Analysis of Nortel Case: Financial Mismanagement and Fraud

This case study examines the Nortel Networks Corporation financial fraud case, involving allegations of financial mismanagement and manipulation of financial reports to trigger bonus payouts. The CEO, CFO, and corporate controller were accused of manipulating accounting reserves to meet targets. The case highlights the responsibilities of company directors, including the duty to act in the best interest of shareholders, exercise due care, and maintain accurate financial records. The accused individuals were charged with fraud, and the analysis focuses on the legal and ethical implications of their actions, emphasizing the potential conflict of interest and the impact of their actions on the company's financial reporting and governance. The case underscores the importance of proper accounting practices and the consequences of financial misconduct within a corporation. This case study provides valuable insights into corporate governance and the legal ramifications of financial fraud.

Business Law Assignment

In the given case scenario, it is stated that Chief executive officer, Chief financial officer and the
corporate controller of the company Nortal Network Corporation, were fired because of the
financial mismanagement. For meeting the target and threshold, the officers manipulated the
financial accounts. All the three officers of the company initiated request of non-guilty at the
starting of trial, however none of the assertions have been proved in court. The officers are
alleged of manipulation of the financial reports of the company to obtain the bonus payment,
which was connected with the return to profitability of the company. It was held that, officers
were aware of the data manipulation, which required for enhancement of the stock benefit and
the return to payout, further the accounts presented to the board of directors were not showing
true and fair view. With this regards, the lawyer of the chief financial officer claimed that, it was
the outcome of the accounting error and not intentional effort to meet the target.
The directors owe the fiduciary duty towards the company. The directors of the company are
responsible for the management of the company. All the activities of the company must be
carried out for the best interest of the shareholders. It is the duty of director to use their power for
the assistance of the whole company in a fair manner. They must exercise due care and skills at
the time of performance of the duty. They should not engage in any work by which the conflict
of interest may arise. Along with this, maintaining of the proper books of account by applying
the generally accepted accounting principle is also one of the main responsibilities of the
director. By considering the above aspect, it has been seen that, in the given report the chief
executive officer, chief financial officer and the corporate controller, who are generally included
in the board of director of company, has violated the law. It has been observed that, they
manipulated the accounts because the payment of bonus directly linked with the profitability of

the company, by which the actions of senior management change from acting in the best interest
of the company and shareholders, into the criminal activity.