Former Nortel CEO Frank Dunn: 'It takes courage and toughness to hold onto these values in tough times and in the face of adversity,' he wrote in a memo.The Globe and Mail
Former Nortel Networks Corp. chief executive Frank Dunn strove to create a culture of ethical behaviour at the troubled telecommunications company as it struggled to return to profitability, a Toronto court heard Wednesday.
Lawyer David Porter, who is representing Mr. Dunn at his fraud trial in Toronto, introduced a series of internal documents from 2002 and 2003 in which the CEO urged staff to act with integrity as he also stressed the need for the company to return to profitability as soon as possible.
In a memo to all staff on Dec. 16, 2002, for example, Mr. Dunn noted the company was coming off the toughest year in its history, and urged staff to uphold their values in bad times.
"It takes courage and toughness to hold onto these values in tough times and in the face of adversity," Mr. Dunn said in the memo, which he told staff he was writing while returning from a business trip to India and reflecting on the events of 2002.
"While our values have been updated, they haven't changed significantly. I feel strongly that values shouldn't change."
In an internal company newsletter a month earlier, which reported on a group meeting Mr. Dunn held with Nortel business leaders in November, the former CEO challenged other managers to do everything they could to move the company toward profitability, but also to "model integrity as the underpinning of everything we do."
Mr. Porter also introduced a version of Nortel's internal code of conduct, which was updated in August, 2003, during Mr. Dunn's term as CEO. In it, leaders are also told they should "model" ethical behaviour for others.
Mr. Dunn, former Nortel chief financial officer Douglas Beatty and former controller Michael Gollogly are facing two counts of fraud for allegedly misstating Nortel's finances in 2002 and 2003 to trigger "return to profitability" bonuses for executives.
The men were fired from Nortel in 2004 after the board became concerned with the company's financial reporting.
Mr. Dunn's lawyer presented the documents about Mr. Dunn's integrity while cross-examining Crown witness Brian Harrison, who is Nortel's former director of planning and analysis.
Asked if he was familiar with the message of integrity at Nortel, Mr. Harrison replied: "That was a consistent theme."
Mr. Harrison also confirmed Nortel's auditors at Deloitte & Touche regularly received the internal outlook documents he prepared to forecast the results anticipated in quarters to come.
The defence is disputing an allegation by the Crown that the company's auditors were kept in the dark about accounting manipulations at the company. Defence lawyers have suggested that auditors were fully aware of all accounting decisions and were carefully reviewing and approving the use of controversial accounting reserves that were being booked at the time.
Mr. Porter said it was particularly clear by March, 2003, that Deloitte was ramping up its scrutiny of Nortel to seek explanations for any variations between the forecasts and the final reported results.
"It's fair to say Deloitte & Touche had substantial knowledge and appreciation of the forecasts you did," he noted to Mr. Harrison, who agreed.
Cross-examination of Mr. Harrison will continue Thursday.
Janet McFarland