A little more than a decade is all that it took for a major Canadian telecommunications player to enjoy success and experience total loss due to organization structure and leadership failures. Indications of their demise point to the establishment of a non-resilient culture that failed to listen to the most important people to any business organization, the customer. In this paper, we will look at the factors from an ethical point of view that contributed to the success and failure of Nortel. We will discuss what mechanisms should have been emplaced in order to facilitate meeting the needs and interests of Nortel’s shareholders. This paper will help the reader understand whether Nortel’s failure stemmed from people or capital market process.
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In an organization like Nortel, the shareholders should have been the ultimate decision makers with Roth running the day to day operations; however, this was not the case. As we have witnessed in Nortel’s case, when the management pursues their own economic self-interest ahead of shareowners interests, problems are bound to arise. Nortel’s top management received various incentives and motivations; in particular, board of director compensation, executive compensation, ownership structure, and earnings management which ultimately led to Nortel’s collapse (Fogarty et al., 2009). In order to better align managers interests with that of its shareholders, organizations must establish a set of mechanisms to manage this relationship and determine and control the strategic direction and performance of the organization, also known as corporate governance (Collins, 2012). Through the establishment of an independent board of directors which typically is composed of non-executive directors that are nominated and elected by shareholders an internal mechanism of control can be established, thereby reducing agency costs (Collins, 2012). Corporate governance involves oversight in areas where owners/managers and members of the board of directors may have conflicts of interest. The primary objective behind corporate governance is the alignment of the interests of management with shareholders which can be accomplished through the identification of ways to ensure strategic decisions are made effectively whereby facilitating the achievement of a competitive advantage. Although Nortel had an independent board, the structure failed to facilitate a panel of subject matter experts, in
In an organization like Nortel, the shareholders should have been the ultimate decision makers with Roth running the day to day operations; however, this was not the case. As we have witnessed in Nortel’s case, when the management pursues their own economic self-interest ahead of shareowners interests, problems are bound to arise. Nortel’s top management received various incentives and motivations; in particular, board of director compensation, executive compensation, ownership structure, and earnings management which ultimately led to Nortel’s collapse (Fogarty et al., 2009). In order to better align managers interests with that of its shareholders, organizations must establish a set of mechanisms to manage this relationship and determine and control the strategic direction and performance of the organization, also known as corporate governance (Collins, 2012). Through the establishment of an independent board of directors which typically is composed of non-executive directors that are nominated and elected by shareholders an internal mechanism of control can be established, thereby reducing agency costs (Collins, 2012). Corporate governance involves oversight in areas where owners/managers and members of the board of directors may have conflicts of interest. The primary objective behind corporate governance is the alignment of the interests of management with shareholders which can be accomplished through the identification of ways to ensure strategic decisions are made effectively whereby facilitating the achievement of a competitive advantage. Although Nortel had an independent board, the structure failed to facilitate a panel of subject matter experts, in