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.
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