Submitted by: Submitted by prathy89
Views: 68
Words: 418
Pages: 2
Category: Business and Industry
Date Submitted: 07/14/2014 08:42 AM
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...