Should Worldcom Ceo Bernard Ebbers' Been Sentenced to 25 Years in Prison?

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Introduction

The WorldCom fraud that came to light in 2002 was an example of many things that went

wrong within the organization. Unethical conduct by its senior leadership beginning with Chief

Executive Officer (CEO) Bernard Ebbers was certainly at the forefront of these problems. The

question is should a CEO like Ebbers have been sentenced to prison for his liability in the

WorldCom scandal? My answer is yes, he should’ve gone to prison as well as other CEOs who

engage in unethical conduct that results in laws being violated. I will support my answer by

taking a look at the duties of a CEO, focusing on leadership responsibilities and accountability. I

will discuss causes of ethical problems in CEOs and finish by discussing utilitarian and

deontological ethical issues as they pertained to Ebbers.

Background

As the telecommunications industry slowed in the late 1990s, WorldCom’s stock price began

to decrease. Ebbers came under pressure from financial institutions to cover margin calls on

WorldCom stock he used to finance other businesses (Vasatka, 2007). From 1999 to 2002, a few

WorldCom senior executives engaged in fraudulent accounting practices. These practices were

designed to portray losses as growth to the public. Ebbers resigned as CEO under pressure for

several reasons unrelated to the accounting fraud on April 29, 2002 (Beresford, Katzenbach &

Rogers, 2003).

Cynthia Cooper led an internal audit investigation of suspected accounting irregularities in

May-June 2002. According to Ms. Cooper’s statement, she discussed the investigation with

WorldCom Chief Financial Officer (CFO) Scott Sullivan on June 12, 2002. She then discussed

her investigation with two others on June 13, 2002. They were Max E. Bobbitt, Chairman of the

Audit Committee, WorldCom Board of Directors and Mr. Farrell Malone, engagement partner of

KMPG, LLP, an external audit agency.

The Board of Directors met on June 25, 2002 and decided to publish a revised financial

statement for 2001 and first quarter 2002. They also decided to report this action to the U.S.

Securities and Exchange Commission (SEC) and the events leading up to it (WorldCom, 2002).

The SEC launched its own investigation into the matter (Vasatka, 2007) and brought civil action

against a number of WorldCom executives in June 2002 (SEC, 2002).

WorldCom filed for bankruptcy protection on July 21, 2002. The U.S. Justice Department

brought criminal charges against Ebbers and several other WorldCom executives. For his role in

the scandal, Ebbers was convicted in Federal court on March 15, 2005 and then on July 13, 2005

sentenced to 25 years in prison.

The CEO as a Leader

To examine the issues in this case from a normative ethics viewpoint, I believe that we

should see what a CEO does in performing the leadership functions of their job as they relate to

ethical issues. A good description of the CEO’s leadership role can be found in The Duties of a

Chief Executive Officer (Wibowo & Kleiner, 2005). The authors cite information in CEO

Compensation that a CEO “is responsible for the success or failure of an organization.”

(McClayland, 2002). The dictionary defines responsibility as: 1: the quality or state of being

responsible: as a: moral, legal, or mental accountability b: RELIABILITY,

TRUSTWORTHINESS 2: something for which one is responsible: BURDEN
(Merriam-Webster Online Dictionary, 2008). Therefore, responsibility is linked to good ethics.

Wibowo and Kleiner cite five responsibilities that CEOs have both in profit and non-profit

organizations (McNamara, 2002). These responsibilities are leader, visionary or information

barrier, decision maker, manager and board developer. The CEO’s leadership duties include

“gives the board of directors some advice, promotes organizational and stakeholder changes...
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