By Mark Evans
National Post, June 17, 2004
It was nice to see Bill Owens, Nortel Networks Corp.'s newly minted chief executive, give a keynote speech yesterday at the 2004 Canadian Telecom Summit in Toronto. Given Nortel's accounting, regulatory and, possibly, criminal woes, Mr. Owens deserves credit for stepping up the plate to talk publicly about one of Canada's most-followed companies. But what about the senior Nortel executives Frank Dunn, Doug Beatty and Michael Gollogly, who were placed on paid leave in March and fired “for cause” six weeks later? In the past three months, they have been publicly skewered amid speculation they cooked the books to jump-start a lucrative bonus program or, at least, failed to provide adequate supervision of Nortel's financial systems. Amid all the talk about Nortel having to restate its financial statements since 2000, the company has been silent about Mr. Dunn, Mr. Beatty and Mr. Gollogly. Why were they terminated “for cause”? Did they engage in fraud? Were they negligent in their duties? Did they violate securities regulations? If Nortel knows anything, they are not letting the world know about it. This is unfair to Mr. Dunn, Mr. Beatty and Mr. Gollogly. Their personal and professional reputations are in tatters and it could be a challenge for them to find new jobs For all anybody knows, they have done nothing wrong other than failing to ensure Nortel had the proper financial systems to run a US$10-billion a year enterprise. If this is the case, Nortel has let the three executives blow in the wind for the past three months. By all accounts, Mr. Dunn, Mr. Beatty and Mr. Gollogly are hard-working, good-intentioned people who worked at Nortel for a long time. While prickly, demanding and short tempered, Mr. Dunn did a commendable job reviving Nortel after it imploded during the telecom industry's downturn. Upon replacing John Roth as CEO in late 2001, Mr. Dunn did the grunt work by closing or selling plants, laying off thousands of employees and selling non-core assets. Mr. Beatty, who had worked with Mr. Dunn for many years, is known as a honest, straight-up individual. What did these executives do wrong? What kind of egregious decisions did they make that would prompt Nortel's board to cast them adrift? This is a management team that admitted last October its financial statements had errors they were trying to correct. They did not try to pull of a WorldCom-like magic trick by attempting to hide accounting problems. For the most part, the market accepted this explanation. It was not until the trio were placed on paid leave in March that anyone started to panic. If Mr. Dunn, Mr. Beatty and Mr. Gollogly did something illegal or terribly wrong, Nortel should come clean soon. Sure, there are investigations being conducted by an independent audit committee, the Ontario Securities Commission and the U.S. Securities and Exchange Commission but Nortel should provide investors with some information about its decision to fire them. It should be made perfectly clear when Nortel cut loose Mr. Dunn, Mr. Beatty and Mr. Gollogly, they left them to their own financial devices. They no longer, for example, have corporate indemnification from class-action lawsuits. They are going to have to spend their own money — and probably plenty of it — to defend themselves legally. In the absence of Nortel's silence and the mystery surrounding what Mr. Dunn, Mr. Beatty and Mr. Gollogly did or did not do, here is a theory for you: the board of directors is trying to make scapegoats of the former executives to protect their own backsides. The independent review is taking so much time to complete perhaps because they don't have enough evidence yet to show evidence of “cause” in the termination of Mr. Dunn, Mr. Beatty and Mr. Gollogly. It is about time the actions of Nortel's board, which includes Mr. Owens, started to be more carefully scrutinized. It is this group of people who approved the executive and employee bonus packages that have become so controversial. These are the people who are charged with protecting investors. Where have they been for the past four years? What were they doing during the telecom boom when Mr. Roth was making multi-billion dollar acquisitions of companies with barely any technology and no revenue. What was the board's audit committee doing when it looked at Nortel's books? Why is no one looking at the board and suggesting perhaps some of them be fired as well? Until it is disclosed what Mr. Dunn, Mr. Beatty and Mr. Gollogly did, it is impossible to know whether the books were cooked or whether systemic problems existed that no senior executive could have known about and/or corrected. Maybe Mr. Dunn, Mr. Beatty and Mr. Gollogly are guilty of breaking securities regulations or criminal laws. Then again, maybe not. If these guys are innocent, Nortel is leaving itself wide open for huge wrongful dismissal suits. This may explain why Mr. Dunn, Mr. Beatty and Mr. Gollogly have declined to comment on what has gone down.
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