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Inside Agency: The Rise and Fall of Nortel

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Abstract

By employing the theoretical template provided by agency theory, this article contributes a detailed clinical analysis of a large multinational Canada-headquartered telecommunications company, Nortel. Our analysis reveals a twenty-first century norm of usual suspects: a CEO whose compensation is well above those of his peers, a dysfunctional board of directors, acts of income smoothing to preserve the confidence of volatile investors, and revelations of financial irregularities followed by a downfall. In many ways, the spectacular rise and – sudden – fall of Nortel illustrates excesses of actors within, and contradictions of the system of corporate governance implied by the agency model. Furthermore, this case illustrates limitations of the agency framework in complex situations with short-term oriented investors.

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Authors and Affiliations

  1. John Molson School of Business, Concordia University, 1455 De Maisonneuve West, Montreal, QC, Canada, H3G 1M8

    Michel L. Magnan & Serge Bohdjalian

  2. Weatherhead School of Management, Case Western University, 10900 Euclid Avenue, Cleveland, OH, 44106, U.S.A.

    Timothy Fogarty

  3. ie Business School, Maria De Molina 11, Madrid, 28006, Spain

    Garen Markarian

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  1. Timothy Fogarty
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Correspondence to Michel L. Magnan.

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Fogarty, T., Magnan, M.L., Markarian, G. et al. Inside Agency: The Rise and Fall of Nortel. J Bus Ethics 84, 165–187 (2009). https://doi.org/10.1007/s10551-008-9680-9

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