Worldcom Case

WorldCom

2002 saw an unprecedented number of corporate scandals: Enron, Tyco, Global Crossing. In many ways, WorldCom is just another case of failed corporate governance, accounting abuses, and outright greed. But none of these other companies had senior executives as colorful and likable as Bernie Ebbers. A Canadian by birth, the 6 foot, 3 inch former basketball coach and Sunday School teacher emerged from the collapse of WorldCom not only broke but with a personal net worth as a negative nine-digit number.2 No palace in a gated community, no stable of racehorses or multi-million dollar yacht to show for the telecommunications giant he created. Only debts and red ink--results some consider inevitable given his unflagging enthusiasm and entrepreneurial flair. There is no question that he did some pretty bad stuff, but he really wasn't like the corporate villains of his day: Andy Fastow of Enron, Dennis Koslowski of Tyco, or Gary Winnick of Global Crossing.3

It was 1983 in a coffee shop in Hattiesburg, Mississippi that Mr. Ebbers first helped create the business concept that would become WorldCom. "Who could have thought that a small business in itty bitty Mississippi would one day rival AT&T?" asked an editorial in Jackson, Mississippi's Clarion-Ledger newspaper.5 Bernie's fall-and the company's-was abrupt. In June 1999 with WorldCom's shares trading at $64, he was a billionaire,6 and WorldCom was the darling of the New Economy. By early May of 2002, Ebbers resigned his post as CEO, declaring that he was "1,000 percent convinced in my heart that this is a temporary thing."7 Two months later, in spite of Bernie's unflagging optimism, WorldCom declared itself the largest bankruptcy in American history.8

This case describes three major issues in the fall of WorldCom: the corporate strategy of growth through acquisition, the use of loans to senior executives, and threats to corporate governance created by chumminess and lack of arm's-length dealing. The case...