There is no substitute for a culture of integrity in organizations. Compliance alone with the law is not enough. History shows that those who make a practice of skating close to the edge always wind up going over the line. A higher bar of ethics performance is necessary. That bar needs to be set and monitored in the boardroom.  ~J. Richard Finlay writing in The Globe and Mail.

Sound governance is not some abstract ideal or utopian pipe dream. Nor does it occur by accident or through sudden outbreaks of altruism. It happens when leaders lead with integrity, when directors actually direct and when stakeholders demand the highest level of ethics and accountability.  ~ J. Richard Finlay in testimony before the Standing Committee on Banking, Commerce and the Economy, Senate of Canada.

The Finlay Centre for Corporate & Public Governance is the longest continuously cited voice on modern governance standards. Our work over the course of four decades helped to build the new paradigm of ethics and accountability by which many corporations and public institutions are judged today.

The Finlay Centre was founded by J. Richard Finlay, one of the world’s most prescient voices for sound boardroom practices, sanity in CEO pay and the ethical responsibilities of trusted leaders. He coined the term stakeholder capitalism in the 1980s.

We pioneered the attributes of environmental responsibility, social purposefulness and successful governance decades before the arrival of ESG. Today we are trying to rebuild the trust that many dubious ESG practices have shattered. 


We were the first to predict seismic boardroom flashpoints and downfalls and played key roles in regulatory milestones and reforms.

We’re working to advance the agenda of the new boardroom and public institution of today: diversity at the table; ethics that shine through a culture of integrity; the next chapter in stakeholder capitalism; and leadership that stands as an unrelenting champion for all stakeholders.

Our landmark work in creating what we called a culture of integrity and the ethical practices of trusted organizations has been praised, recognized and replicated around the world.


Our rich institutional memory, combined with a record of innovative thinking for tomorrow’s challenges, provide umatached resources to corporate and public sector players.

Trust is the asset that is unseen until it is shattered.  When crisis hits, we know a thing or two about how to rebuild trust— especially in turbulent times.

We’re still one of the world’s most recognized voices on CEO pay and the role of boards as compensation credibility gatekeepers. Somebody has to be.

Nothing Epitomizes the Folly of Nortel’s Life Like the Ending of It

The company, whose management and board have displayed such colossal contempt for common sense and good judgment and have inflicted so much damage on shareholders and employees, deserves to disappear into the winter snows of folly.  Its employees do not.

Once again, Nortel – now just  the pathetic remnants of a once iconic global brand – has shown its true DNA.  It lacks the corporate gene for grasping reality. The latest example came this week when the company, while in bankruptcy protection and after denying severance and benefits to thousands of employees, managed to come up with millions in bonuses for top executives.  As we have noted  before, from the time Nortel was founded as an offshoot of Bell Canada – with that firm’s monopolistic culture and pampered directors establishing the tone – to the excessive compensation it lavished on previous CEOs (one of whom still faces criminal charges) and the sea of debt it chose to set its course upon, this company has never adapted to reality very well – or accounting rules, for that matter.  It has had, as a defining hallmark of its culture, the tendency to reward and mollycoddle those in the executive suite and in the boardroom, while viewing employees as expendable bodies.

The outcome, though perhaps predictable, is of course sad on many levels, and especially in its human dimension.  But a company whose management and board have displayed such colossal contempt for common sense and good judgment and have inflicted so much damage on shareholders and employees, deserves to disappear into the winter snows of folly.   Its employees do not.  If enough public outrage can be mounted – and it is surely deserved – perhaps management can be forced to share the pain in the same way Nortel’s employees have, by sharing the dollars that go with their obscene bonuses.  It is unfortunate that little indignation is being voiced by the judge who is overseeing the process.  Canada has few jurists like U.S. District Judge Jed Rakoff, who, it will be recalled, refused to go along with the cozy settlement concocted by the SEC and Bank of America last summer.  He thought it was offensive to the public conscience.  So is the compensation arrangement approved in court proceedings for Nortel’s executives.

Ultimately, after having been the most valued company on the TSX, all that there is to show for the shattered remains of this once promising enterprise is a lesson in hubris and, more particularly, the consequences of taking future success for granted, of assuming trophy directors actually are plugged into the company and know what is going on, and of buying into the myth of excessive compensation where riches for a few at the top are taken as a guarantee for all the other investors and employees who have a stake.  Perhaps Nortel can do a better job in that role than it did when, in the mid-1990s, it used to give keynotes at corporate governance seminars holding itself up as a model of sound governance and enlightened leadership.

As Winston might have said:  Some governance.  Some leadership.

Who Killed Nortel?

More than two years ago, we asked the question “How long can Nortel go on being Nortel?” The final answer came this weekend, when it was announced that the remains of the company would be broken up and sold off, leaving not much except a once- respected, but long since discredited, name.

You might wonder what happened to Canada’s most valued corporate prize–this bastion of innovation that put Canadian technology on the map around the world. The answer is a failure of corporate governance, pure and simple.

Nortel had a series of boards that drew their cultural inspiration from the old Bell Canada monopoly model which gave the company its life many years ago. Many of Nortel’s directors in the 80s and 90s, and even in the 21st century, were also directors of Bell Canada. The former CEO of BCE (or Bell Canada now), Jean Monty, took two turns at being Nortel’s CEO and then going back to head BCE.

That model was about a never-ending deference to management and the assumption that large size would always translate into continued success. Nortel’s boards missed red flag after red flag and took the wrong turn in the market, like General Motors, on almost every occasion. They continued to put their fate in the hands of managers who were not up to it, and pay them absurd levels of compensation. They thought they could give lessons to the world on corporate governance. Several of Nortel’s directors, including one-time CEO John Roth, were on a committee appointed to reform Canada’s corporate governance practices. They fell embarrassingly short of that mark but did manage in one respect to provide an unexpected lesson: how to take a giant company with an astonishing pool of innovative workers and enormous shareholder support and turn it into a basket case of accounting scandals, self-serving management and stunningly complacent directors.

Rest in peace, Nortel. You deserved better.

Nortel Unplugged

The company’s falling into bankruptcy proceedings is the ultimate progression of decades of flawed strategies, management hubris and a clubhouse full of disengaged directors.

With its Chapter 11 filing in a Delaware court today,  Nortel is making its final journey as the company that once aspired to be a world-class technology player.  It is unlikely to emerge as even a shadow of its current self, battered and weakened though it be.

This is the ultimate progression of decades of flawed strategies, management hubris and a clubhouse full of disengaged directors.  This was a company which once boasted a market capitalization larger than all the Canadian banks combined.  Today, start up t-shirt makers have a bigger cap.   The stock once hovered above $125 a share in 2001 and 2002.  Adjusted for its subsequent 10 to 1 consolidation, it closed at just under 4 cents (Canadian) on Tuesday.  Trading was halted today.

We have commented about the failure of Nortel and the culture of boardroom arrogance that has now brought it to the steps of the Delaware bankruptcy court.  We think of the arrogance of one-time CEO Paul Stern, the shuffling back and forth (with generous severance each time) in the CEO slot of John Monty from BCE -which created Nortel in the first place- and the huge misjudgments that saw the stock tank in the tech bubble, but still allowed then-CEO John Roth to make off with more than $150 million.  We are reminded of the trophy directors who commanded amazing deference and respect in the business world but who seemed unable to figure out the most basic things of what was happening to the company under their noses.   Then there is the string of accounting restatements and the alleged securities violations and criminal charges against previous management that shook shareholder confidence to its core and from which it has never returned.   Most of all, we are thinking today about the tragedy of the human side at Nortel involving lost jobs and shattered careers in a company that had untold potential but in the end did not produce the boardroom leaders who could capture it or measure up to that trust.

More than a year ago, we proffered the thought:

With its history so steeped in scandal and its present still darkened by constant financial backpedaling, it needs to think through whether Nortel can go on being Nortel.

The company gave its answer today.

Nortel, At Ten Cents or So

The company claims it is turning things around.  Given the sputtering pace of progress in altering course and staggering quarterly loss of $3.41 billion, investors must be wondering if what they are turning around is the Titanic.

When its stock fell through the floor in 2006, Nortel’s  “solution” was to consolidate its shares on a 10 for 1 basis.  When its accounting was shown to be something of a scam, it restated its earnings.  Not once, not twice.  Three times would have been a record.  But Nortel went for the big prize: a fourth restatement.  That’s when we dubbed Nortel a serial re-stater.   

Still, its losses mounted.  And each time it recorded more financial disaster, it announced more layoffs.  Quarter after quarter, year after year, the losses climbed and the jobs disintegrated.  Here’s what we said in February:  

… you have to wonder what’s going to happen when Nortel runs out of jobs to cut. Will they try to lay off workers at other companies in order to look good? Stranger things have happened at Nortel, not the least of which is the infinite patience investors have shown for a company that always promises paradise in the abstract but generally delivers disappointment in the quarter.

Today, the company announced a third-quarter loss of $3.41 billion.  And, sure enough, it came up with more bodies to layoff.  They say 1,300 jobs will be eliminated in the near future.  Nortel has reduced its workforce by nearly 60,000, the equivalent of the entire population of Springfield, Ohio.

Nortel has never recovered from the days when it had a disconnected board and a CEO who also seemed rather detached from reality, at least the reality of the burst dotcom bubble.  It lurched from that low point to full blown scandal with criminal charges laid against former CEO Frank Dunn and other top executives, along with a costly run-in with the Securities and Exchange Commission.   Since Mike Zafirovski -its fourth CEO since 2002- took over, Nortel has lost more than $4.5 billion.  Even before Mr. Zafirovski took over the helm at Nortel, management was claiming the company was in the midst of a turnaround.  Given the sputtering pace of progress in altering course, investors must be wondering if what they are turning around is the Titanic.

We asked the question some time ago whether Nortel is capable of righting itself, or whether, given its checkered history and seemingly intractable descent into oblivion, its shrinking asset base and dwindling stock of human capital are better entrusted to other managers and directors.  

Nortel’s stock closed today at less than a dollar on the New York Stock Exchange.  If you took that on the basis of what it would have been before the 10 for 1 consolidation, Nortel would be trading at around ten cents a share.  At its height, the stock sold around $125.

And where is Nortel’s board now?  Has it laid out a plan that is capable of restoring the trust of investors and demonstrating that it comprehends what’s going on?  Is it requiring any accountability from a CEO on whose watch $4.5 billion was lost?  Or is it, like its predecessors, just partying in first class while Captain Z keeps hitting one iceberg after another? 

A ten cent (unconsolidated) price per share seems to be a pretty resounding answer.

Crackdown in the Boardroom

Even Canada’s corporate crime cops are suddenly busy busting businessmen

It was a day for the record books. Never have so many high profile former insiders in so many companies been charged with fraud on both sides of the border. The RCMP, a frequent object of criticism for its slow pace in bringing white-collar criminals to justice, suddenly broke into a sprint and charged a whole slew of former executives in Nortel and Royal Group Technologies, including past CEOs of both firms. In the United States, justice department officials brought indictments against two former hedge fund managers at defunct Bear Stearns.

As an aside, you may have noticed the former Bear Stearns managers being taken away in handcuffs, escorted by armed federal agents. You will not see that picture in Canada. It’s just not considered the Canadian way -at least not when it comes to dealing with corporate fraud at this level. Some observers believe the contrast says a lot about the differences in how seriously the two jurisdictions treat white-collar crime.

Now that one-time executives at Nortel and Royal Group Technologies have been charged, the question is when will they be tried? Canada has a notoriously slow record in getting high profile white-collar cases into the courtroom. Garth Drabinsky and Myron Gottlieb, founders of the once highflying Livent, where charged with accounting fraud in 2002. Their trial got underway in Toronto just last month. We have been attending some of the proceedings and will be following up with a posting shortly. The charges involving Nortel’s former executives arise from events in 2002 and 2003, nearly six years ago. The fraud at Royal Technologies is alleged to have taken place some 10 years ago. By contrast, the U.S. justice system typically works much faster, as Conrad Black discovered to his dismay. The Bear Stearns fraud is said to have taken place in early 2007. The legal future of the pair charged there will likely long have been decided before even the first word is spoken in the Canadian corporate trials of the former stars of Nortel and Royal Technologies.

One more fact in common among these three companies is worth noting. They were a model of corporate governance failure. We broke news on Bear Stearns’s stunning board shortcomings even before its unceremonious end. Royal Technologies’ governance, and it’s being generous to call it that, was so bad it is hard to imagine that the lights were ever turned on in the boardroom. Did the CEO hide the switch from the directors? We shall see. Nortel, like Enron, was one of the boards that looked good on paper but in reality was giving management a blank check. It’s not surprising that some of the company’s former management may actually have taken that role a bit too seriously. To have had to restate its financial figures as often as Nortel has (four times in all and a record for a publicly traded company in such a period of time), and to admit the extent to which its internal financial controls had failed, are a testimony to how far and how long its big-name board slumbered.

Don’t be surprised if the issue of corporate governance, and what directors did and did not do, features prominently in some of these trials.