Ldr531 Wk 2

The Business Failure

One time telecommunications giant, WorldCom, went bankrupt in July of 2002 in the midst of an 11 billion dollar accounting fraud scandal. According to Markkula Center for Applied Ethics (2006), “WorldCom lost $48.9 billion (including a $47 billion write-down of impaired assets). Consequently, instead of a $10 billion profit for the years 2000 and 2001, WorldCom had a combined loss for the years 2000 through 2002 (the year it declared bankruptcy) of $73.7 billion” (para. 4). This failure will be examined in the following paragraphs to provide insight to the organizational behavior that facilitated the collapse with further looks into the management and leadership involved.

Why WorldCom Failed

WorldCom failed for many reasons in 2002, and most of those reasons lie within management decisions. The scandal that spelled the end of WorldCom came from the falsification of accounting documents, the misrepresentation and reporting of assets and revenue, and the negligence or outright fraud of management. (Blau, 2003) This failure can be categorized under a lack of corporate governance that should have maintained vigilance over these kinds of fraud. “The modern definition calls it the framework of rules and practices by which a board of directors ensures accountability, fairness, and transparency in the firm's relationship with its all stakeholders (financiers, customers, management, employees, government, and the community).” (Business Dictionary, 2009) The lack of governance provided an environment in which the corporate leaders were not being held accountable for their decisions and the subsequent financial impacts. This, of course, came to an end in July 2002 with the bankruptcy of WorldCom, and future legal actions against WorldCom executives, such as the Chief Financial Officer.

How Managers/Leaders Failed WorldCom

Managers at WorldCom failed not only the company, but all its stakeholders as well. The employees, shareholders, and...