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 to their job function. “Employees felt they did not have an independent outlet for expressing concerns about company policies or behavior” (Kaplan et al., 2007, p. 3). This treatment created a climate of fear among employees and reinforced the management team’s ability to keep knowledge and decision making within their grasp. Transparency and full-disclosure were non-existent to both employees and investors. Employees were told to “spend whatever was necessary to bring revenue in the door, even if it meant that the long term cost…outweighed short-term gains” (Kaplan et al., 2007, p. 4) which created a costly underutilized network backbone. Checks and balances were ever established to ensure that money was being invested in the best interest of the company and its shareholders. As time went on these decisions would result in complete failures on all levels and would assist in creating scandal worth millions of dollars. At one time WorldCom stock was calculated to “once be worth $180 billion”... ... middle of paper ... ...ree market with a lot of innovations and some folks who don't necessarily want to play by the rules. But that doesn't mean we should stop trying to regulate and prosecute wrongdoers” (Benner, 2010, para. 8). References Benner, K. (2010). Is Sarbanes-Oxley a failure - Mar. 24, 2010. CNN Money. Retrieved January 17, 2012, from money.cnn.com/2010/03/23/news/economy/sarbanes_oxley.fortune/index.htm Kaplan, R.S., & Kiron, D. (2007) Accounting Fruad at WorldCom, 1-18. Retrieved from http://cb.hbsp.harvard.edu/cb/pl/11562378/11562382/0a1c198fe80aa631fc4498e20028747f Robbins, S. P., & Coulter, M. K. (2012). Social Responsibility and Ethics. Management (11th ed., pp. 150-177). Harlow: Pearson. Worldcom Stock Price - Worldcom Stock Prices - Worldcom Stock Price Chart - Agonist Learning Center. (2009). The Agonist. Retrieved January 17, 2012, from http://agonist.org
...ns and the company’s fair-value accounting resulting in restatements of merchant investments based on faulty numbers. Additional violations included Enron’s accounting for stock issued to SPE’s, inadequate disclosure of related party transactions, and conflicts of interest and their cost to stockholders. These violations of GAAP and GAAs standards ultimately lead to the demise of a once mighty company (Benston, The Quality of Corporate Financial Statements and Their Auditors before and after Enron). The importance of consistently keeping up with accounting principles and producing accurate numbers for a company’s are exemplified through Enron’s story. The company faced an unfortunate fate that could have easily been avoided through more efficient and effective management, proper accounting methods, and a higher standard of morals and ethics within the workplace.
Trevino, L., & Nelson, K. (2011). Managing business ethics - straight talk about how to
In modern day business, there can be so many pressures that can cause managers to commit fraud, even though it often starts as just a little bit at first, but will spiral out of control with time. In the case of WorldCom, there were several pressures that led executives and managers to “cook the books.” Much of WorldCom’s initial growth and success was due to acquisitions. Over time, WorldCom discovered that there were no more opportunities for growth through acquisitions when the U.S. Department of Justice disallowed the acquisition of Sprint.
Debbie M. Thorne (2010). Business and Society: A Strategic Approach to Social Responsibility and Ethics.
The company concealed huge debts off its balance sheet, which resulted in overstating earnings. Due to an understatement of debts, the company was considered bankrupt in 2001. Shareholders lost $74 billion and a lot of jobs were lost because of the bankruptcy. The share prices of Enron started falling in 2000 and in 2001 the company revealed a huge loss. Even after all this, the company’s executives told the investors that the stock was just undervalued and they wanted their investors to keep on investing. The investors lost trust in the company as stock prices decreased, which led the company to file bankruptcy in December 2001. This shows how a lack of transparency in reporting of financial statements leads to the destruction of a company. This all happened under the watchful eye of an auditor, Arthur Andersen. After this scandal, the Sarbanes-Oxley Act was changed to keep into account the role of the auditors and how they can help in preventing such
Giroux, G. (Winter 2008). What went wrong? Accounting fraud and lessons from the recent scandals. Social Research, 75, 4. p.1205 (34). Retrieved June 16, 2011, from Academic OneFile via Gale:
There were two main issues that provided pressure for the senior executives at WorldCom to commit fraud. WorldCom became the second largest long distance telephone company because of its execution of a very aggressive acquisition strategy (Moberg and Romar). During the years 1991 through 1997, WorldCom completed 65 acquisitions, the most notable being that of MFS Communications and MCI Communications (Moberg and Romar). At the height of WorldCom’s power, their stock was trading at upwards of $60 per share (Moberg and Romar). As the company’s stock continued to rise, WorldCom continued to acquire companies (Moberg and Romar). However, mergers and acquisitions create significant managerial challenges (Moberg and Romar). The first challenge is to combine the newly acquired company and the already existing company to create one smoothly functioning business (Moberg and Romar). This process can be extremely time consuming, and WorldCom executives did not seem to have the needed time. The second challenge is to account for the financial aspects of the acquisition (Moberg and Romar). During this process, all assets, debts, goodwill, and many other financial information must be ...
Prior to 2000, Enron was an American energy, commodities and service international company. Enron claimed that revenue is more than 102 millions (Healy & Palepu 2003, p.6). Fortune named Enron “American most innovative company” for six consecutive years (Ehrenberg 2011, paragraph 3). That is the reason why Enron became an admired company before 2000. Unfortunately, most of the net income for the years 1997-2000 is overstated because of unethical accounting errors (Benston & Hartgraves 2002, p. 105). In the next paragraph, three main accounting issues will identify for what led to the fall of Enron.
Through an organizational culture that focused on financial greed for self, illegal accounting practices, conflicts of interest partnerships, illegal business dealings, fraud, negligence, and massive corruption at all levels, the Enron scandal help to create new laws and regulations with stiff penalties if violated (Ferrell, et al, 2013). The federal government implemented the Sarbanes Oxley Act (SOX) (Ferrell, et al, 2013).
Shaw, W. H., & Barry, V. (2011). Moral Issues in Business (Eleventh ed., pp. 230-244).
"This is why the market keeps going down every day - investors don't know who to trust," said Brett Trueman, an accounting professor from the University of California-Berkeley's Haas School of Business. As these things come out, it just continues to build up"(CBS MarketWatch, Hancock). The memories of the Frauds at Enron and WorldCom still haunt many investors. There have been many accounting scandals in the United States history. The Enron and the WorldCom accounting fraud affected thousands of people and it caused many changes in the rules and regulation of the corporate world. There are many similarities and differences between the two scandals and many rules and regulations have been created in order to prevent frauds like these. Enron Scandal occurred before WorldCom and despite the devastating affect of the Enron Scandal, new rules and regulations were not created in time to prevent the WorldCom Scandal. Accounting scandals like these has changed the corporate world in many ways and people are more cautious about investing because their faith had been shaken by the devastating effects of these scandals. People lost everything they had and all their life-savings. When looking at the accounting scandals in depth, it is unbelievable how much to the extent the accounting standards were broken.
Berenbeim, R. E. (2006, May 12). Business Ethics and Corporate Social Responsibility. Vital Speeches of the Day, pp. 501-504.
Microsoft (2005) Finance Agenda - The business value of good corporate governance, viewed 22nd June 2010 http://download.microsoft.com/download/3/5/e/35e89ed5-267c-4642-ad8b-46ecaf7b45d3/Business%20Article%20-%20The%20Business%20Value%20of%20Good%20Corporate%20Governance.doc
By 2001 the telecommunications market was softening; meaning prices were falling due to an excess of supply and a decrease in demand as the dot com boom ended. WorldCom had already signed contracts with third party telecommunication companies promising to complete their calls. These multi billion dollar contracts were actually costing more in expenses than what the company would or was receiving in revenue (Sandberg, Solomon, & Blumenstein, 2002).