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Nortel comes clean: Five leave board as review fingers Dunn

Nortel comes clean: Five leave board as review fingers Dunn

by Rick Turoczy on January 12, 2005

Frank Dunn, the hard-driving former Nortel Networks Corp. chief executive officer, directed his management team to apply accounting policies that did not meet U.S. standards in an effort to meet profit targets and collect bonuses, according to an internal review released yesterday.

The review paints a picture of a corporate culture designed to exploit a bonus system that was tied to profitability by transferring items from one side of the ledger to the other. It found that management’s “tone at the top” sent a clear message that targets could be achieved by applying practices that didn’t conform with U.S. accounting rules, and also “that questioning these practices was not acceptable.”

“Dunn and others exercised their judgment strategically to achieve EBT [earnings before taxes] targets,” the review says.

Mr. Dunn was fired in April, along with chief financial officer Douglas Beatty and controller Michael Gollogly, followed by seven other finance employees later in the year. The review makes clear that Nortel is placing much of the blame for its continuing accounting and financial fiasco at the feet of its former CEO and his financial team.

Further, the review found that many members of Nortel’s accounting staff lacked technical expertise, having learned their skills on the job. There was a lack of internal controls, and a complicated business unit structure that lacked “clear responsibility and accountability by business units and by regions.”

Nortel comes clean: Five leave board as review fingers Dunn

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