Why Ottawa Shouldn’t Save Nortel

By Mark Evans | Published: November 3, 2008

Now, this is interesting.

Earlier today, Sacha Gera wrote a blog post on the National Post’s Executive Blog on why Ottawa (aka the federal government) should save Nortel. Now, Shane Parrish has a post arguing why Ottawa should not save Nortel.

In a poll on AAN, 58% of people who responded said Ottawa should save Nortel, 32% said “No” and 10% said “maybe”.

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  • The Left Behind

    It would send a very bad message to the market that a poorly managed company can get a government bail… we have to let the forces of the market do their work but what Ottawa should do is to find a way to get those bonuses back and stop any executive bonus payments for 08 performance. Unfortunately NT doesn't have any activist shareholder to rise his/her voice to challenge the exec management team, and the poor employees left won't do anything in fear of retaliation.

    Can Z and team, or BoD be sued? are there any legal grounds? just wondering…

  • Eli

    Good thing you were not making the decision whether or not the U.S government would bail out honest people who got screwed by forces beyond their control (like nortel people). You remember that 800 billion dollar bailout?

  • Lobk

    How does bailing out a company with soon to be under 25k employee world wide help Canada? Saving one company versus the US goverment preventing a financial meltdown isn't the same comparison.

    At the same time the bailout to me means that poor decision still went rewarded with no accountability. If your big enough you can screw up and the goverment will help you.

  • Eli

    As I mentioned in another post when you consider how the canadian government wastes untold billions this is but a drop in the bucket. What would it be to you? Why don't you protest the brutal waste of money on a large scale which the government partakes in rather than some small pittance like this?

  • ex-Nortel

    It would be extremely difficult for the Canadian Government to bail out a company whose employee base is 75% non-Canadian. How far can the Canadian Government go in 'guaranteeing' jobs and product groups that have no Canadian content.? From an operational perspective, an all Canadian bail out would be impossible to perform. Do Canadian tax payers want to pay for Nortel development activities in Texas or North Carolina or France or Russia or India – because they would have to bear these costs in a bail out.

    Furthermore, any operating covenants or restrictions brought about about by such a potential bail out would be in violation of many employee or business operational codes – especially in Europe.

    The best scenario for Nortel would be for the Canadian Government to extend low cost 'bridge' financing to cover Nortel's cash burn over the next 12 to 18 months with the hope that Nortel will be able to efficiently downsize itself by selling off assets and pay back the 'bridge' financing. Unfortunately, Nortel lacks the management team, BOD, or business structure to effectively implement this scenario – especially in this environment.

  • joremero

    The US government is also bailing out the automakers, including Chrysler, which is a private company….

  • NewBlue

    Following a bad precedent is not a sign of competent leadership.

  • http://nortelinsider.wordpress.com/ Desk Jockey

    Using that argument the government should bail out every failing business because somewhere in this universe honest people will be affected by it. After, all the government's got the money, and it's essentially free, right?

  • http://nortelinsider.wordpress.com/ Desk Jockey

    Agreed – the argument that it would boost the economy and keep/create jobs in Canada is weakened due to the amount of outsourcing in use. Even financing would face opposition because of this. (i.e. risk of default)

    Not arguing for or against outsourcing, just stating the facts.

    Furthermore, public perception of Nortel is not too high, since many investors lost lots. Everyone lost or knows someone who lost. So there may be a feeling of “why should my tax dollars go to financing them”.

  • exnt2

    OTTAWA SHOULD NOT SAVE NORTEL, UNTIL CEO PAY IS TIED TO PERFORMANCE. HERE IS WHY.

    I read an interesting publication from the Financial Post. They did a survey of 200 Canadian companies, CEO pay and ROI on CEO pay. Some facts:

    1. Nortel is ranked 194 of the 200 companies.
    2. Nortel has a rating of E- for performance, the worst of 10 companies with E-
    3. CEO average 3 year pay is $20 million. CEO rating is $0.3
    This means Z is overpaid and should only get 30% of his total pay
    4. Nortel has declined 73.8% the 7th worst company of the 200
    5. Nortel BOD Chairman Harry Pearce gets $600,000 compensation
    6. Nortel is the worst performer in the IT sector and Telecom sector

    Until these people are sacked or are stripped of their huge compensation packages, the Government should not even look at them. There are 193 reasons in better managed companies, some contribuing to Canada in much bigger ways.

  • Long Term Nortel Employee

    If there were any Canadian Gov't bailouts it should be related to the pension plan. This will protect the Canadian workers who have worked for many years relying on a pension and also those who have aready retired. This would also ease immediate cash contrains on the company to increase the contribution due to the stock market crash and the significant underfunding of the pension plan it will cause. This would be a positive measure which would help Canadian workers and the company and ensure the money benefits Canada.

  • exnt2

    Nortel actually gets Research and Education credits from Canada even though the work is done offshore in India and China. This is 35% benefit on $ invested.

    So much for being an ethical company.

  • exnt2

    Question for Sacha

    How many of the $1.8 billion spent on R&D actually happens in Canada? Dig it up and you will get the right answer.

    There is no substance in your post. This seems to be the new face saving way at Nortel, talking abuout 100 years of history. Ok so what. What is Nortel doing substantively in Canada now? 20% of its workforce is in Canada. Most of its primary units are now outside Canada. This company has threatened Canada of leaving. It has wiped out pensions, retirement plans, funds.

    Canada has a lot more options in sectors, companies who bring in revenue, create jobs and invest into the community. Beggars cant be choosers. Go beg elsewhere. India or China perhaps since Nortel moved most jobs there to win vaporware contracts.

  • exnt

    I would not “save” Nortel. It makes more sense to make funding available for new startups that will hire Canadian people, innovate, and in some cases, make money. If Nortel needed a $1B bailout, you could easily use the same money to fund 50 new startups (telecom, IT, green, pharma..), which would each hire about 100 people, thereby replacing all lost Canadian jobs and more importantly, doing something useful. Putting money into Nortel is the proverbial throwing good money after bad.

  • http://nortelinsider.wordpress.com/ Desk Jockey

    Makes sense to tie CEO pay to company performance. Otherwise, why is there any incentive to improve? No fear of the company dying or going bankrupt since their own financial future is secure.

    Shame so many hardworking people will be affected.

  • http://nortelinsider.wordpress.com/ Desk Jockey

    Because this blog, believe or not, is called “All About Nortel”, not “All About Everything”.

  • protosphere

    Government assistance? Heh, that's all we need following the stunts they have pulled to date with their political and economic power.

    Here they are under EDC welfare to create jobs and export product while they shrink and exports jobs instead.

    Regulating authorities behave totally contrary to what they are there to specifically do in protecting the investor than claim open season on him. They shelter the bad guy with low or no fines to minimize further damage in defense of the defrauded but ultimatum Nortel kept fraud bonuses they fought for at a kangaroo shareholders meeting, printed Nortel paper to pay the fallout where fraud seemingly paid excluding a few fall guys for this level of mass orchestration. Just look how much was diluted at 100M shares/yr. fraud value too I heard no commentary to date on.

    Would the bleeding stop throwing money at them? Nope, they are toast, so why…

    Company forecasts from 3 to 5 years or $20 buying opportunities, reverse splits to draw institutions, with even the green team maintaining exorbitant pay practices rewarding financial innovation, with board members on the audit committee. It cuts staff and their benefits as one green pal promotes another to the employees horror, endless ongoing contradictions resulting in deteriorating credibility amid deteriorating outlook.

    Heck, they even bought a new jet and justified it on being more green, must be a new ideal there reflecting envy or inexperience. Crazy they survived this long and now there is debate on more government assistance. Sorry, makes no cents, or sense, just scents…. the very idea stinks /crazy.

    Now this insatiable white elephant and the management's cash cow on the back of a company losing money for a decade with worsening outlook needs more cash /monetizes /derisks /defers revenues and changes forecasts midstream in 2008…

    If the government bails this chronic disappointing tanker, Ebbers and Skilling should be placed in a padded cell and heavily medicated to combat uncontrollable laughter.

    Nortel's endless events to date must be witnessed to be believed and deserve the contrary to any bailout following one of the largest frauds on earth and certainly the largest in their own country.

    What nonsense is this, that even with their political power and contacts in government and finance anyone would remotely consider bailing this colossal failure time and time again… what for, what would it save or create than misery losing even more money? Where's the carrot ?

    That's all we need, taxpayers already robbed paying the thieves well being, still there hard to find.

    What an unfair and poor precedent for others to follow so far. Does one have to be big to get a license to lie and steal with all sins forgiven or at portray recovery following turmoil. 20% more and government support to boot, promotion for you and bonuses all around.

    Enough lives ruined already, prolonging pain with ongoing layoffs and shareholder's demise ruining so many North American lives as the once highest traded stock that makes more money printing paper than selling product for a decade, pull the tooth and bury this dog. Let the good engineers start afresh with a bright and secure future and bring those still there hard to find to trial and show others exactly what not to do in mass orchestrated fraud that thwarts any home invasion.

    Thank goodness for scrutiny and a moral majority. They had many chances, and blew them all. Now it is time to go. .

    Good bye and good riddance to this hard to flush turd, not worth dressing it up to appear anything greater than exactly what it is under this proverbial hope and hype and benefit of doubt to contradiction and demise.

    If they folded at 43 cents presplit, this would have saved the endless lives ruined to fraud. It's about time and better late than never. No government bailout,.let the US' DOJ's lawyers investigate and invest the money in finding those still there to secure our equities markets than further ruin them enhancing than deterring open season on the investor.

    Disgraced is an understatement bordering shameless with ongoing events, stop the embarrassment, end of story. No government bailout, get rid of it, it's rotten image for Canada.

  • Anonymouse

    Is it just me… or when you try reading this post does it feel like someone is trying to sell you cheap Viagra? It's always the same from this guy… Nortel is toast… Nortel stole and lied…. wah wah wah… give it a rest already.

  • notafan

    no its not just you, and kudos to you for actually reading it… i can't even imagine myself reading a comment that is 10 times longer than the original post.

  • exnt2

    Where is Sacha – hellllooooo. Thought as much. When it comes to facts, these Nortel guys cannot defend or come out.

    This guy is no different. Just another exec brown nosing employee who has his nose way up exec rears.

  • Buy Nortel

    Proto..I have to ask again what is your motivation behind your endless criticism of Nortel? You keep repeating yourself over and over. I really don't understand why someone with such disdain for the company would waste another minute on the subject. I have friends who have lost their jobs at Nortel but they moved on. It's no different then working for any organization. I have personally lost thousands of dollars on paper and certainly am not happy with the current situation however I welcome any positive development for both employees and shareholders. There is enough negativity in this world. We certainly don't need anymore. You have made your point. Move on.

  • Tongue.In.Cheek

    It's all about Nortel Must Be Destroyed. It's been going on for over 4 years relentlessly every single day. Yes4appl is his buddy and Mark is his hero for running this blog with the balance towards anything negative about Nortel.

  • notafan

    i thought they were all the same person

  • protosphere

    tonge in cheeks,

    there is no happy talk or it would be a shameless lie

    has it ever occurred to you these posters lack no objectivity but endless negativity embroils this stock for these 4 years and that they truthfully comment on the facts /truth of the matter.

    here, look at the charts if you do not believe me, sorry it does not display a happy picture losing 99% of its value and ruining lives to fraud, contradictions, and exhasting resources in a death spiral

    It is not that it must be destroyed aside from a matter of physics but the entertaining reasons why it is being destroyed beyond all odds, whether we want it or not, and Mark has already stated he would rather it not, so what are you talking about.

    I would look at stalking cheerleader's ethics and bias' as unfair instead than commenting on the facts surrounding this company.

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