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These governing principles are an effort to forge a framework for rebuilding the Nortel finance environment. Equally important, the Board, the
CEO, and the CFO must continue to promote high ethical standards throughout the Company. Words announcing adherence to the highest
standard of integrity are relatively easy to express, but it is actions, not words, that count. The Board has established the position of a Chief
Ethics and Compliance Officer. The Board has also adopted a code of ethical conduct and business practices which outlines principles to guide
ethical decision-making and provides practical answers to ethics questions regularly asked in the workplace. The Board should direct
management to enhance significantly the existing compliance program. Together, the code and a strengthened compliance program set the tone
and the standards of behavior that the Company expects from its employees. Employees must be convinced of the Company’s commitment to
an ethical climate, and of the central role that they play in ensuring that the Company’s code is followed. They must view compliance with the
Company’s code of conduct, standards, and control systems as a central priority, and understand they will be rewarded for ethical behavior,
even if it uncovers some problem that others might prefer to remain undisclosed. On a regular basis, the Board should review the activities of
the compliance office, the strength of the compliance program, and the risks it has addressed.
The Board must receive from management, in sufficient time prior to meetings, all materials necessary for it to monitor and act on business
risks affecting Nortel and information relating to decisions the Board is being asked to make. The Audit Committee needs clear and concise
information relating to Nortel’s financial reporting. The Board should implement a process whereby management would provide a quarterly
assessment of the overall quality and transparency of Nortel’s financial reporting and suggestions for improvements in form and content, which
the external auditors would review and comment. The Board’s practice of receiving all information respecting Nortel’s financial performance
on a consolidated basis, and of each of its business units, only from the CFO should change. The heads of each business unit should be
expected to take full responsibility for the financial results of their respective businesses and to provide quarterly presentations to the Board
with the senior finance employee in that business unit. Periodically, the Audit Committee should have separate, executive sessions with the
chief operations and finance employees for each business unit to discuss issues specific to their businesses.
Management has announced that it intends to acquire and install a SAP information technology platform to facilitate production of accurate
financial results in a timely and cost effective manner. The objectives of any technology platform implemented by Nortel should include
identification of existing control procedures that are redundant or inefficient; prevention/detection and correction of errors on a timely basis;
prevention or detection of fraud; simplification of systems and increased productivity; reduction of opportunities for manual intervention;
ability to trace transactions from start to finish; improved operation of controls; and substantive analysis of results, including both operating
and financial metrics. In sum, those responsible for implementing SAP should have a strong focus on re-engineering existing processes so that
the control elements intrinsic to the SAP system are effective.
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After thorough consideration, the Audit Committee has recommended, and the Board of Directors has approved, adoption of each of these
recommendations. The Board of Directors has directed management to develop a detailed plan and timetable for the implementation of these
recommendations and intends to monitor the implementation of these principles by management.
******[EndofIndependentReviewSummary]
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