Corporate Governance and Santa Clara University Essay

Submitted By genuinemgd
Words: 776
Pages: 4

WorldCom
WorldCom was one of the biggest long-distance telephone companies in America until it collapsed due to greed, corruption, and fraud. There were several organizational problems which contributed to the fall of WorldCom such as personal greed of the president, no corporate governance, too many acquisitions and an unethical CFO who abused the accounting system.
One of the biggest problems was its fast growth through the strategy of acquisitions of other companies in the tune of over 60 billion dollars. The problem was that these other companies came with debt that was close to 41 billion (Santa Clara University 2012). Most of the capital expense was listed as a company expense which spread out the expenses over a long period of time which made the company appear to be making a profit which in fact it really was not. Through these acquisitions the stock prices went up which meant that WorldCom had more buying power to keep borrowing money and acquire more companies. The company acquired 65 companies which posed a threat to their financial department to keep the books accurate and combine everything properly to comply with the generally accepted accounting practices (Santa Clara University 2012).
The second problem dealt with Bernie Ebber’s personal greed. As WorldCom grew so did Bernie’s personal world. His personal life began to grow in material items as he bought up golf courses, yacht clubs, ranches, etc. The president was using stock shares and company loans to fund his personal appetites.
It was also an issue of corporate governance because the board of directors could have prevented some of the problems by not allowing senior executives to receive large loans. The loans among the executives would be a conflict of interest and would be considered ethically wrong. The board should have done their homework and looked into things a bit deeper before approving such large loans to one of its executives. It was not until WorldCom started dropping in share prices that it realized there was a problem and asked for the president, Ebbers to step down.
As the company went into a spiral from a down market in telecommunications the debt was just too much for WorldCom to keep up with. Bernie got desperate and had a talk with his CFO, Scott Sullivan and convinced him to crunch the numbers to make things look better until the situation turned around so that the investors would not lose faith in the company. It was through the unethical accounting practices that led to destroy WorldCom for good. The accounting department allowed 3.8 billion in payments for line costs as capital expenditures rather than current expenses (Santa Clara University 2012). This allowed the company to look better than what it really was because it could spread out its expenses over a long period of time. An internal auditor, Cynthia Cooper found the issue and alerted the authorities to the misstatements. The problem was that the outside auditors did not catch this abuse to the accounting…