Nortel: The Rise and Fall of a Telecommunications Company

Nortel: The Rise and Fall of a Telecommunications Company

Introduction

Nortel was a leading telecommunications company. It was at its peak in the year 2000. However, it closed its operations in the year 2009. This paper discusses the rise and fall of Nortel from an ethical perspective. It discusses unethical behaviors and ethical challenges that contributed to its downfall. It primarily discusses the four factors that were the principal causes of Nortel's decline. In a rapidly competitive environment, companies have to address the issues of agency problem, cognitive dissonance, and egoism. The philosophy of capitalism has encouraged free market mechanism, but it also increased the greed of profit that led to unethical behaviors. It discouraged altruistic behaviors. Selfishness and greediness developed in the society.

Agents manage the profitability mechanism on behalf of principals. This gave them enormous legitimate power and there must be a mechanism to monitor their motives. Their personal interests may have drastic impacts on the business. Business people make the same mistakes because they do not have proper moral mechanisms in place. Companies should have proper code of ethics and code of conducts. Companies should also mention the consequences of not complying with these codes. Candidates should be assessed on the moral stage of development they are at present. They should also be analyzed based on the theories of hierarchy of needs and motivational needs. Nortel's case has many lessons for business people. To avoid making these mistakes again, regulation of business incentives, business education, regulation of financial markets, and regulation of punishment should be implemented and enforced. These interventions have become necessary in light of current economic crisis. Market cannot be made to function freely based on supply and demand. The intervention of regulatory authorities has become imperative to resolve crisis situation.

Ethical Perspective to Nortel's Rise and Fall

Nortel was a leading telecommunications company. In July 2000, the company was at the peak of its progress. It had a market capitalization of more than 350 billion Canadian dollars (Collins, 2011). The key to its success was its focus on the wireless and broadband communications. Nortel's expertise in these segments allowed it to grow its revenues substantially. Nortel exploited emerging communication technologies and the trend of international deregulations for new technologies. Nortel expanded its operations outside of North America using acquisitions. Its strategy was to enter in every high-growth area in telecommunications. It took advantage of the conditions conducive to regulatory and market conditions.

Four factors contributed to the fall of Nortel. First, Nortel's Board of Directors comprised of 12 members that was larger than that prescribed by studies. The Directors lacked financial expertise and they were pre-occupied in other roles. If the Board Members have a conflict of interests, then likelihood of unethical behavior increases, as they may face the ethical challenge of loyalty (Strain, 2013). Second, Nortel's compensation strategy was based on stock option compensation. Excessive executive stock options led to earnings manipulation, information manipulation, fraud, and ...