Managers are most likely to step across ethical and legal boundaries when the pressure to perform is great. Pressure can be healthy but companies that set high-performance targets and grant large rewards for achieving these must have strong control systems to ensure that people are not tempted to cross boundaries. What are the four important control systems? Please identify each control by name.
WorldCom never really had a strategic plan, committee, or framework. Their plan was rapid growth and maintaining that 42% E/R ratio. From the beginning it committed itself to high growth strategies that relied on aggressive corporate and fraudulent accounting practices. There was no strategic committee and their decisions were mainly consisted of CFO Ebbers decisions.
WorldCom’s Board of Directors were inactive, not knowledgeable, and inexperienced. A Board of Directors that is active, involved, and knowledgeable of the organization is an important factor of an effective control system. In addition, they were solely paid based on the appreciation of the company’s stock, therefore with their approvals of the many acquisitions, this allowed them to grow and hence a larger compensation. This practice focused on the growth rather than the best interest of the company.
If WorldCom would have created a working culture full of honesty, positive work environment, openness, and assistance there would have never been any fraud. Instead they created an aggressive, individualistic, and competitive culture. Efforts that were made to establish a corporate Code of Conduct received Ebbers disapproval; he described the Code as a “colossal waste of time”. The consistent pressure from management created an aggressive and competitive culture that didn’t contain any communication, honesty, truthfulness, or ethics within the company. Ebbers also created an individualistic culture where the boss was to not be questioned. All this