Worldcom

OVERVIEW:

Worldcom orchestrated one of the biggest accounting frauds and sustained it for multiple years. There was a systematic failure at all levels of management, more so at BoD. Ethical boundaries were crossed at individual and corporate levels while individuals looked the other way and let someone else be responsible for the wrong and criminal behavior at Worldcom.

Issues

This memo will address the following issues and will make recommendations to effectively mitigate them:

• What factors led to the criminal and negligent behavior of Worldcom?

• What governance policies and procedures should have been in place to properly address them?

ANALYSIS:

Human Resources/Corporate Culture

Worldcom was heavily influenced by Bernard Ebbers and Scott Sullivan due to their strong personalities and key positions. An environment of fear and consequences was created to suppress employees from speaking out against the management. Verbal abuse was common with threats of physical harm. Management used guilt trips on employees who were adamant about speaking out against management or refused to go along them. Loyalty to management was rewarded and encouraged through promotion and bonuses outside the Worldcom guidelines.

Ebbers was not a visionary leader. The merger and acquisition strategy was a good strategy to expand business, but there was no clear plan to integrate and restructure the acquired companies. Ebbers did not have a long term strategy to properly market, expand and sustain Worldcom.

There was physical and visible disconnect between departments and employees. This lack of communication and segregation of employees further perpetuated the thought that it was ok to ignore all unethical and criminal behavior. One department was not able to question the other.

Marketing/Branding

Worldcom was branded as a company with strong stock price and attractive expense to revenue ratio (E/R). Ebbers said that Worldcom’s goal was to be the number one stock on Wall...