Nortel Networks Corp. announced on Wednesday that it has fired CEO Frank Dunn "for cause" and has replaced him with William Owens, former CEO of satellite communications company Teledesic LLC. Nortel has also delayed the availability of its financial results for the first quarter of 2004.
Former CFO Douglas Beatty and former controller Michael Gollogly, who had both been on paid leave since March, have also been terminated. Other staff changes announced by the company include permanent jobs for William Kerr as CFO and MaryAnne Pahapill as controller, both of whom have been in their positions on an interim basis since March.
The Brampton, Ont.-based company's Audit Committee is in the process of conducting an independent review which focuses on management's practices regarding accruals and provisions. The review, which was originally set to cover the company's accounting practices in 2000, 2001 and 2002 has been extended to include all of 2003 as well, Nortel said.
Although the audit is ongoing, the company said that it has determined that it will need to restate the financial results reported in each of its quarterly periods of 2003, 2002 and 2001.
The Audit Committee will take its time to ensure its review is thorough and that "appropriate corrective actions are implemented," the company said. Following completion of the review, Nortel then plans to complete its full year 2003 and interim 2004 financial statements.
Nortel stated the complexity of the audit as the reason why the company "is not in a position at this time to announce preliminary financial results for the first quarter of 2004." The company had originally scheduled to release its results at the end of April.
Some executives may have been replaced, but that doesn't necessarily mean that Nortel can't bounce back, according to Iain Grant, managing director for SeaBoard Group in Montreal.
"(Nortel) still has the same resources, the same files, the same sales teams (are) out in the same fields talking to the same customers who still want Nortel's gear as much as they ever did," Grant explained. "So, the fundamentals of the business I don't think are going to be affected at all."
What will be affected is the company's reputation on Wall Street and Bay Street, Grant noted, and the general sense of euphoria that "we all felt when Nortel 'turned a corner' a year ago may have been misplaced somewhat."
That being said, Grant explained that Nortel did turn the corner and things aren't getting worse but are instead getting better -- and the order books are filling up.
The only question now, according to Grant, is that "it looks like there may have been some quarterly reporting that may have been somewhat erroneous in the particular but not in the general sense, (meaning that) I have booked stuff in January that should have possibly been booked in November, to create some sort of vision of ground swell."
Another factor to consider is that the company has about 60,000 fewer people than it had a couple of years ago, Grant noted, and 60,000 people can actually affect things. "You don't loose 60,000 people and get the same sort of continuity that you had when they were there," he added.
When it comes down to it, Grant noted that the public doesn't know exactly what happened and why the board did what it did, "but I think we can all understand the environment in which it all happened. I have enormous sympathy for Mr. Dunn and for Nortel and for the turmoil they are going through," Grant said.
Although it may seem bleak for the company today, Grant said Nortel's announcements have put it in a leadership position.
"There are a whole lot of other companies that are going through the same sort of crisis over the same time period and the same issues are facing them," Grant said. "Nortel has decided to wash its laundry in a relatively public way and is paying the penalty for that. I think those same issues and those same questions need to be asked of the others too."
In addition to cuts to its upper crust, Nortel also announced that four senior line business finance executives during the periods under review have now been placed on paid leaves of absence.