Light Reading

Shareholders Blast Nortel

Light Reading
News Analysis
Light Reading
4/25/2002
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Nortel Networks Corp. (NYSE/Toronto: NT) faced a battery of questions during its annual shareholder meeting today in Halifax, Nova Scotia -- many of them from a single shareholder.

Nortel's board was queried on its financial statements, on compensation for ex-CEO John Roth and other executives, on its guidance, on share dilution, on its ability to weather the ongoing telecom downturn, and even on why the company chose to hold its meeting at 11:15 AM in Halifax.

Several themes emerged during the proceedings, which were attended by 65 shareholders, representing roughly 1.9 billion of Nortel’s 3.2 billion outstanding shares of common stock. Here are some highlights:

  • Shareholders want John Roth's head on a platter. From the outset, there was criticism of Nortel's ex-CEO. "Where is Mr. Roth?" demanded outspoken shareholder Robert Verdun. "He's not here to face the wrath of shareholders. Where is he?" (Executives acknowledged that Roth wasn't present at the meeting.)

    Verdun also demanded to know how Frank Dunn was able to carry on as both CEO and CFO. Dunn said he's only been doing double duty since February -- when CFO Terry G. Hungle left under a cloud (see Nortel CFO Leaves After Probe). Dunn said the board plans to choose another CFO this quarter.

  • Shareholders want Nortel to cut executive compensation. The topic of executive pay came up repeatedly, including the $825,000 salary Dunn will draw this year. Shareholders seemed particularly incensed by the $1.5 million salary awarded to ex-CEO John Roth and to the terms of his severance agreement with the company (see Nortel's Roth Rakes It In). "That is one obscene golden handshake," said one shareholder. He and Verdun asked that the board appoint an independent team to review executive compensation at Nortel. Because the move hadn't been suggested early enough for a vote of all shareholders, it wasn’t acted on.

  • Investors are bitter. During the meeting, it became apparent that shareholders, particularly Canadian ones, are angry with Nortel and don't entirely buy its version of recent events.

    "You have no credibility," Verdun said at one point, calling the Nortel downturn the "biggest financial disaster in Canadian history," and one that executives should have seen coming. At another point, he accused Nortel executives of profiting while shareholders, "many of them pensioners," lost 90 percent of their investment in the company.

  • Shareholders are questioning all relationships. During today's meeting, Nortel was questioned about several of its business relationships. It emerged, for instance, that the company’s auditors, Deloitte & Touche LLP, provided $15 million in non-auditing services to the company in 2001. Now, in the wake of the Enron/Andersen scandal, Nortel is under pressure to keep its relationships free from any whiff of unwholesomeness. Nortel execs made it clear that if a new consulting company emerges from the side of Deloitte, it will consider doing business with it "as long as it’s completely separate" from the auditing operation.

    More issues arose over the board of directors. One candidate for the board, William Arthur (Bill) Owens, apparently did not own any Nortel stock until recently -- something Verdun considered "an insult" to other investors. Another director, Yves Fortier, apparently provides legal services to Nortel.

  • Shareholders want better information. "Why do I have to get my disclosure from the media?" asked Verdun. "My problem with all your documentation is that it’s heavy on rhetoric and short on numbers. You have to weed through masses of words to find the facts." He said he wanted Nortel to cease relying on pro forma financial statements and stick instead to the final accounting only.

During the meeting, Nortel execs were plainly annoyed with Verdun, and some fellow shareholders also asked him to halt his questions. But Verdun made it clear he would not be rushed: "We get one day a year to ask questions of Nortel’s executive board," said the outspoken shareholder. "If you try to cut me off, there are procedural ways I can prevent that from happening." So saying, he went on to ask nearly two hours' worth of questions, sometimes drawing applause.

In an apparent attempt to foil Verdun's questioning, board chairman Lynton R. "Red" Wilson refused to call a recess for lunch until the business of the meeting had concluded. That didn't happen until almost 4 PM.

Even the timing of the meeting was open to scrutiny. Verdun criticized the board and senior team for picking a site far away from Ottawa and for starting the meeting at 11:15 AM instead of earlier in the day. In answer, Frank Dunn said Halifax was chosen because it cost one-third less than meeting places closer to corporate headquarters. As for the start time, Wilson and others said they'd "take it under advisement."

— Mary Jander, Senior Editor, Light Reading
http://www.lightreading.com
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jssreenath
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jssreenath,
User Rank: Light Beer
12/4/2012 | 10:31:27 PM
re: Shareholders Blast Nortel
call this number, enter the passcode, and listen, it is pretty damning

North America
(800) 633-8625 (passcode 20482469#)

International
(858) 812-6450 (passcode 20482469#)

lkuav8r
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lkuav8r,
User Rank: Light Beer
12/4/2012 | 10:31:24 PM
re: Shareholders Blast Nortel
I remember seeing a banner in my nortel office two years ago attesting to John Roth single-handedly adding 150B market share to Nortel stock. Where were the angry shareholders then? We should have been scrutinising (sp?) the aggressive business practices back then.
lordgarlic
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lordgarlic,
User Rank: Light Beer
12/4/2012 | 10:31:22 PM
re: Shareholders Blast Nortel
Dear Nortel shareholders,

Although you are owners of our company, we see it in our best interests to continue to run the firm into the dirt. As Warren Buffet often states in his letters, many executives do not understand the difference between being shareholders and option holders. I am often amazed that many executives pay themselves much more than Mr. Buffet ($100,000 per year) or Mr. Gates (less than a $1,000,000 per year) for corporate performances that would make your dog sick. Well, I guess the other option is to let these bozos drive their respective firms into the dirt.
Well, were mad as HELL and we are not going to take it anymore!!!! I guess we can keep dreaming. . .

Regards,

Lord Garlic
dodo
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dodo,
User Rank: Light Beer
12/4/2012 | 10:31:19 PM
re: Shareholders Blast Nortel
You must be filthy rich or a daddy's son.
I would like to know how you would react if all your savings went down the drain and you have to live onthe paltry Canadian pension.

Most of these shareholders used to own BCE shares and end up owning Nortel in the end. By the time Roth and Chandran woke up it was to late for most of them to react. Nobody was aware of the business practices because it was not public. Nortel had some equity interests in some of these bankrupted greenfield carriers and unless you were in finance or on the account team , no one was aware of it.


Come down to earth instead of living in your Nortel cocoon.
Dr.Q
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Dr.Q,
User Rank: Light Beer
12/4/2012 | 10:31:19 PM
re: Shareholders Blast Nortel
Robert Verdun is championing the issues that should be asked in every board room in America. The cold reality is that no one was paying attention to the business. John Roth, Terry Hungle and a host of others were paid princely sums to look and think strategically--to look at the marketplace critically and their customers' market as well. Instead, they fed & fed on the mass hallucination of unlimited growth, and led us (shareholders, employees, vendors, creditors) blindly off a cliff.

They did not do the job they were hired to do. Fire the bastards.

lkuav8r
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lkuav8r,
User Rank: Light Beer
12/4/2012 | 10:31:15 PM
re: Shareholders Blast Nortel
Unfortunately, neither. I lost my whole 401k because I left it all in Nortel. I blame myself.

I quit nortel two years ago.
malakraday1
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malakraday1,
User Rank: Light Beer
12/4/2012 | 10:31:06 PM
re: Shareholders Blast Nortel
I wish I could be allowed to design a product like John Roth ran Nortel. I would create an optical product that didn't fit into any existing systems and claimed to break all the laws of physics. Then I would be paid 1 million dollars a year with a golden parachute if nobody liked my design and someone wanted to fire me. I would just hop from company to company like that carpet bagger from the music man musical.
data
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data,
User Rank: Light Beer
12/4/2012 | 10:31:03 PM
re: Shareholders Blast Nortel
I was in Nortel till about a year ago. I still have some money in my 401K. Here is how.

One afternoon in 2000 one Nortel executive (can not name him) called us personally and told us that Nortel will declare superb result which will take everyone through the roof. I moved all my 401K to Nortel. Next few days Nortel stock dropped from 86 to 64. After about a quarter the same executive again called us and said this quarter is Nortel's quarter, you won't believe what you will see. By that time NT was 34. By this time I have learnt my lesson and moved all my 401K out of NT to S&P 500. And guess what NT came down to $15 in the next week. I am happy that I still have some money left in my 401K.

If I have learnt one thing in the last 15 months, it is that don't believe in what corporate executives say. Sometimes I feel they are paid to lie.
opt_dhogan
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opt_dhogan,
User Rank: Light Beer
12/4/2012 | 10:31:01 PM
re: Shareholders Blast Nortel
******************
I was in Nortel till about a year ago. I still have some money in my 401K. Here is how.

One afternoon in 2000 one Nortel executive (can not name him) called us personally and told us that Nortel will declare superb result which will take everyone through the roof. I moved all my 401K to Nortel. Next few days Nortel stock dropped from 86 to 64. After about a quarter the same executive again called us and said this quarter is Nortel's quarter, you won't believe what you will see. By that time NT was 34. By this time I have learnt my lesson and moved all my 401K out of NT to S&P 500. And guess what NT came down to $15 in the next week. I am happy that I still have some money left in my 401K.

If I have learnt one thing in the last 15 months, it is that don't believe in what corporate executives say. Sometimes I feel they are paid to lie.
******************

Sounds a bit Enronic to me... If they knew better than to advise buying Nortel stock, they broke the law, right?

That would be very similar to one of the Enron crimes, right?

Did Nortel have "shredder parties" of its own?

-d
tiadakola
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tiadakola,
User Rank: Light Beer
12/4/2012 | 10:30:01 PM
re: Shareholders Blast Nortel
That 'unnamed Nortel exec' will be going to jail...hope someone saved the voice mail...just like the dumb #$@!% (VP of HR) at Enron who was captured on video during an employee meeting telling everyone to buy enron stock through the 401k plan while the day before she cashed everything out based on tips from the finance department...you just can't make this bullshit up.

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