Worldcom Case Study

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WorldCom grew rapidly thanks to the booming telecommunications industry in the 1990s and CEO Bernie Ebbers’ intense acquisitions strategy. He cultivated a “cowboy culture” through example by routinely making bold and risky moves to get deals done through aggressive means. Ebbers emphasized the importance of building revenues and increasingly procuring line capacity to handle the expected growth. Instead of focusing on market share or customer service, the company’s main goal was to be the best performing business on the stock exchange. Therefore, WorldCom’s most important industry performance metric was the Expense-to-Revenue ratio, which in the first quarter of 2000 was about 42%. Unfortunately, after the dot-com bubble burst, the telecom …show more content…
While earnings management may not be conservative accounting, it is a frequent practice used to smooth financial reporting within the legal boundaries of generally accepted accounting standards (GAAP). It typically applies certain accounting methods in situations where accountants have some intertemporal discretionary judgement, such as with reserves or estimates, to influence short-term results. It is used to reduce fluctuations in earnings and net income between periods. This is advantageous because the stock of companies with stable earnings is considered less risky and more preferable to investors. At a hard to define and debatable point, these activities cross the boundary into fraud to distort the company’s earnings. Fraudulent reporting is an illegal act that occurs when managers make intentional and material misrepresentations of the company’s financial condition by manipulating the numbers or providing false information. WorldCom deceived others with artificial figures to conceal its true financial …show more content…
The numerous other businesses they acquired were not properly integrated into the organization. This resulted in a mixture of various systems, disjointed policies, and diverse management styles. WorldCom’s main departments were disconnected and uncoordinated, spread across several different states. This leads to a lack in communication, internal controls, and oversight. The company was not united under a central code of conduct and obstructing those who had concerns or raised questions. The executives were able to act with autonomous control, fostering a culture of collusion and circumvention. Value was placed on loyalty to one’s superiors and the bottom line results. This approach was cultivated through the use of both reward (compensation bonuses and promotions) and punishment (harsh intimidating criticisms and the threat of losing one’s job). Employees followed orders despite any reservations about the integrity of their actions. Even the internal audit team was unaware it should have had any suspicions for the longest time as most employees would not speak out or they didn’t see them as independent from their main oppressor Scott Sullivan. When Cynthia Cooper began her internal audit investigation, she found the fraud to be quite well covered up by uncommunicative and elusive employees and complex transaction
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