Introduction
WorldCom was America 's second largest telecom company in 2000 (The WorldCom Accounting Scandal, 2002). Making a modest beginning in the hinterland of Mississippi in 1983 with a meager capital of less than 100,000 USD it reached the pinnacle of corporate success reporting more than USD 39 billion in revenue and USD 150 million in MCAP (The WorldCom Accounting Scandal, 2002). In the process it became 42nd in the Fortune 500 list. Under the leadership of CEO Bernie Ebbers it grew rapidly by means of acquisitions and increased demand for telecom services farther fuelled the growth of WorldCom during the whole of 90s. However on June 25, 2002, WorldCom announced that it had overstated earnings in 2001 and the first quarter of
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If the WorldCom would have adopted the goal setting theory in their organization, its executive and auditor would have not gone for the unethical accounting practices for the business (Griffin & Moorhead, 2009).
Corporate Governance
Corporate governance is the set of processes, customs, policies, laws and institutions, which directed, administered and controlled over the corporation (Monks & Minow, 2008). Corporate governance is a way by which a company governs itself for providing the values to their stake holders. The WorldCom did not follow the corporate governance policy. If the WorldCom would have followed the corporate governance it would have not led towards this business failure and company would have not gone for the unethical practices conduct in the organization. Corporate governance would have increased the faith of stakeholders towards the company and company would have survived for long time (Monks & Minow, 2008).
Adoption of Ethical Behavior
The Ethical Behavior would enhance the performance of the company, because the ethical behavior would creates the good image of the company among the stakeholders. If The WorldCom would have adopted the ethical behavior in the organization it would not have attained bankruptcy in the market. The company acted in unethically to misrepresent the accounts of the company (Salter, 2008).
Contribution of Leadership, Management and Organizational Structures
Every organization is directed with a particular
Corporate governance is the rules in which companies are controlled. This governance essentially balances the
LDDS started with about $650,000 in capital but soon accumulated $1.5 million in debt since it
Organizations that behave ethically are more apt to earn the trust of their customers, employees, and stockholders. Then there are companies that hide the true value of the company from possible investors, customers, employees, and the public at large showing a lack of ethically behavior. This does not all the time included just one company, but a group effort to hide, steal, and mislead everyone for personnel gains. Everyone that deals with any organization expects the upmost ethically behavior on all levels.
Corporate governance is a set of actions used to handle the relationship between stakeholders by determining and controlling the strategic direction and performance of the organization. Corporate governance major concern is making sure that the strategic decisions are effective and that it paves the way towards strategic competitiveness. (Hitt, Ireland, Hoskisson, 2017, p. 310). In today’s corporation, the primary objective of corporate governance is to align top-level manager’s and stakeholders interest. That is why corporate governance is involved when there is a conflict of interest between with the owners, managers, and members of the board of directors (Hitt, Ireland, Hoskisson, 2017, p. 310-311).
Corporate governance in itself has no single definition but common principles which it should follow. For example in 1994 the most agreed term for corporate governance was “the process of supervision and control intended to ensure that the company’s management acts in accordance with the interest of shareholders” (Parkinson, 1994)1. Corporate governance code is not a direct set of rules but a self-regulated framework which businesses choose to follow. This code has continued to change in the past 20 years in accordance with what is happening in the business world. For example the Enron scandal caused reform in corporate governance with the Higgs Report which corrected the issues which were necessary. Although it does not quickly fix problems, it gives a better framework to
It is the responsibilities and practices exercised by the board of directors and senior management of an organization. It aims to achieve:
As details of the Enron scandal surfaced public outrage grew, calling for action, accountability and consequences. Corporate governance began receiving renewed interest. Corporate governance is a multi-faceted subject that sets forth the rules and responsibilities of the relationship between the corporation and its stakeholders (Cross & Miller, 2012). This includes the company’s officers and management team, the board of directors, and the organizations shareholders.
The stakeholders in this fraudulent case of WorldCom consist of Bernie Ebbers, Scott Sullivan, Buford Yates, David Myers, Cynthia Cooper, and Betty Vinson belong to the company. While the other stakeholders would consist of the creditors, Andersen (accounting firm), investors, and the public. This fraudulent act committed within WorldCom impacted every single stakeholder in a way. Either in a negative or positive way, most of the impact was caused with harm to everyone. The main individuals such as Ebbers, Sullivan, and Vinson all had major consequences as resulting with the fraud. Criminal trials were a major result with their fraudulent acts within WorldCom. Cooper was a lifesaver by most of the community. Aside from these individuals, the rest also got affected by the fraud. Investments conducted by the investors were all lost within the fraud process. The impact towards much of the image for Andersen was ruined. Many of the public lost their trust on the honesty and professionalism of Andersen and other certified public accounting firms. The entire employees from the top management to the smaller group of workers stayed unemployed and some with criminal punishment.
The WorldCom management had an ethical responsibility to dignify business practices above self-interest. Illegal actions conducted at WorldCom produced short term gains at the expense of long term relationships. Chakraborty, Kurien, Singh, et al. (2004, p. 97) described this practice as "profits at any cost."
On March 15, 2005 former CEO of WorldCom, Bernard Ebbers sat in a federal courtroom waiting for the verdict. As the former CEO of WorldCom, Ebbers was accused of being personally responsible for the financial destruction of the communications giant. An internal investigation had uncovered $11 billion dollars in fraudulent accounting practices. Later a second report in 2003 found that during Ebber’s 2001 tenure as CEO, the company had over-reported earnings and understated expenses by an astonishing $74.5 billion dollars (Martin, 2005, para 3). This report included the mismanagement of funds, unethical lending practices among its top executives, and false bookkeeping which led to loss of tens of thousands of its employees.
WorldCom was the ultimate success story among telecommunications companies. Bernard Ebbers took the reigns as CEO in 1985 and turned the company into a highly profitable one, at least on the outside. In 2002, Ebbers resigned, WorldCom admitted fraud and the company declared bankruptcy (Noe, Hollenbeck, Gerhart, &Wright 2007). The company was at the heart of one of the biggest accounting frauds seen in the United States. The demise of this telecommunications monster can be accredited to many factors including their aggressive-defensive organizational culture based on power and the bullying tactics that they employed. However, this fiasco could have been prevented if WorldCom had designed a system of checks and balances that would have
From the time of WorldCom’s inception there always seemed to be a tradition in management as if the company was only 100 or so employees. There was a “good old boys” mentality among the limited few running the company and if you were outside that circle then were told only what they wanted you to hear. An unspoken rule among employees was to do what you were told without questions or risk the consequences. One example of this situation occurred when senior management member Gene Morse told an employee “If you show those damn numbers to the f****ing auditors, I’ll throw you out the window” (Kaplan, R.S., & Kiron, D., 2007, p. 3).WorldCom showed no concern regarding an employee’s need and obligation to voice concerns on matters related
Corporate governance refers to ‘the ways suppliers of finance to corporations assure themselves of getting return on their investment’ (Shleifer and Vishny, 1997: 736). Corporate governance discusses the set of systems, principles and processes by which a
A multitude of choices made by executives at WorldCom led to the ultimate demise of the company as it was previously known, the employees and their livelihoods’, and the trust of the American people. In a time when corporations fail to set ethical standards and provide transparency to investors, how do we change corporate culture on a national level? By analyzing choices made to improve stock prices and company image that ultimately result in failure-- we can guide
Corporate Governance refers to the way a corporation is governed. It is the technique by which companies are directed and managed. It means carrying the business as per the stakeholders’ desires. It is actually conducted by the board of Directors and the concerned committees for the company’s stakeholder’s benefit. It is all about balancing individual and societal goals, as well as, economic and social goals. Corporate Governance is the interaction between various participants (shareholders, board of directors, and company’s management) in shaping corporation’s performance and the way it is proceeding towards. The relationship between the owners and the managers in an organization must be healthy and there should be no conflict between the