Inside Agency: The Rise and Fall of Nortel

57 Pages Posted: 12 Feb 2008

See all articles by Michel Magnan

Michel Magnan

Concordia University - Department of Accountancy

Timothy J. Fogarty

Case Western Reserve University - Department of Accountancy

Garen Markarian

HEC - University of Lausanne

Serge Bohdjalian

Concordia University, Quebec - Department of Accountancy

Date Written: February 1, 2008

Abstract

By employing the theoretical template provided by agency theory, this paper contributes a detailed clinical analysis of a large multinational Canada-headquartered telecommunications company, Nortel. Our analysis reveals a 21st 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 illustrate 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.

Keywords: Agency theory, executive compensation, financial misstatement, income smoothing, stock options, earnings manipulation, earnings management

JEL Classification: M41, M43, G34, J33

Suggested Citation

Magnan, Michel and Fogarty, Timothy J. and Markarian, Garen and Bohdjalian, Serge, Inside Agency: The Rise and Fall of Nortel (February 1, 2008). Available at SSRN: https://ssrn.com/abstract=1092288 or http://dx.doi.org/10.2139/ssrn.1092288

Michel Magnan

Concordia University - Department of Accountancy ( email )

Montreal, Quebec H3G 1M8
Canada

Timothy J. Fogarty

Case Western Reserve University - Department of Accountancy ( email )

Cleveland, OH 44106-7235
United States
216-368-3938 (Phone)
216-368-4776 (Fax)

Garen Markarian (Contact Author)

HEC - University of Lausanne ( email )

UNIL Dorigny
Lausanne, Lausanne 1015
Switzerland

Serge Bohdjalian

Concordia University, Quebec - Department of Accountancy ( email )

Montreal, Quebec H3G 1M8
Canada

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