanding opportunities and issues that need attention. I spend time with what we call the external constituents — shareowners, analysts, researchers — talking about the company, the progress we're making, etc.

So at a relatively high level, that's how I spend my time. I spend my time representing the company and making sure that we're doing the things we need to be doing to produce the results we need to deliver.

RYSSDAL: You started at IBM; you spent some time there doing sales, then you got to AT&T. You were with them for a long time; you spun off Lucent, you were one of the founding executives there. You left for a while to go to Kodak and then you came back. Fundamentally, you've been at the same company for 25 years.

RUSSO: That's right, and in many respects you can say that. The same company, or the heritage of that company. What's interesting is this is an industry and therefore a company that has gone through dramatic change — dramatic change. So, yes, that is true, but no year has been like the prior year. Believe me.

RYSSDAL: How do you then stay fresh, though? I mean one of the key things in this industry, more than most, really, is innovation. How do you as the CEO carry that forward?

RUSSO: Well, I think in order to stay fresh you have to force yourself to engage with multiple streams of input and multiple perspectives, so meeting with different customers all around the world helps you stay fresh because while there are many similarities, there are many differences. There are differences in developed markets from emerging markets, for example. The requirements are different. So one way you stay fresh is you've got to be out talking to customers. You've got to be out talking to other people in the industry, people who follow the industry, analysts, research analysts, industry analysts, as a way to constantly get different perspectives. And, you know, I also spend time with folks in the labs, in Bell Labs. I mean we have some brilliant people who are known for constantly creative and innovative thinking and I try to spend time engaging with them as well. So in as many ways as I can I try to touch new and different things, new and different thinking, new and different ideas.

RYSSDAL: There's a bust down in the lobby, I'm sure you've seen it a million times as you walk in, of Alexander Graham Bell. You know what the inscription underneath says, the quote?

RUSSO: Oh, gosh. I'm trying to remember. I've seen it everyday. Refresh my memory. You probably just read it, right? I pass it every day.

RYSSDAL: I did, and I bring it up for this reason. It says, "Leave the beaten track occasionally and dive into the woods. For you are certain to see something you will have never seen before." Is that hard to do in a day and age when the pressures on this company, specifically, are so intense?

RUSSO: It is hard to do for any company who has a long history and a culture of providing the kinds of things we've provided over time. So — and by the way, I don't think that's unique to us, I think it's unique to any company that's been doing what it's been doing and doing it well for a number of years. And so you know it's like Clayton Christensen crossing the chasm — I mean, so many people have written about how do you break out, how do you break away from the path that you know the path that you've been on, the path that's logical and really leap onto a totally different path, and so you have to be conscious about a choice in doing that and then pick a path and pick people who will in fact assure that you can execute that.

RYSSDAL: Seems to me in a way that we're there now. When you came back to this company from Kodak in 2002, times were tough and I don't think that's an overstatement. I mean regulators were looking at you, revenue were down, employees were being laid off. What did you do that first day when you walked in the door as CEO?

RUSSO: Yeah, and by the way, I just — to make a distinction in your observation in my own mind -- because of the nature of what we do and the commitment we have to our customers and the relationship we have with our customers, we've had to make very tough decisions to weather the downturn in the industry, but I would not argue that we jumped off one path and went on to another path. In other words, we're still in fundamentally the same kind of business and that's because our customers are counting on us to deliver and support them in this communications — enabling communication space that I described earlier.

Having said that to your point, we had to because of what happened in the industry and because we were up against such a harsh set of issues as you described — I mean our industry collapsed to 1/3 its size, literally, and in one year I remember 2002 the spending levels of our customers literally dropped in half. I mean in half. So for us we had to make very radical, very difficult, very painful decisions in order to get the company stabilized financially and on a path to return to profitability and quite frankly you just do what you have to do. It was a matter of survival.

RYSSDAL: One of the things you had to do was lay off a lot of people: Where's your obligation now as a company in this country. Is it to the employees or is it to the survival of the company?

RUSSO: I think the obligation that those of us who run companies have is to do everything we can in as balanced a way as we can to ensure the success of an enterprise and you ensure the success of an enterprise for the people who own is, which are your shareholders and you ensure the success of an enterprise for your employees to be able to survive and thrive even when you work your way through downturns, so if I believed that the obligation was to ensure employment, we would not have had a company that weathered the storm and then nobody would have a job, so the balance — you always have to be balanced in recognizing that you've got stakeholders in a company, your customers, your people, your shareowners among others — suppliers. You have stakeholder relationships that need attention and need to be cared for.

But in the end if you don't have a successful enterprise, if you don't have a viable competitive enterprise that can survive and thrive over the long-term, the rest of it becomes moot.

RYSSDAL: Lucent is certainly not the only company that's had to make these decisions. Automotive industry, the steel industry — many, many companies in America have had to do this. I'm wondering, though, what you perceive your obligation to those who used to work here but no longer do — your retirees. What's your obligation to them?

RUSSO: Well, first of all, we have pension plans for our retirees that we have managed very effectively. The assets that we have are adequate to support the liabilities that we have for our retirees. We provide retiree healthcare, which as you know is a growing issue in the United States and so we take our responsibilities to our retirees quite seriously. I mean these are people who contributed to the building up of this company and its success over the years.

Those requirements, however, or those interests have to be weighed and balanced in the overall context of making sure that the company can be successful in a globally competitive industry. The industry that we are in is global, very global, and very competitive. And so we've got to assure that as we care for all of our stakeholders and all of our constituents, including our retirees, that we're doing everything we can to make sure the company is successful because in that way our retirees will be better off with the company being successful as opposed to something other than that.

RYSSDAL: Even though by my count I think benefits to some retirees have been cut at least twice.

RUSSO: We have, first of all as I said, we have retirement, pension plan assets and those pension — we are meeting all of our pension obligations — there have been no changes with respect to that at all and we follow all of the appropriate rules, guidelines and laws within the United States. We have had to address the rising cost of health care and we have been managing that as carefully as we can, again within the context of what the company can afford. And as I said, this is not a Lucent-specific issue; this is a national issue. The rising cost of health care is something that just cannot go on uncapped and we've had to make some changes with respect to the level of support that we can provide simply out of what's affordable. Simply as a result of what's affordable for a company our size.

RYSSDAL: How are you going to know when you've turned this company around? How are you going to know when you've innovated your way to what you want Lucent to be?

RUSSO: Well, I think, first of all, we've already crossed one chasm, right? And that was in the 2002-2003 period where the industry literally hit its low point, and our primary goal was to control the things we control and get the business back to profitability. We did that at the end of 2003 and then grew the business in 2004 and 2005, so if you look at what are the measures that one would look at is are you growing the business; are you improving your overall financial performance; are you satisfying your customers; are you growing your market share and are you creating value?

And so we have been on a path to do that since we got the business back to what I'd call financial stability and then really worked hard to get the business to grow. '06 has been a challenging year for us because of some dynamics in the market in China and in North America in particular. We've been very clear about that, but we're a company who is investing in the areas we believe are going to deliver growth over the long term. We have good signs of progress in a number of areas that are strategically relevant and as you know we're in the midst of working through to conclude our proposed merger with Alcatel, which will create the largest player in our industry, and in an industry where size and scale really matter, so we're very excited about that.

RYSSDAL: This is not the first time you've been down the merger trail with Alcatel. You tried it five years ago; didn't work out largely, as I understand it, over issues of control. Do I have that right?

RUSSO: I wasn't here, quite frankly, in 2001 when the initial Alcatel/Lucent discussions took place. We've been asked lots of times what happened and you know the answer is it just didn't work out. I mean it takes a lot to put a deal together like this. We're large complex global companies and there are a number of things that all have to work to a positive conclusion. We have, I'm pleased to say that we were able this time to conclude a merger agreement and we announced that in April, and we've been working very hard on all the things that need to get done to get that deal closed.

RYSSDAL: They're bigger, but somehow you're going to be the CEO. How'd you negotiate that one?

RUSSO: Well, first of all, they are a larger company and that's reflected in the ownership of the combined companies so Alcatel shareowners will have about 60 percent. Lucent shareowners will have about 40 percent. And then what you do is you look at key jobs and look at how do you find a balance of leadership team and it so happened that Serge Tchuruk, who is the current chairman and CEO of Alcatel, was due to step out of the CEO role.

He will become the non-executive chairman and so I think given we're putting two companies together that have two CEOs today, one of them becomes the CEO of the going forward company, that's me, and Serge Tchuruk will become the non-executive chairman of the company. And so we'll team together — I'll be running the company, but Serge will be available in his capacity as non-executive chairman to provide advice counsel and all kinds of support.

RYSSDAL: What about French lessons? I read somewhere you haven't really studied since high school?

RUSSO: No, I actually haven't, but you know when you put four-five years into something younger, whether it's sports or language, it doesn't take much to kind of pick it back up, so as I venture to spend more time there, you know, I'll do my best to bone up on the language because it'll be helpful, even though, quite frankly, English is the language of Alcatel. It's not French.

RYSSDAL: There is a very distinct corporate culture difference between companies in the United States and companies in France. Are you worried at all about bringing those two cultures together?

RUSSO: Actually what I find, and I get asked this a lot — both of our companies are very global companies, so if you look at where our people are and where our customers are and where our operations are, they really are all around the world, and so I would argue that the North American Lucent team and the North American Alcatel team have an awful lot of similarities in terms of understanding the market, customers, competitive landscape and the way they talk with each other and I would argue the same things are true in China and in Europe and in Asia-Pacific and so we're actually more similar at the relevant local level than one would conclude by looking at a company that's headquartered in New Jersey and a company that's headquartered in Paris.

We're very — we both are and the combined company — will be very global company and so you really almost have to look at cultures within countries and cultures within functions so the sales culture in both companies is a different culture than the development or the research culture. And so what's important when you're doing a merger is getting a leadership identified, bringing people together around a common vision, a common set of goals and objectives, blending and mixing the management teams so people get to work together and realize, you know what, we really aren't that different. I may speak a different language as my native tongue but actually we see customers needs the same way, we see the technical options the same way, we know what we need to do to compete and win in the marketplace and it's amazing that you put people together and they say wow, we're really more similar than we realized.

So I'm not trying to make light of the cross-border integration issues. There clearly are lots of things we have to get done, but I don't center it on there's these big giant cultural clashes, quite frankly. Based on what I've seen and observed as we've brought people together.

RYSSDAL: The number that's out there in terms of layoffs as this company goes forward together is about 9,000 people plus or minus ten percent. Is that right?

RUSSO: Yes, that's correct, and frankly I don't have all the data and statistics, but that number is not terribly high when you look at the combinations of the company and that's because in addition to some overlaps obviously we have a lot of complementarities. And quite frankly I think that's — it's good to have that mix. We're complementary and there's also areas of overlap, which is what causes us to say we know we're going to need to reduce by about 9,000 people.

RYSSDAL: Are you worried at all about that coming more from the American side, the Lucent side, than the Alcatel side given French labor law?

RUSSO: No, I'm not really focused on that. I think if you look at what Alcatel and some of our other European-based competitors had to go through in the resizing, they've all resized their businesses dramatically. Sometimes it takes longer, sometimes you have to go through more steps, but everyone of our competitors, be they German, French, Swedish — all had to resize their business during the downturn, so what we've said is look, we're going to size the business and capture the synergies based on logical, appropriate business decisions and we're going to be balanced in how we do it.

RYSSDAL: Why have there been so many mergers in the telecommunications base the last couple of years?

RUSSO: First of all, most of the mergers that we've seen have been on the operator's side. So our customers have merged. And quite frankly I think the reason is because size and scale matter. And the reason you're now seeing that happen amongst the suppliers to those customers is for the very same reason. This is a very R&D intensive industry. It's very competitive. You need size and scale to be able to invest in and deliver the technologies that really enable communications as communications are evolving. You know it's not just you want to talk to someone, you want to Instant Message, you want to get data, you want to download games, you want to download sports, you want to do that whether you're at home on a fixed line, whether you're in your car, whether you're on a Blackberry, whether you're on a mobile device.

So the whole notion of converging services and devices and applications is happening in the industry and you have to have a capacity to invest and a capacity to spend in order to be able to do that.

RYSSDAL: What do you use? Cell phone, BlackBerry, Trio? What do you use?

RUSSO: I use a BlackBerry; I use a cell phone; I use a laptop; I use a PC in my office; I use my home phone; I mean I use everything. I use everything.

RYSSDAL: Let me back up for a second and ask a question about the structure of the market. The downturn that your company and so many companies like yours experienced in 2001 and 2002, do you think that was the dot.com boom coming home to roost or was it this consolidation of your customers who then had purchasing power? Which one do you think it was?

RUSSO: I think it was the boom that came — that burst. I think it was the bubble that burst. I think there was a period in the late '90s when there was what I would call a confluence of factors that are not likely to repeat themselves. There was unlimited access to capital. There were startups all over the place as a result of that. There was the Internet phenomena and a belief that it would grow infinitely and there was deregulation so the competitive opportunity was significant.

And so what you had was many, many, many new companies coming into the communications space who are going to be providers of communications for this infinite demand that was not going to stop and a lot of companies got born, a lot of companies got IPO'd, a lot of companies spent money to build out and quite frankly many lost sight of the fundamentals. I mean money was going to businesses that had no revenue. That's not a model that can work for the long-term. So you had this incredible run up and this is what happened to our industry, which saw this the most and I would argue North America was the most extreme example of it.

You know you had companies running 500 miles an hour and hit a wall because the industry structure just was not a stable structure and so that's what I think it was, and I don't think that it was at all driven by the consolidation of our customers. The consolidation of our customers has actually happened in the course of the last couple of years as the industry is restructuring itself after the boom to be able to compete in a broad-based way and in a way that assures continued value creation through size and scale.

RYSSDAL: Do me a favor and throw out a couple of adjectives to describe your management style.

RUSSO: Well, I'll use some adjectives some might describe — direct, clear, compassionate when appropriate. Accessible, communicative, caring, tough when I need to be. Those are the things I think others would say about me. Is that fair?

RYSSDAL: What about competitive? Did you say that?

RUSSO: I am competitive. Those who play sports would say I'm very competitive. Some would say intense. But yeah, I'm competitive, I'm intense. Very customer focused. Spend a lot of time with customers.

RYSSDAL: Pretty much every article that's written about you somewhere in there talks about you and golf. How do you have time to play golf when you're running a Fortune 500 company?

RUSSO: I don't. I don't. I mean its actually — I chuckle because so much gets written about golf and my handicap and the fact of the matter is I play relatively infrequently. I just started young and therefore I'm able — I have the good fortune of being able to go out and play a decent round. And so when I do, I play a decent round, and somehow that's gotten exaggerated into I'm some big golfer. And I'm really not if measured in number of rounds per year and you can check that if you look at the gin system.

RYSSDAL: Golf in the corporate world has become this metaphor for the boy's world and making deals on the golf course. Do you find that?

RUSSO: Not really. I mean I find that — and by the way, I do play some business golf but not very much. Frankly, in the business world, from my standpoint, golf is about relationships, it's about an opportunity to spend some time with a customer in a fairly relaxed setting, in a fairly fun setting, and in our industry relationships matter. People count on other people to do what it is they say they're going to do. So I've never done a deal on a golf course. I have enhanced relationships on a golf course, which lead to being able to win business and being able to be trusted and being able to be picked as a partner that a customer wants to do business with, and that's the value that I see.

RYSSDAL: Are you — how do you feel about the position of women in corporate America, in the leadership roles, specifically?

RUSSO: It's in some way a tough question for me to answer because if the question is do I think that women have made progress and there's more room to make progress in positions of leadership, yes, and yes. If you ask do I think about my role and what I do in gender terms, I don't. I view my responsibilities to be what they are independent of my gender. I don't think it matters. I think it is an aspect of who I am, it contributes greatly to a lot of aspects of my personality and how I grew up and my experiences, of course.

But the responsibilities for me and the expectations for me are no different whether I'm a woman or a man and I happen to believe it's really about leadership and results production and attributes that are not necessarily gender related.

RYSSDAL: I had a similar conversation with Anne Mulcahy from Xerox and she said the thing about being a woman is maybe when times get tough there's a little less shade up at the top.

RUSSO: I think that — and by the way, I know Anne very well, I have great respect for her, and in fact I was on the Xerox board for a while — I think it's probably fair to say that because there are still relatively few women in CEO positions of Fortune 500 companies that there is more visibility. There is more visibility on the positive side, right, so there's a lot of interest because its still relatively novel, not as novel as it used to be and certainly when things aren't going well, because of the visibility and because of the relatively small size of the sample I think its probably fair to say that you get more attention than you might otherwise if you were not a woman running a Fortune 500 company. I think that's fair. I think Anne's right.

RYSSDAL: You are I think the second oldest of seven kids; you have two brothers who are handicapped or disabled. What role does that play in your life today? I mean, you're 52-53 years old now.

RUSSO: Yeah, it's — I would say that my childhood years and my experience as a member of the family that I'm part of has been very influential in shaping how I think about things, shaping my perspective on things from fairly early days. So I am the second oldest; I'm the oldest girl of the family of four boys, three girls. We're very close in age.

So seven children spanning eight or nine years. I have twin brothers who are disabled, they were born disabled. And so I grew up — and I would say the impact that it's had on me spans everything from compassion and understanding or having a perspective about what's really an inconvenience or, you know, what's really — when you can't walk, as one of my brothers can't — that's a real inconvenience as opposed to my hand is sore, you know?

So it was just very helpful in terms of perspective, you know? What are the real big deals and what are not the big deals. On the one hand. And on the other hand, you know, frankly, independence. I mean my mother was pretty well occupied with seven kids and two who were disabled and meeting their needs and their requirements, so expectations were set for me in terms of what I had to do and what I needed to do and what I needed to be responsible for fairly early on. And so I grew up with an eye toward responsibility and an eye toward accountability and an eye toward knowing that if we're going to get something done sometime you had to do it yourself. You couldn't wait around with seven kids.

RYSSDAL: Is that a temptation for you today to just reach down into that corporate structure out there somewhere and grab the director level person and say I need to talk to you right now about this thing that you're not doing right?

RUSSO: Well, I do that. I mean I think people who are familiar with my management style know — I don't work through layers, I don't work through — and again, I don't do it disrespectfully, but I believe in being efficient. And I believe in respecting people's time. And so if I know who has the answer to something, why would I work through who they report to? I just go to the person that has the answer. It's more efficient for them, it's more efficient for me, it saves everybody time and energy and it eliminates filtering.

RYSSDAL: Except that three layers of middle management probably isn't too happy.

RUSSO: Actually, you know, I have to say this has been my style for so long I really haven't found it to be an issue. I mean if it becomes an issue if I ask somebody deeper into the organization something they give me information and then I use it against their management, I don't do that. Right? I don't do that. If I go to someone because I want information, I don't expect somebody in between to have that same level of information. They may be micromanaging if they are so I think you get a negative reaction depending upon what you do with what you find out and I try to be sensitive to that.

RYSSDAL: What makes you angry in a corporate sense? I mean if something comes across your desk and it just really just — aargghh — what might that be?

RUSSO: The kinds of things that irritate me, let me put it that way — are things that I perceive to be wastes of time, process versus results-focused, activity versus results-oriented. Those kinds of things make me crazy. And in large organizations it's something you have to protect against, so I am very negative on things that waste time, waste energy, waste paper — when I make a customer call, I don't need a presentation, I need one page, right? And I don't react well when I get a lot of "stuff" that I really don't need because I just think it wastes time.

The other thing that irritates me quite frankly is when somebody's accountable for something and they don't deliver. I don't have a lot of patience for that either.

RYSSDAL: When you say you make a customer call are you picking up the phone and calling, you know, the CEO of Nortel and saying, hey, listen, we need to sell you these 47 gizmos?

RUSSO: Well, I wouldn't be calling them because they're our competitor, but I absolutely pick up the phone and call CEOs of customers of ours around the world, I visit with them. The kind of conversations I have are generally more about what's going on in the industry, how are we doing in terms of supporting them, what are — really validating their priorities, making sure we're on the right track with them. Those kinds of conversations. I do that a lot.

RYSSDAL: Care and feeding.

RUSSO: Yeah, absolutely. I mean this is very much a relationship industry and relationships matter. When somebody decides they're going to deploy your network, they want to know they can count on you.

Unidentified Female: Can you ask — I know you've covered this a little bit but I want to back track a wee bit to the sort of spectacular share price falling so low and you coming in — why on earth you would want that —

RYSSDAL: Oh, well, yeah — let me frame it this way actually — 2001, you were happily ensconced at Kodak, it's a company in some trouble and you've got your hands full there, and they call you from Lucent and say come on over because we need some help. Do you have a thing for troubled companies that you want to get in there and fix or, I mean, what drew you back here?

RUSSO: Well, a couple things I would point out. First of all, I had a great affection and affinity for this company. I spent a lot of years at AT&T; I put a lot of my heart and my energy into the creation of Lucent and had great respect for the people that I worked with here. So there was a base of familiarity and respect and knowledge that was at play.

The second thing that I would point out, though I'm not sure I would have done anything differently, but when I came back it was in January of 2002 — Lucent had just finished its prior year — fiscal year — in October and the company was a $20-21 billion company. The market was anticipated to be down somewhat — 5 percent, whatever — and so we were expecting we might do $18 or 19 billion in revenue that year. After I came back was when the industry literally crashed and so the truth of the matter is I wasn't clear because nobody could see what were you really signing up for. I thought I was signing up for an industry that had some challenges. I didn't think I was signing up for a crash.

RYSSDAL: Was there a day when you woke up and said oh, man, what am I doing here?

RUSSO: Well, there were many days when I woke up and said, or said in my office what else can happen? I mean if you think about it I came back here, the stock was at $7, the company had been about $21 billion the prior year, the industry was challenged, but I came back and it wasn't but six months later the industry crashed and our stock hit 57 cents. I mean people thought we were not going to make it. Our credit ratings were slashed. I mean there was — we had to do two convertible offerings because of the cash burn given what was happening in the industry, so there were many things about which I said wow, there are some real challenges here, but it was very important though the darkest days. And I mean the darkest days, to say okay, you can't let it snowball, you take them one at a time, you focus on the things you control and you don't let yourself get panicked about dealing with it.

You just, you know, okay I make everyday, day in, day out, you do the things you need to do to make the tough choices, you execute them and you focus on the things that you can control and you don't spend a lot of time on the things you can't control. Our revenue was falling like a rock. There was nothing I could do about that. I could do something about our costs, our expenses, how we were operationally organized. I could do a lot of things about the cost structure of the company, which — and the financial structure of the company, and those were the things I focused on. Because those were the things that were going to matter to get us through what many in our industry just called the perfect storm. I mean it could not have gotten worse. Could not have gotten worse. I think that's a fair statement.

RUSSO: Well, you know, I think from a shareowners standpoint everybody wants to see their investment increase. When you go through what we went through you had a high share price and the industry crashed and you know you have to be able to parse what was then and what is now and I think our industry and the market are pretty much back to fundamentals so what we're focused on is creating value by driving the top line, driving the bottom line, satisfying our customers, investing in the right technologies, this is a long-term game, by the way. Our industry is not on six-month cycles. You need to be investing for two to three years to have the platforms you need for the next generation of technology, so this is not a quarterly kind of an industry. And so you've got to find, you've got to resolve to invest in the things you think are going to matter over the long-term.

RYSSDAL: So is Lucent, do you think, going to be again a $20-21 billion company with $7 share price?

RUSSO: Well, assuming that our proposed combination with Alcatel goes through, the combined Alcatel/Lucent, if you look at 2005 revenues was a $25 billion global company and one that will be the largest player in our industry and so I think — with the broadest portfolio of technologies and service capabilities, and so I think that gives us a tremendous platform for value creation not to mention the synergies that we've already identified we believe we can get by combining the companies, so we think there's some real value creating potential here through the combination for starters.

RYSSDAL: So let's talk for one second about the history of this company. When you walk in and you walk by that old TV set and the old synchronized sound motion picture thing, how heavily does the history of this company weigh on you?

RUSSO: First of all, the history of the company weighs heavily for lots of reasons. I mean, we — it really speaks to our heritage of creation and innovation which is no less significant in today's world in which we compete than it was when Bell Labs was part of a monopoly and had all kinds of funding to do the sorts of things that it did, so at the innovation level, innovation is critical — was critical then and even more critical now.

If you just think about what was done in Bell Labs, I think it's fair to say that most of the major contributions to communications and computing technologies — many, if not most — came out of Bell Laboratories. Silicone, laser, the transistor, not to mention cellular technology. I mean just think about that, right? Just think about the impact that those things have had on society and communications and on computing.

RYSSDAL: Tell me briefly what we have here just in terms of the history of this company. I mean it goes from quite literally early motion picture machines to quantum physics.

RUSSO: This showcase is in the lobby of the headquarters of Bell Laboratories. This building that we are in is the building that has served as its headquarters for well over 50 years. It's in this building that the transistor was invented, that cellular technology was invented. Its also in this building that we have our nano-technology center where we're now doing research on, you know, in nano terms, which is hard to even appreciate. So what we're trying to show over the years is the inventions that have made a huge difference, and you're right, it's back to the first phone all the way through, you know, quantum physics, the Big Bang Theory and a host of other things.

So it's pretty impressive.

RYSSDAL: Given the downturn, though, that this company and the whole industry's had, is R&D still something that Lucent Technologies does well?

RUSSO: I think R&D — well, let me answer it this way. First of all, even during the downturn we invested in fundamental research. And there were many who said why are you doing that? And the reason we did is because invention and innovation are so much a part of our heritage and our history that I was influenced by that. I knew the industry would come back and so research — we still do today fundamental research in physics and mathematics and in the nano-technology area because its relevant to what we do.

Development is done all around the world including, obviously, here, and I think we have been and are very good at doing development work.

RYSSDAL: Bell Labs in its heyday was a place where the best and the brightest could go and do Nobel Prize-winning research. I think there are three or four of them in the cabinets around us. They didn't have, though, the enormous corporate and profit pressures that you guys have today. Can you still come to Bell Labs and take your time and think through these problems?

RUSSO: You can still come to — first of all we're smaller, Bell Labs is smaller — core Bell Labs meaning the research part of Bell Labs is smaller than it was when we were part of the Bell System and AT&T, there's no question. And clearly at that point in time there was a lot of free-form research. You know, come and do what you want to do to pursue your interests. We don't do that any more to that degree. We do, however, have room for pure research, relatively unconstrained, so long as it's related to our industry, okay? We did research back in the long time ago days whether it was related to the industry or not. We just did research, a ton of research. We can't afford to do that. So it's much more focused, it's much more applied.

RYSSDAL: There was a great article in the "Wall Street Journal" not too long ago about Jeong Kim, the head of R&D and how focused he is now on innovation and entrepreneurship at enterprise level.

RUSSO: Yeah, Jeong represents the thinking we now have about the labs, which is recognize its heritage, understand that research continues to play a role, but make sure its focused on having an commercial impact over time. And that's what Jeong's doing. And he's really reenergized folks here and that's what was really spelled out in the "Journal" story you referenced and the real point is we believe that's do-able.

RYSSDAL: In the 120,000 people who you've had to let go in the past five or six years, do you think there's been a brain drain at Bell Labs?

RUSSO: We have some — we continue to have some really smart, capable people at Bell Labs. I mean you would be — every time I interact with them I'm overwhelmed with how bright and smart they are. There are clearly fewer of them. So if you just look at the numbers there's no question there are fewer people in Bell Labs research today than there were five years ago, ten years ago, but on a relative basis, right, if you factor the size in, I don't feel like we've lost on a relative basis the brain power that we had. We just have a smaller organization than we previously had, but very smart and very capable.

RYSSDAL: Let me ask you one last question about the work/life balance. I read some remarks you gave to a graduating class. "Balance Right," she says — you gave a commencement address a couple of years ago and you talked in very strong terms about not letting work be the only thing and having to have balance. And if you're not doing that you're not doing it right. How are you doing?

RUSSO: I have always said listen to what I say not what I do.

(Laughter)

Okay? So I've been very clear about that, but I do believe — and by the way people who work for me know this — I do believe you have got to refresh your mind. And so I believe in vacations and I also believe in mental health days, you know, where sometimes you just go clean out a closet, but I'm not as good as I would like to be, and some of that is the pressures of what we've been through, quite frankly. Now if I weren't in an industry that had been so challenged and if I weren't there for trying to run a company through a huge downturn, I have not had the balance that I would like to have and that I believe is appropriate. But I'm getting better at it. I just came back from two weeks in North Carolina and while I had my BlackBerry and my PC and my phone — I still was able to spend time with the family, which is a good break.

RYSSDAL: Pat Russo is the chairwoman and the CEO of Lucent Technologies. Pat thanks a lot for your time.

RUSSO: Thank you very much.

[NOTE: The text above is an extended excerpt of the interview and may have been edited. It should not be taken as a verbatim record.]

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