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
Pfeiffer, R., & Forsberg, R. (2005). Ethics on the job: cases and strategies (3rd ed.). Belmont, CA: Thomson/Wadsworth.
Throughout the past several years major corporate scandals have rocked the economy and hurt investor confidence. The largest bankruptcies in history have resulted from greedy executives that “cook the books” to gain the numbers they want. These scandals typically involve complex methods for misusing or misdirecting funds, overstating revenues, understating expenses, overstating the value of assets or underreporting of liabilities, sometimes with the cooperation of officials in other corporations (Medura 1-3). In response to the increasing number of scandals the US government amended the Sarbanes Oxley act of 2002 to mitigate these problems. Sarbanes Oxley has extensive regulations that hold the CEO and top executives responsible for the numbers they report but problems still occur. To ensure proper accounting standards have been used Sarbanes Oxley also requires that public companies be audited by accounting firms (Livingstone). The problem is that the accounting firms are also public companies that also have to look after their bottom line while still remaining objective with the corporations they audit. When an accounting firm is hired the company that hired them has the power in the relationship. When the company has the power they can bully the firm into doing what they tell them to do. The accounting firm then loses its objectivity and independence making their job ineffective and not accomplishing their goal of honest accounting (Gerard). Their have been 379 convictions of fraud to date, and 3 to 6 new cases opening per month. The problem has clearly not been solved (Ulinski).
MCI was later acquired by its competitor Verizon in 2006. First, I want to discuss the Internal Auditors in WorldCom. Cynthia Cooper was one of them; she was the vice president of internal audit department at WorldCom. Cynthia Cooper’s role in WorldCom accounting scandal as the whistleblower was extraordinary. As an internal auditor, her job is to provide assurance that the company’s risk management, governance and internal control processes are operating effectively. In 2002, Cynthia Cooper discovered the false line cost entries on the balance sheet, so she reported to the CFO but was treated with unfair criticism. Cynthia was rather disturbed by the way their company tried to cover up the truth, so she formed a team with her colleagues, they worked together often at night and in secret to investigate and uncovered the 3.8 billion dollars in fraud at WorldCom. At that time, this was the largest accounting fraud in the U.S. history. Through the whole incident, Cynthia remained independent from the corporation, the staff, and the management. When she was investigating the evidence, she still maintained an unbiased, questioning mind and objective view under tremendous
Trevino, L. K., & Nelson, K. A. (2011). Managing business ethics: Straight talk about how to do it right. New York: John Wiley.
Ciulla, J. B., Martin, C. W., & Solomon, R. C. (2007). Is "The Social Responsibility of Business... to Increase Its Profits"? Social Responsibility and Stakeholder Theory. Honest work: a business ethics reader (pp. 217-253). New York: Oxford University Press.
Enron’s management style was apparent from the early years of the organization. In 1987, traders in New York manipulated transactions so it would appear as though volume was higher. Falsified transactions significantly increased the traders’ bonus pay out. A truly virtuous manager would deal with unethical behavior by swiftly dismissing those involved. Sadly, Chairman Kenneth Lay and his management team chose to keep the traders on payroll because “said the company needed the revenue” (Fowler, 2002). This event may have been the earliest indication of unethical behavior within the organization.
Trevino, L., & Nelson, K. (2011). Managing business ethics - straight talk about how to
Robert Hoyk and Paul Hersey, The Ethical Executive (Stanford: Stanford Business Books, 2008)
"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.
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.
Lyke, B and Jickling, M. (2002). WorldCom: The Accounting Scandal. CRS Report for Congress, p2.
Katz, David and Julia Homer. "WorldCom Whistle-blower Cynthia Cooper." 1 February 2008. CFO.com. 15 March 2011 .
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).