Thursday, March 21, 2013

The rise and fall of Nortel



                The rise and fall of Nortel
            The formation of the organization is based on the realization of goals and objectives. In this regard, the stakeholders must undertake to implement the measures that are responsible for the realization of the goals, mission and objectives of various organizations. Over the period, various managers and other stakeholders have realized that the observation of ethical practices is one of the leading incentives that helps in the realization of profits and increased performance. In addition, the performcn4e of the organization is also determined by the factors and actions that constitute ideal factors for the organization and these factors are classified as the governance structure at the board level, executive compensation, earnings management and the ownership structure. It is extremely beneficial for all these factors to ensure critical collaboration and observation of ethical practices in the organization because they will be crucial forte organization. According to the information form the case study, the rise and fall of Nortel has been characterized by significant disparities and atrocities that have resulted in the emergence of disparities. Nortel experienced ideal advancement in trading activities because the market was responsive and all the stake holders worked towards the realization of objectives and mission of the organization. On a different note, the fall of the organization is based on the consideration of unethical practices that includes financial disparities, managerial excessive compensation, poor organization governance and lack of commitment from the ownership. In reality, these mistakes leading to the fall of the Nortel are commonly committed by other businesses and they lead to the disparities in the long run. Social responsibility is also derailed because of the activities of the stakeholders and this situation shows the limitations of the agency framework in the complex cases characterized by short term investors.
Factors contributing to the rise and fall of Nortel
            The information from the cases depicting the performance and establishment of Nortel has shown that the period 2000 was characterized by increased performance of the company. This high performance was characterized by market capitalization that was in excess of $350 and this enabled this organization to control more than 37% of the Toronto stock exchange. The rise and increased performance of this wireless and broadband internet provider was extremely impressive because it spread to both local and international companies. Some of the factors that necessitated the growth and development of Nortel can stated as the breakup of American Telephone & Telegraph (AT&T). This company was widely known for the provision of internet proviso and the breakup of this company necessitated the creation of the market for Nortel hence is spread. Another reason for the growth and development was the increased growth of the cellular market that further expanded to the telecom equipment manufactures. An evidence of this incentive is provided by the data from the United States that states the US had more than one million mobile subscribers. Similarly, the third reason for the expansion of the company was the introduction of personal computers by Macintosh and IBM. The reason for the development of these attributes and the rise of Nortel is that thereby resulted in the advancement of internet provisions to the business and home of millions of customers. This was a huge market that resulted in the growth of the organization. Finally, the rise of the company was also necessitated by the emergence of more national telecom companies that were undergoing privatization thereby creating more market for Nortel Corporation. The consideration o these factors proved to be beneficial in enhancing performance of the corporation. The collective factor leading to the rise of the Nortel Corporation enhanced its establishment in the market and this was characterized by tripling of the earnings of the company and rise in the share price to $200.
            Upon the rise in the performance of the company, significant attributes of fall were experienced within a short period. The management and the stakeholders have been criticized for the attributes of poor governances and policies that failed to safeguard the performance and establishment of the profitability. One of the leading failures of the managers was the engagement in mergers and acquisition with non-performing companies like San Francisco based bay networks and other companies that totaled to more than $33 billion. In reality, the managers defied the warnings from the market and other analysis’s by overspending in the purchase of small firms. The fall of the firm has also been attributed to the aspects of spending on the payment of the executive management. The executive management of the firm was faulted because they demanded high amounts of money in compensation and this situation increased despite the rising cases of uncertainty that characterized Nortel Corporation. The basis of the reports collected from the industry has shown the CEO compensation in Nortel was higher than those of the other corporation. Another incentive is the dysfunctional board of directors and the acts of income with the aim of preserving the confidence of the investor’s which is crucial for the corporations it enhances growth and development. Over the period, analysis has also shown the regularities in the reporting of the books of accounts also has impacts in necessitating the fall of the organization because thy resulted in the realization of losses. Finally, all the stake holders of the organization had adverse effect in the fall of Nortel Corporation because they were involved in the formulation of short term goals and objectives.
Aligning managing and shareholders’ interests
                It is extremely vital for the organization and its managers to consider the usage of ethical practices because this will enhance development of the factors of the business. The ideal remedial measure for Nortel Corporation regards the consideration of adopting the conduction of ethical practices. Over the period, organizational management theories have advocated for the observation of ethical practices in the management of organization because these practices have the consideration of safeguarding the interests of all their stakeholders in then organization. The reason for adoption of ethical practices is the consideration of identifying ideal incentive to govern the conduction of duties that are geared towards selfish gains. Analysis conducted on the performance and establishment of Nortel Corporation has revealed significant disparities and this has had the effect of leading the violation of the interests of the shareholders. Accountants, managers and other executive directors in Nortel Corporation conducted duties based on rationality theories. However, ideal management of the organization require the usage of ethical practices and observation of incentives that seek to maximizes the benefits of the company instead conducting the vices  that maximizes personal gains. Therefore, the usage of the ethical practices is the ideal mechanism that should be adopted to enhance realization of stakeholder interest. Other incentives involve aligning executive earnings with the industrial requirements and also the aspect of adopting the analysis ideas from the external market analyses. The accountants should observe the existing GAAP principles in the preparation of the financial records because this has the effect of reducing the disparities and atrocities in the corporation that further results in decreased performance.
The meltdown of Nortel Corporation
                The records collected from various sources have stated that the meltdown of Nerton Corporation was experienced during the periods of 2002. During this period, the global market was also experiencing significant reduction in the performance of economic agents because the global financial crisis. Even though the fall of Nortel Corporation was experienced during the period of global financial crisis, the aspect of global financial crisis cannot be attributed to be the course of the fall because the decline of the corporation began before the occurrence of the global financial la crisis. The effects and contribution of the financial crisis cannot be neglected because they played a significant t role in enhancing the fall of the organization by majorly ensuing significant fall in the price of the shares from $200 to $o.68. This decline was immense and resulted in the devaluation of the shares and the corporation.
                In reality, the fall of Nortel Corporation was the responsibility of the people involved with eh organization. The people surrounding the organization had dire consequences and actuations that resulted din the fall of the organizations. One of the significant measures is lack of ethical practice in the discharging of managerial aspects and this resulted in the development of unethical practices. Normally, the practice of unethical practices in the organization has the impact of diversifying the interests of the people concerned with organization and this is the case that happened in Nortel Corporation.  Some of the unethical practices highlighted in the corporation that led to the fall of the organization were the capacity of the management to award huge and hefty compensation without harmonizing with those of other managers in the same categories. This aspect was critical because it resulted in the increase of corporation spending. Increase in spending has the attribute of reducing profitability of the organization. Another situation depiction the actions of the people as the cause for the fall of Nortel Corporation is the consideration of the choice of mergers and acquisitions. Over the period, mergers and acquisitions have been used by corporation to expand their market scope and earnings. However, the management of Nortel corporation were engaged with eh aspect of merging with unprofitable company that had limited market share. This action proved detrimental for the organization because it proved to be expensive for the organizations. In addition, the companies also experienced adverse measure because the mergers resulted in derailed performance due to the lack of managerial expertise. The sudden acquit ion of the firms by the management proved to be detrimental because of the sudden strain on the management of the organization. In view of this realization, the fall of the high performing Nortel corporation was caused by the activities so the people. Finally, another evidence that points out to the people as the cause of the fall of Nortel corporation is the activities of the accountants and financial analysts they were involved with the aspect of violation of the policies and principles of accounting. The bureaucratic practices of the accountants had the effect of reducing the profitability of the firm. The accountants employed by Nortel Corporation disregarded the principles provided by GAAP. Instead, the accountants adopted the usage of the internal practices that were formulated by the managers to help in the embezzlement of funds. Therefore, the people were responsible for the fall of Nortel Corporation.