PM Profitel Inc. case

Topics: Corporate governance, Board of directors, Stock Pages: 2 (711 words) Published: January 14, 2014
Profitel Inc.
By Steven L. McShane, The University of Western Australia
As a formerly government-owned telephone monopoly, Profitel enjoyed many decades of minimal competition. Even today as a publicly traded enterprise, the company’s almost exclusive control over telephone copper wiring across the country keeps its profit mar- gins above 40 percent. Competitors in telephone and DSL broadband continue to rely on Profitel’s wholesale business, which generates substantially more profit than similar wholesale services in many other countries. However, Profitel has stiff competition in the cellular (mobile) telephone business, and other emerging technologies (voice- over-Internet) threaten Profitel’s dominance. Based on these threats, Profitel’s board of directors decided to hire an outsider as the new chief executive. Although several qualified candidates expressed an interest in Profitel’s top job, the board selected Lars Peeters, who had been CEO for six years of a publicly traded Euro- pean telephone company, followed by a brief stint as CEO of a cellular telephone company in the United States until it was acquired by a larger firm. Profitel’s board couldn’t believe its good fortune; Peeters brought extensive industry knowledge and global experience, a high-octane energy level, self-confidence, decisiveness, and congenial yet strongly persuasive interpersonal style. He also had a unique “presence,” which caused people to pay attention and respect his leadership. The board was also impressed with Peeters strategy to bolster Profitel’s profit margins. This included heavy investment in the latest wireless broadband technology (for both cellular telephone and computer Internet) before competitors could gain a foothold, cutting costs through layoffs and reduction of peripheral services, and putting pressure on government to deregulate its traditional and emerging businesses. When Peeters described his strategy to the board, one board member commented that this was...
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