Corporate Governance at Nortel – Revisiting Board Functions
42 Pages Posted: 5 Apr 2014 Last revised: 18 May 2014
Date Written: April 3, 2014
The current model in corporate governance theory is predicated on management by CEO and a team of executives, with directors in charge of oversight and monitoring. Corporate law endorses this model by authorizing directors to supervise management, rather than manage corporations by themselves. This article surveys board oversight at Nortel Networks, the failed Canadian technology giant, to assess the adequacy of the prescription about monitoring in governance theory. The hypothesis about boards and their functions are evaluated with reference to the following events at Nortel: Churn in CEOs and succession planning; Business acquisitions strategy; Accounting restatements and investigation; Business oversight and bankruptcy filing.
Insufficient attention to board engagement with business and strategy is identified as a shortcoming in current theory. Boards would be the last line of defence in troubled companies. The Nortel experience suggests that boards that are mostly independent and the bare monitoring function might not be adequate as universal principles, particularly in troubled, under-performing companies. The issue with independent directors and their function as monitors would be especially acute in a corporation facing leadership instability and business challenges, and is in need of re-strategizing for the medium and long term. Situations of this nature illustrate how boards can better serve corporations and their stakeholders through greater engagement with business strategy and being more proactive as necessary.
The article proposes the creation of a new board committee to deal with business and strategy. This committee will constantly monitor the business of the corporate enterprise and participate in strategy development. By doing so, boards can contribute to assuring a profitable enterprise that is commercially sound and sustainable. The proposal is based on the current system of board committees and it addresses board responsibility for business and strategy – an issue that receives limited attention in the prevailing framework.
Keywords: Corporate governance, board oversight, Nortel, board committees, CEO selection, succession planning, business and strategy, director engagement, accounting restatements
JEL Classification: K22, L14, L19, L21
Suggested Citation: Suggested Citation