The acquittal of the three former executives of Nortel Networks Inc. who were charged with fraud is a victory for common sense. While Mr. Justice Frank Marrocco accepted the evidence of the prosecution’s own witnesses, he concluded that the successive interpretations of the company’s results were all justifiable and made in good faith.
The death throes of Nortel diminished the savings of a huge number of Canadians, but that would be no justification to punish as criminal offenders Frank Dunn, the former president, and two senior finance executives, Douglas Beatty and Michael Gollogly, who appear to have been attempting, according to their lights, to rescue the company.
This was not a case of a set of alternative, hidden, realistic books of account, as in the prosecution of Garth Drabinsky, the former CEO of .Live Entertainment Corporation of Canada, Inc. On the contrary, the first revision of Nortel’s financial statements was a corrective response to “worst-case scenario” conservatism that had been acted upon when the company had to make huge writeoffs, which later turned out to be excessive. But that conservatism had been legitimate at the time.
The attribution of motives is a tricky matter. It is humanly understandable, but unwise (as well as ungenerous), to think that, if someone takes a course of action that increases his or her pay, the choice must have been self-interested. In the Nortel case, the more favourable results, under the company’s policy, did result in larger bonuses for the defendants. Indeed, Mr. Gollogly, the former controller, drafted a letter in which he wondered whether he should accept the bonus, while the company was still struggling, but he never sent it. If all three had passed up the bonuses to which they were entitled, they would have spared themselves a great deal of grief. A two-month review by a Washington, D.C., law firm inferred that all three had been manipulative; they were dismissed, which brought about a final loss of confidence in Nortel on the financial markets.
The nine-month trial, with hundreds of documents (the tip of an iceberg, from the 30 million pages in the hands of the RCMP), did not prove manipulation, let alone fraudulent motives. Mr. Justice Marrocco’s cautious, thorough 142-page review of the evidence is convincing. The moral of the story is that one should be slow to feel too sure of what goes on in other people’s heads.