please if possible eight page and double space with bibiography What happened at
ID: 430997 • Letter: P
Question
please if possible eight page and double space with bibiography What happened at World Com? Please describe the ethical structure and violations. For instance, was there a code of conduct? Why didn't it work? What was management like - were they ethical? What was the situation at World Com before and after the fraud? And so on. Include all relevenat information that you think is pertinent to the exploration of a company failure due to ethical violations. Also be sure and comment on the role of the internal auditors, the CFO and the audit committee.
Thank you!
Explanation / Answer
Worldcom started its business as a small discount long distance provider. The company was founded by Bernard Ebbers in Mississippi. The business model for Worldcom was simple yet innovative. The company bought long distance services from big companies and then sold them to smaller and local companies.
As this business model started to earn modest revenues for the firm, Worldcom’s next phase strategy was to acquire small telecom firms and thereby grow larger in operations. Circa 1995, Worldcom was on its way to become one of the world’s largest long distance providers.
By 1997, the company had acquired over 60 companies, including MCI. The MCI take-over was regarded as one of the largest acquisitions in the American history with the deal being pegged at $37 billion. With the acquisition of MCI, Worldcom took the position of the second largest telecom company in the US, owning close to one third of the data cables and handling over 50% of all internet traffic in the country. Till about early 1999, the company was the talk of Wall Street and a favorite for all classes of investors, from the retail level to institutional buyers. But this dream run was not to last for long. Towards the end of 1999, the internet and telecom market was undergoing slowdown. And with this, started the downfall of the company.
Wall Street had reacted adversely to this slowdown and due to low shareholder confidence, the stock prices began to plummet. To keep the investors in confidence, telecom companies, including WorldCom, began to commit fraudulent financial reporting. Since Worldcom was one of the largest companies in this industry, their scale of mis-reporting was also huge.
The accounting frauds at Worldcom were not committed by some low key accountant but were orchestrated exclusively by a number core management group members. Ironically, many of them were in charge of accounting department only. Even the CEO and founder, Bernard Ebbers was hand in glove in this unethical practice. He not only instructed others in his team to manipulate and make the financial situation look better than it was, he also borrowed almost $400 million from the company to pay the margin call on his stock. Another key man, Mr. Scott Sullivan, CFO of Worldcom, was also instrumental in fudging numbers in the books of the company.
By middle of 2002, Worldcom was so much in deep waters that it was no longer possible to cover up the mess that had been created. Owing to this, the trading of Worldcom stock stopped trading at an all time low and by July of the same year the company claimed for bankruptcy protection of more than $41 billion in debt.
Obviously a fraud of this magnitude can happen only if internal stakeholders are involved. But in a economy that professes financial discipline by means of auditing, it is strange to see how the company managed to evade auditory requirements and successfully show quarter after quarter of profits.
The WorldCom raises many important questions surrounding ethical practices and corporate values. The founding fathers of a company are the ones that lay down the guiding principles of the firm. Now it is one thing to have a voluminous Code of Business Ethics booklet nicely tucked away in your company shelf and another thing to actually follow it.
Big corporations, owing to their size and exposure to both creditors and shareholders, often feel the heat when markets begin to crumble. And whilst it is easy to take the unethical path in the short term, one cannot escape the inevitable downfall that will happen eventually. In this case, when the CEO and CFO themselves resort to unethical practices, then such measures percolate down to all the other managers in the firm as well. As a countercheck to that, many companies have a whistleblower policy which allows employees to identify and report unethical practices, even under conditions of anonymity.
Another factor that aided the malpractices in the company was the lack of effective internal controls. Many firms have clear cut segregation of duties wherein a certain team would make a certain a document and a completely separate team will check the same for irregularities (Maker-Checker Concept).
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