worldcom
WorldCom Ethical Scandal
In the late 1990’s, WorldCom was a successful company and leader in the telecommunications world. They had merged with MCI and the company was regarded for being innovative and growth hungry. However, in the midst of all the mergers WorldCom CEO Bernard Ebberly began to mismanage the company. WorldCom was no longer meeting their numbers and it looked like stock prices would fall. Rather than letting this happen, executives at WorldCom doctored the books. CFO Scott Sullivan and auditors used accounting practices and judgments that were highly illegal and unethical (Mintzberg 2003). Over the course of its operations, WorldCom had successfully acquired a total of 65 companies, of which 11 were acquired between 1991 and 1997, and in that course accumulated around $41 billion in debt (Romar 2006). By the time it declared bankruptcy in 2002, the organization’s growth strategy through acquisitions, its loans to senior executives, and poor corporate governance contributed to the fall of the company. Through a series of fraudulent activities and unethical behavior, the company fell from a leader in the telecommunications industry to a company filing for bankruptcy. WorldCom’s financial executives used fraudulent accounting methods to present a false representation of the company’s financial stability. They hid various costs by capitalizing them by listing these costs as assets on their balance sheet instead of properly recording them on the income statement. Revenues and profits were inflated, expenses were deflated and disguised. Throughout the scandal, $2.8 billion dollars was added in revenue from reserves, and $3.85 billion was deducted from operating costs and listed as long-term investments. Users of this data were given the idea that profits were growing and WorldCom’s stock rose because of this misrepresentation. False journal entries were also created in WorldCom’s financials to inflate revenues (Scharff 2005).
In the late 1990’s, WorldCom was a successful company and leader in the telecommunications world. They had merged with MCI and the company was regarded for being innovative and growth hungry. However, in the midst of all the mergers WorldCom CEO Bernard Ebberly began to mismanage the company. WorldCom was no longer meeting their numbers and it looked like stock prices would fall. Rather than letting this happen, executives at WorldCom doctored the books. CFO Scott Sullivan and auditors used accounting practices and judgments that were highly illegal and unethical (Mintzberg 2003). Over the course of its operations, WorldCom had successfully acquired a total of 65 companies, of which 11 were acquired between 1991 and 1997, and in that course accumulated around $41 billion in debt (Romar 2006). By the time it declared bankruptcy in 2002, the organization’s growth strategy through acquisitions, its loans to senior executives, and poor corporate governance contributed to the fall of the company. Through a series of fraudulent activities and unethical behavior, the company fell from a leader in the telecommunications industry to a company filing for bankruptcy. WorldCom’s financial executives used fraudulent accounting methods to present a false representation of the company’s financial stability. They hid various costs by capitalizing them by listing these costs as assets on their balance sheet instead of properly recording them on the income statement. Revenues and profits were inflated, expenses were deflated and disguised. Throughout the scandal, $2.8 billion dollars was added in revenue from reserves, and $3.85 billion was deducted from operating costs and listed as long-term investments. Users of this data were given the idea that profits were growing and WorldCom’s stock rose because of this misrepresentation. False journal entries were also created in WorldCom’s financials to inflate revenues (Scharff 2005).
Cited: Mintzberg, H., Lampel, J., Quinn, J.B., & Ghoshal, S. (2003). The strategy process: Concepts, Contexts, Cases (4th ed.) Moberg, D., Romar, E. WorldCom. Retrieved February 5, 2014 from: http://www.scu.edu/ethics/dialogue/candc/cases/worldcom.html Scharff, M.M. (2005). Understanding WorldCom’s accounting fraud: did groupthink play a role? February 5, 2014 from: http://www.entrepreneur.com/tradejournals/article/132353947.html Romar, E., Calkins, M. (2006). WorldCom Case Study Update. University of Massachusetts- Boston Mountain of Debt. The Wall Street Journal. Retrieved February 5, 2014 from: http://academic.udayton.edu/lawrenceulrich/ebbersaquisition.htm