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Organizations on the Move - Essay Example

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Organizations on the Move Abstract The report will try to throw some light on financial crisis of Nortel Networks Corporation. The company is involved in accountancy fraud to increase market valuation. This study will try to analyze reasons behind the financial fiasco…
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Download file to see previous pages Finally, the study will try to evaluate different remedies (like regulation of accounting/financial markets, regulation of incentives or regulation of punishment) to stop financial fraud. Table of Contents Table of Contents 3 Nortel Networks Corporation 4 Mechanisms to Align Managers with the Interests of Shareholders 7 Meltdown of Nortel More as a Failure of “People” 9 Why Do Businesspeople Keep Making the Same Mistake? 10 Remedies 11 Business Education 11 Regulation of Accounting/Financial Markets 11 Regulation of Incentives 11 Regulation of Punishment 12 Nortel Networks Corporation Nortel Networks Corporation is a well known telecommunication company. The company has its headquarters in Mississauga, Ontario, Canada. The company was founded by Charles Fleetford Sise Sr. in the year of 1882. The company has pioneered telecommunication boom in Canada during 1990s. Market capitalization of the company was more than $350 billion Canadian dollars in July 2000. Nortel accounted for more than 37 percent of the Toronto Stock Exchange during 1990s. The company offers various telecommunication services like wireless and broadband communications, global networking solutions etc. Share price of Nortel increased by 300% in the year 2000. The company has expanded business in North America rapidly. The company has revolutionized the concept of internet application in telecommunication industry. Market capitalization of the company has touched a record $398 billion in September 2000. The company has experienced a sudden fall in market capitalization during the year 2002. Market capitalization of the company slashed down to mere $5 billion in august 2002. The accounting system of the company has failed to produce a stable financial condition. Many top level corporate managers resigned during the tumultuous period. Government seized the trading in Nortel stock. Share price of the company was decreased by 335%. CEO of the company John Roth resigned in November, 2001. Securities and Exchange Commission (SEC) has filed fraud charges against the company. The company is currently in liquidation phase. Factors that Contributed to the Rise and Fall of Nortel Reason for the Rise of Nortel can be summarized in following manner. Breakup of American Telephone & Telegraph (AT&T) has created an entry scope for small telecommunication companies. The market has suddenly become oligopolistic in nature. The telecommunication equipment market was dominated by Western Electric, an AT&T subsidiary before 90s. Nortel took the opportunity and entered in telecommunication equipment market. The company fulfilled the market demand with vast array of service mix like wireless and broadband communications, global networking solutions. Cellular market has achieved an outstanding growth during 1990s. Growth in cellular market automatically created a demand pool for telecommunication equipments. Demand for telecommunication services has increased by more than 50% during 1990s. Nortel emerged as telecommunication service provider in the cellular market boom period. The company established itself as major supplier of telecommunication equipments. Nortel fulfilled the telecommunication equipment demand pool generated by cellular market. Personal computers were introduced by IBM and Macintosh during late 1980s. These two companies have revolutionized the concept of using computer in home. Customers using personal computer were well aware ...Download file to see next pagesRead More
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