Nortel’s ‘culture of arrogance’ a lesson for Canadian companies

In the wake of a University of Ottawa study released this week that suggests Nortel was brought down by a “culture of arrogance”, Canadian businesses have much to learn from the largest corporate bankruptcy in Canadian history.

The three-year study, which is based on 343 surveys and 133 interviews involving Nortel leaders, competitors, consultants and other stakeholders, is the most comprehensive to-date of Nortel, which entered bankruptcy in 2009 after a nearly two-decade run that saw it grow into a global telecom giant before being undone by a series of compounding decision-making failures.

Any company, any sector

They’re lessons that companies of all sizes and in all market sectors would do well to learn from. You don’t have to be a global telecom supplier to learn from Nortel’s failures. Even the smallest organizations in any sector need to start thinking differently. A logical place to start is with the board of directors.

“If you’re a company of any size, even a private company, I think there’s significant value in getting a small board,” Rick Robertson, an associate professor at the Ivey School of Business, told Yahoo Canada Finance.

“There’s no reason on earth you cannot put in a governance structure that challenges senior management. And I don’t mean that in a mean way: One of the board’s jobs is to make sure that the people who are running the company are doing what they should be doing. You’ve got to make sure they’re focusing on what you believe is essential.”

Robertson says an overly aggressive leadership style in Nortel’s corner office created a “terrible tone” that rippled through the organization. He recommends bringing in experienced people – ideally from different disciplines to balance off the existing skill sets and cultures within leadership – to provide oversight and guidance. A properly selected board can identify trouble earlier, and redirect the organization before things spin out of control.

“A large part of the problem here was corporate governance was weak,” Robertson said. “These are the things that the board should be watching for. Its job is not to run the business, but to ensure the business is being run properly. Board members challenge management and ask penetrating questions. If I’m a board member, it’s not enough to tell me: You’ve got to show me.”

Go global, but carefully

One thing Nortel did right was to look beyond the Canadian border.

We’re a small economy, and most of our companies tend to look at a political boundary and make that their economic boundary,” said Joe Martin, director of Canadian business history at the University of Toronto’s Rotman School of Management. “In fairness to Nortel, they went well beyond that. But I think the evidence shows they did not have the sophisticated management capability to do what they were trying to do.”

It’s a sentiment echoed by Ivey’s Robertson, who cautions Canadian businesses against biting off more than they can chew.

“They were buying companies, and were not able to consolidate them quickly enough or very effectively,” he said. “And then they went out and bought another company before they were even finished.”

In a Canadian economy where small- to mid-sized businesses are more prevalent relative to competing economies, Martin warns against companies ignoring Nortel-based lessons because of their relative immaturity or size. Even if you’ve never sold anything outside Canada, you’ve got to start thinking globally.

“Every company now has to understand that they could have international competition,” said Martin. “You can either play defense or offense. And if you play offense, you have to understand in this day and age that your home economy is not Canada – it’s too small - but all of North America. Make that your home market and then go beyond.”

Carmi Levy is a London, Ont.-based independent technology analyst and journalist. The opinions expressed are his own.