Beast of telecom’s burden

Earlier this year, I wrote about Nortel’s rise from the ashes. CEO Frank Dunn’s background as a CFO signalled an era of financial accountability for the troubled telecom behemoth. Happy days were here again.

But just when we thought it was safe to invest in tech stocks, Nortel has found its

way back into the hot seat, and this time, extracting itself may not be so easy.

The company is currently under criminal investigation by both U.S. and Canadian authorities for matters — stretching back to 2001 — related to its accounting practices. The company’s bookkeeping was at the heart of an internal investigation earlier this year that resulted in Dunn’s firing as well as that of two other key executives in April.

At the time, Nortel said it would be restating its earnings, and that its 2003 reported profits of more than US$700 million were actually only about half of that.

In December 2000, after Nortel’s first dip on the stock roller coaster, Dunn, in his capacity as the company’s chief financial officer, gave an interview to CFO magazine. The article looked at the role the CFO plays in managing a US$21 billion company that is growing at 40 per cent a year.

“”When you look at the traditional mindset of finance, it may play a cop role,”” Dunn told CFO magazine. “”We’re unbelievably far away from that paradigm. Traditionally, we do a lot of reporting, internal controls, and so on. But those are taken for granted.””

Perhaps the answer to Nortel’s current woes lies in Dunn’s own words. If Nortel’s chief financial guru had stepped so far away from the paradigm of finance as a cop or a source of internal control, it’s easy to see how things could spin so far out of control.

In its glory days, Nortel boasted a global army of more than 95,000 employees. Repeated attempts by the networking equipment maker to cut costs have resulted in staff being slashed to 30,000. Last month, the company announced additional layoffs of 3,500 mostly North American staff in yet another effort to trim costs.

For the third time in almost as many years, Nortel has a new CEO. William Owens, a former U.S. admiral, has laid down the gauntlet, heralding Nortel’s return to the values Dunn eschewed in 2000. Financial accountability, Owens said, is “”the watchword of the new Nortel.””

Does a firm mired in allegations of financial impropriety have another choice? With investor confidence at an all-time low, it’s going to take more than promises for this admiral to turn Nortel’s ship around.

Throughout the recent tumult, Nortel has inked a number of lucrative deals, but that part of its business strategy has never been in question. Beyond its ability to win business, the industry wants to see Nortel righting some internal wrongs. The firing of key executives is a first step. But the industry will be watching to see what, if any, criminal charges are brought as a result of investigations by the RCMP as well as Canadian and U.S. securities regulators.

In Nortel, Canada’s high-tech industry has had the best and worst of mentors: An innovative visionary with a knack for forecasting the needs of the market, and one of the worst examples of executive leadership in the Canadian technology sector.

What industry watchers want to know is, which Nortel will be in the driver’s seat moving forward?

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Jim Love, Chief Content Officer, IT World Canada

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