April 30, 2004

Nortel: Canada’s Enron?

So Frank Dunn got it? Is anyone really surprised? After all, he's been Nortel's chief financial officer – directly or indirectly – since 1999 so the accounting problems – officially described by chairman Red Wilson as “accountability” issues – eventually get back to his desk. Whether Frank directed the entire number massage exercise or simply exerted his influence is a mute point. Nortel's books are in terrible shape and there is growing speculation it was all due to a lucrative bonus program tied to a return to profitability. My take is that Frank wanted Nortel to be profitable and articulated this goal in no uncertain terms to his hand-picked financial lieutanants. When it appeared Nortel would have a slight loss in the first-quarter of last year, his boys figured that by cooking the books to show a slight profit, everyone would be happy. Dunn would be pleased that his ambitious goal was achieved, investors would be happy Nortel was a good investment again, and, best of of all for Nortel's executives and employees, the bonus plan would come into play. It was all too tempting for the number crunchers to resist. In the end, they were caught with their hands deep in the cookie jar. Why the board or Nortel's auditor, Deloitte Touch Tohmatsu, didn't catch this all earlier is a mystery. We'll likely have to wait for the Securities & Exchange investigation to be completed before the truth is finally told. Any way you cut it, it stinks. As for Dunn, he joins Paul Stern and John Roth in Nortel's dubious CEO Hall of Shame.

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