Ethics Newsline®

Special to Newsline from Canadian correspondent Errol P. Mendes

OTTAWA
The Globe & Mail is reporting that governance and accounting experts in Canada are laying the blame for Nortel Network’s woes not only on former CEO Frank Dunn, but also on its board of directors and outside auditors.

The criticism follows a Washington law firm’s independent review of the financial and accounting irregularities at the company, which have seriously hurt its reputation and share value.

The review by law firm Wilmer Cutler Pickering Hale and Dorr laid a substantial part of the blame for the irregularities on Dunn, but did not criticize the board of directors or outside auditors Deloitte & Touche.

But Stephen Jarislowsky, a leading governance expert and investment manager, asserted that the board’s approval of a bonus scheme for senior management provided the incentive for these managers to cook the company’s books and inflate corporate profits.

Al Rosen, a leading forensic accountant, has asserted that Nortel should have replaced its longtime outside auditors after the company stated that investors could no longer rely on audited financial statements going back to 1999.

Rosen is particularly mystified, according to the Globe & Mail report, that Deloitte & Touche could sign the restated 2003 financial statements when the company had doubted the accuracy of its books in earlier years.

The accounting firm did not raise any concerns about Nortel’s accounting processes during audits of the firm’s past results, according to the report.

The board and its outside accountants are facing class-action lawsuits as well as criminal and regulatory investigations in Canada and the United States.