Nortel's disclosure strategy: a little too much of a good thing

What's your preferred investor relations strategy when your company is circling the drain of the NYSE? Do you share corporate information with shareholders, analysts and reporters to the fullest extent possible under securities law, or do you limit financial disclosures and "guidance" to what is nominally required while you determine the breadth of the problems your management team may face? Earlier this year, Nortel's new CEO, Bill Owens, embarked on an admirable strategy of open and frank communication as his management team began the dissection and restatement of the telecommunication company's financials.

It has rapidly become apparent that, over the past six years, Nortel may have been cooking the books well enough to win the Good Housekeeping Seal of Approval. Sales prebooked, expenses deferred, institutional "hardness" - and not the Hulk Hogan or Ron Jeremy sort of "hardness."

This has forced Owens to push back his own deadline for the full disclosure of financial concerns at the company - several times.

The latest delay, announced yesterday, may be galvanizing shareholders and analysts tracking the stock:

    "This is very bad. It was only two weeks ago that management told us we will have the results for mid November and now they don't. What little credibility they had is almost gone," Tera Capital fund manager Duncan Stewart told Reuters.

This despite a clear explanation from Owens about his motivation for the delay, and his evident dedication to a thorough investigation.

While Owens and his team may be faced with challenges and financial chicanery unforeseen when he set his first deadline for disclosure, their inability to provide final books for several years' worth of financials is definitely undermining the open and honest communications strategy. Even worse, the unmet deadlines may actually be affecting sales:

    "In our view, this latest delay strains management credibility. We also believe that these delays are beginning to have an impact on Nortel's ability to sell its products," [A.G. Edwards analyst Greg Teets] wrote.

The lesson? There are two. Any communications strategy is only as valuable as the results you can promise AND deliver; and you can never control your target audiences: you can only inform them and hope to guide their analysis.