Four Nortel executives who are returning cash bonuses received in 2003 are holding on to much more lucrative restricted-stock unit awards granted for performance during that year.
On Tuesday, Nicholas DeRoma, Pascal Debon, Sue Spradley and Brian McFadden — along with eight other members of senior management — offered to return US$8.6-million in bonuses received in 2003.
However, DeRoma, Debon, McFadden and Spradley will keep US$12.9-million worth of restricted stock units, or RSUs, awarded to them while Frank Dunn was at the helm of Nortel in 2003
These executives were not asked by Nortel to return their RSUs but the telecom equipment maker has demanded Mr. Dunn give back US$2.12-million in RSUs received under the 2003 program, as well as his profit bonus of US$3.54-million in cash.
The RSUs granted to Messrs. DeRoma, Debon, McFadden and Ms. Spradley were awarded for targets hit in the second and third quarters of 2003.
Whether those targets were hit is in dispute, as Nortel alleged Tuesday that Mr. Dunn and other financial executives manipulated earnings from late 2002 to mid-2003 to hit profitability targets and trigger a bonus windfall.
What is not disputed is that the RSU awards granted to Messrs. DeRoma, Debon, McFadden and Ms. Spradley are worth far more than the cash bonuses they have volunteered to pay back.
Mr. DeRoma, Nortel's chief legal officer, collected RSUs worth US$2.59-million during the period. He is repaying the C$953,747 cash bonus he collected.
Mr. Debon, the company's president of carrier networks, received US$3.78-million worth of RSUs. He is returning a US$1.07-million cash bonus.
Mr. McFadden, the chief technology officer, received US$3.62-million in RSUs. He has promised to return C$899,630 in cash.
Ms. Spradley, Nortel's president of global operations, collected US$2.92-million. She plans to return US$967,694 in cash. In a letter to Nortel chairman Lynton Wilson, the four executives and eight other colleagues said they would return the cash bonuses and not accept still-outstanding 2003 RSUs “as a matter of corporate leadership and integrity.”
The executives state they “did not engage in improper conduct,” which Nortel's audit committee alleges took place while the company was under Mr. Dunn's leadership. The 12 Nortel executives have agreed to repay the cash in instalments.
In a long-awaited regulatory filing Nortel made on Tuesday, a report by its audit committee alleged the company was slated to post a pro-forma profit in the fourth quarter of 2002.
However, Mr. Dunn allegedly determined a profit was undesirable because it would force Nortel to issue bonuses in the quarter while performance in the remainder of that year was poor. Using US$175-million of provisions, the unexpected profit was turned into a loss, the report alleges. As a result, no bonuses were paid to Nortel employees.
Mr. Dunn was adamant Nortel post a profit in the first quarter of 2003. Even though the company had an operating loss, its management used US$361-million of provisions to produce a consolidated pro-forma profit, the report alleges. In the following quarter, the same technique was used to turn an operating loss into a profit, according to the report .
The first-quarter profit triggered a lucrative bonus program that handsomely rewarded 43 senior executives. The second-quarter profit also produced another round of bonuses.
© National Post 2005

Lost in Nortel's 10-K filing was the departure of Sprint Canada CEO Duncan McEwan, who has left to pursue the infamous “other interests”. Word is McEwan has aspirations to be the boss and it is not going to happen anytime soon as Bill Linton, CEO and president with parent Call-Net Enterprises Inc., isn't going anywhere anytime soon.

Any bets on Mike Zafirovski becoming the next CEO of Nortel? Safirovski quite as Motorola Inc.'s COO today – a year after he was passed over to become CEO when Chris Galvin left. One analyst said Safirovski really wants to be a CEO, and he'd be a great fit for Nortel. But does he really want to take over Nortel at this time? The up side is how much worse can it get at Nortel? Anything a new CEO would look positive in comparison.
Whenever it comes to a new CEO at Nortel, I always get the sense the Canadian government is looming in the wings and encouraging the company to hire a Canuck. There is speculation this is one of the reasons Frank Dunn got the job in 2001. In any event, I do not think Bill Owens will be Nortel's CEO by year-end. I do see him becoming chairman, though.

I've been doing some thinking about what went down yesterday with Nortel. In
an odd way, it was a PR/IR coup for Nortel. They hire a high-profile law
firm to do an “independent” review on historical accounting issues.
Surprise, surprise, it's not Nortel's fault at all but rather ex-CEO Frank
Dunn, ex-CFO Doug Beatty and ex-controller. “It was them; they cooked the
books so they could get their bonuses,” Nortel seems to be saying – adding
that it's taking all kinds of measures to re-invent itself. The independent
review is such a good story with so many juicy details, the media had no
choice but to step up to the buffet and gorge.
That said, everything in the independent review is allegations that may or
may not be true. Maybe Dunn, Beatty and Gollogly cooked the books; maybe
not. Nortel was motivated by its need to move forward, and the best way to
do that is point the finger at someone else.
What I'd like to see is Dunn, Beatty and Gollogly provide their side of the
story. I suspect they've kept a super-low profile because there are legal
issues (class-action lawsuits) and criminal investigations underway. You
have to believe they are also some wrongful dismissal issues at play. Stay
tuned for more soap opera-like activity.

Let me start with clarification on a something I posted yesterday. The independent review done by Washington, D.C.-based law firm Wilmer Cutler Pickering into Nortel's accounting mess alleges the books were cooked by ex-CEO Frank Dunn,ex-CFO Doug Beatty and ex-controller Michael Gollogly.
That said, if the allegations are anywhere near the truth, it will be an amazing story of corporate avarice and stupidity. If the these executives did, in fact, manipulate the books to book a loss in Q4 of 2002 and profits in Q1 and Q2 of 2003, you have to wonder what they were thinking. Were they swayed by bonus-induced riches, or did they honestly believe that super-aggressive accounting practices was acceptable behavior. If no one caugh them in the act, would it still be wrong?
To be honest, I've had my reservations about Frank Dunn's motivations since it surfaced he was building a 15,000 square foot mansion on the shores of Lake Ontario in suburban Toronto. You would think someone in the spotlight would lay low. Instead of building a mega-house, why now renovate and give yourself the most amazing entertainment centre, kitchen and bathroom? Why be so obvious about your new-found riches?
In a posting several months ago, I made an assertion Dunn had a base case of John Roth envy – meaning he wanted to have the same kind of wealth that Roth attained when he walked away from Nortel in 2001. Now, I believe this thesis more than ever.
Speaking of Roth, one of my colleagues at the National Post – Robert Thompson – actually talked to the man today. To paraphrase, Roth said he didn't know much about what was going on at Nortel because he hadn't work there for awhile. That's a reasonable stance if you walked away with $135-million. With that kind of cash, how many things do you really have to worry about?

Comcast Corp. is jumping on the Internet telephony bandwagon but with an intriguing twist that makes you wonder if they know something the rest of us don't. Instead of using price as its key competitive tool, Comcast plans to charge $40 a month for its Digital Voice service. The cable giant will try to differentiate its service by offering a feature bundle that includes 16 hours of back-up power.
This approach is interesting because it contrasts to Vonage and AT&T, which are engaged in a nasty price-war for subscribers. It also hints at what some cablecos might adopt to move into the telephony market. Rather than compete
on price, they aim to appeal to customers concerned about quality of service. The idea is that loyal cable customers will be happy to take a bundle that include telephony service if it compares with what they get from an ILEC.
In Canada, Rogers, Shaw and Videotron seem to be following the same route as Comcast. In meetings with analysts last month, Videotron talked about a service with eight hours of back-up power, access to 911 and the ability to keep your existing phone number.
I'm not sure if this approach will work because VOIP is increasingly seen as a low-cost product so it may be a challenge to get people to pay more for better service. Given Comcast credit for trying something new. We'll know if a few months if they're barking up the wrong tree or just smarter than everyone else.
ZDNet's Russell Shaw, a Comcast high-speed customer, is skeptical about the reliability of the cable giant's service, as well as its pricing strategy.