Sonus leaders under fire

Sonus Chairman Hassan Ahmed

The chairman of Sonus Networks Inc. and two other directors ran unopposed for reelection to the board at the company's annual meeting last week and nearly lost the popular vote.

In the business world, that qualifies as a crisis of confidence. It's only going to get hotter in the Sonus boardroom now.

Chairman Hassan Ahmed, along with Sonus directors John Cunningham and Paul Severino, each received support from 57 percent of voting shares in the bid for reelection at the Westford company that makes software for Internet-based phone calling. That means 43 percent of the vote was withheld.

Directors can blame Legatum Capital, the normally quiet 800-pound gorilla on the Sonus shareholder list, but displeasure among the company's investors runs deeper than that.

Legatum, which owns nearly 25 percent of Sonus, recently took the rare step of going public with complaints about a management team it portrayed as bumbling away the value of superior product technology. The firm said it contacted a few other Sonus shareholders, but just to express those views.

Legatum accounted for 27 percent of the shares voted at the Sonus meeting, so another 16 percent also withheld support for the board candidates. "We just wanted to send a clear message that the time for change is long past," Legatum president Mark Stoleson told me yesterday. "What would have happened if Legatum actually did solicit proxies and put some effort behind it?"

Legatum's real beef is about the value of Sonus shares, which has been cut in half over the past 12 months. The stock trades well below its five-year average price, even though company sales have roughly doubled over the last three years. "Why has the market essentially given up on the company? It reflects a lack of trust in the leadership," says Stoleson.

Sonus executives have swung back and forth in their response to the Legatum challenge, reaching out for conciliation one day and returning with countercharges the next. On the attack, they have argued the company serves a national security role and Legatum is run by Middle East-based foreigners. They have asserted Legatum executives are unsophisticated in telecommunications matters and prone to making dumb business suggestions.

Legatum is not your typical investment firm. Its money managers come from Britain, the United States, and Australia but the firm's headquarters is located in Dubai. It exists to invest for just one client, New Zealand billionaire Christopher Chandler, who made a staggering fortune along with his brother years earlier thanks to bold investments around the world. Rubes, they are not.

And Ahmed is no shrinking violet in this debate. He says the Sonus stock problem has a lot to do with how the market goes hot and cold on telecommunications companies on high-growth tracks.

"It's certainly our belief we are building the best company in the [voice-over-Internet protocol] space," says Ahmed. "We just feel Wall Street will reflect that value over time."

Sonus executives and managers from Legatum will keep talking. Legatum wants two seats on the Sonus board, a stock repurchase plan, and corporate governance changes that would make it easier for shareholders to act if they lose faith in management.

Sonus has offered Legatum a board seat and limits on how its representative would be treated. Last month, it split the jobs of chairman and chief executive, as Legatum suggested.

Both sides suggest their efforts are aimed at protecting the interests of all shareholders. Last week's vote suggests the management of Sonus will have to convince investors or face the consequences.

Steven Syre is a Globe columnist. He can be reached at syre@globe.com.