Worldcom

Had he pressed the matter and sold his stock, he would have escaped the bankruptcy

financially whole, but Ebbers honestly thought WorldCom would recover. Thus, it was

enthusiasm and not greed that trapped Mr. Ebbers. The executives associated with

other corporate scandals sold at the top. In fact, other WorldCom executives did much,

much better than Ebbers did.23 Bernie borrowed against his stock. That course of action

makes sense if you believe the stock will go up, but it's the road to ruin if the stock

goes down. Unlike the others, he intended to make himself rich taking the rest of the

shareholders with him. In his entire career, Mr. Ebbers sold company shares only half a

dozen times. Detractors may find him irascible and arrogant, but defenders describe

him as a principled man.24

The policy of boards of directors authorizing loans for senior executives raises

eyebrows. The sheer magnitude of the loans to Ebbers was breathtaking. The $341

million loan the board granted Mr. Ebbers is the largest amount any publicly traded

company has lent to one of its officers in recent memory.25 Beyond that, some question

whether such loans are ethical. "A large loan to a senior executive epitomizes concerns WorldCom Case Study 5

about conflict of interest and breach of fiduciary duty," said former SEC enforcement

official Seth Taube.26 Nevertheless, 27percent of major publicly traded companies had

loans outstanding for executive officers in 2000 up from 17percent in 1998 (most

commonly for stock purchase but also home buying and relocation). Moreover, there is

the claim that executive loans are commonly sweetheart deals involving interest rates

that constitute a poor return on company assets. WorldCom charged Ebbers slightly

more than 2percent interest, a rate considerably below that available to "average"

borrowers and also below the company's marginal rate of return. Considering such

factors, one compensation analyst claims...