Cautious optimism greets Nortel

At least one expert in corporate ethics has welcomed Nortel Networks Corp.’s appointment of high-powered Manhattan lawyer Susan Shepard as the company’s first ever chief of ethics.

Shepard’s appointment will have a positive influence on Nortel as long as its problems are not symptomatic of a systemic cultural malaise, according to Colin Boyd, professor of management at the University of Saskatchewan in Saskatoon.

Nortel’s naming of a chief ethics officer, Boyd says, may help repair the reputation of the beleaguered company – but that’s by no means a given.

Shepard, a former Commissioner of Investigation for the City of New York, was selected for the job at Brampton, Ontario-based Nortel after a global search. She brings three decades of investigative and enforcement experience to the post.

Nortel spokesperson Tina Warren says the appointment is proof of the company’s commitment to implementing the “very best corporate governance practices.”

Boyd believes that – other factors aside – Nortel’s recent problems are alone sufficient to make the company stay on the straight and narrow for a while. “Everyone’s looking at them so intently that I think they will be forced to be ethical whether they have an ethics officer or not.” However, he believes the appointment of an ethics chief is a step in the right direction. “It helps companies comply with such laws as the Sarbanes-Oxley Act where the onus is on senior management to validate financial statements.”

According to Boyd, if nothing else, such appointments make a statement that the company is serious about complying with ethical practices. “It raises the value placed on ethics inside organizations.”

Boyd, however, adds a caveat.

Having an exceptional code of ethics in place, he says, is no guarantee everybody will behave ethically. (Commentators have pointed out companies such as Enron Corp. and WorldComm Inc. had highly developed compliance programs in place at the very time their senior management engaged in questionable financial practices).

A code of ethics means nothing if the people at the top don’t walk the talk, said Boyd, adding that without senior executives setting an example, lower-tier managers would not be motivated to comply with an ethical code – no matter how sophisticated.

The effectiveness of an ethics officer, he said, also depends on how much authority he or she enjoys. “The ideal situation is when the (ethics chief) is able to deal with the company’s board directly rather than through the CEO.”

Appointment of ethics watchdogs seems to be a trendy thing to do these days. Recent surveys indicate around half of leading North American corporations have ethics officers who report to CEOs.

Shepard will assume her new role at the end of February, reporting directly to the president and CEO of Nortel.

Her other responsibilities include overseeing a staff of 10 persons located in various parts of the world, and chairing a high-level executive committee comprising leaders in Nortel’s legal security area.

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