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.
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