WorldCom Fiasco

WorldCom was a company that was dealing with long distance telephone and internet communication server provider technologies. The company at one time became bankrupt because of the mangers who were appointed made the company to go into liquidation because they undertook fraudulent deals and this lead to the collapse of the company. The new chief Executive Officer Mr. Michael Capellas and Mr. Robert Blakely were appointed so as to conduct an audit about the performance of the company.  The task of auditing was difficult because the company had so many employees and so many assets of the company had been overvalued and this amounted to increased fraudulent cases that needed to be reviewed. Recent studies showed that the company’s fraud was as a result of the company’s management’s employee’s mismanagement of the companies operations. http://www.seu.edu/ethics/dialogue/cande/cases/worldcom-update.htmlWorldCom Company’s disasters of bankruptcy lead to the laying off workers. The investors and the mangers pension funds were not given to them since the company did not have enough money to pay all the workers. The status of the lives of retirees was also affected because they did not have enough money to cater for them once they terminated their employment. It was observed that besides the poor management of the WorldCom Company the telecommunication industry was overbuilt and it could not absorb the capacity of technology that had been built into the system for many years. The WorldCom shares which had peaked at $62 three years ago had fallen to 83 cents at the trading of the stock exchange this lead to the halting of  the company  operations  The management of the company had also borrowed $30 billion from different companies  and at the time of its collapse it had a huge debt such  that it was not able to recover to pay its debts of its customers(Maasen, G.F 1999)..The collapse of the World Com Company had also a positive effect because the managers of most corporations became more responsible since they wanted to maximize profits in their businesses. The government of Congress imposed instructions that all corporations were supposed to follow the rules and regulations of the company and thus the company’s management could no longer manipulate the balance sheets of the WorldCom Company. Another change that was to be undertaken was that the higher management levels salaries were reduced so that the company would cut on its expenses on the salaries and wages which were taking up the company’s largest budget. The ranks of the high-level management structures were regulated so that the right people would hold these positions so as to enable the proper management of WorldCom Company and this reduce the incidence of fraud. http://www.be.wvu.edu/bl-online/news/badnews.htm The negative effect that WorldCom Company had was that the students who were leaving school had to compete with the laid off workers of WorldCom, Xeron and Enron companies and this way a challenge to them as they had to compete for the few jobs opportunities that were there in the market. The president of the Congress state Mr. Bush said that he was ready to ensure that the economy of the country was strengthened through reforming the pension plans, and he ensured that corporate criminals were held accountable for their actions. The reason why he wanted to improve the economy was because the WorldCom company had for a long time contributed to the revenue of the country and its demise lead to the reduction of the country’s revenue thus the president of Congress imposed the instructions so that more people would be made to be more responsible for their actions and the huge losses that were being experienced would be reduced.The president of the Congress state Mr. Bush noted that the people who had dedicated themselves to building the WorldCom company deserved to paid better because they had contributed to the well-being of the economy and this enabled the country to protect jobs for their employees thus they had no a problem of the security of their jobs and also ensured that the retirees benefits were secure thus they would not have a problem in the future. The president of the Congress later signed into law a bill that increased a review of the accounting industry and he imposed tough penalties for the executives that committed corporate frauds.The management of WorldCom later filed a case in court to state that they had over valued their earnings by more than $ 4 billion and thus the customers of WorldCom Company were assured that the company was in a stable condition thus they did not have to worry that their telephones and their computers would be affected in anyway.Ethics is the study of how to determine what is right or wrong of an action, a way of life or a decision by a person. In the normative ethics it deals with the search of principles that guide a person on whether making a decision or an action is right or wrong. In the utilitarian theory it is based on the moral standards that are applied on an outcome of an action or a decision that ensures all people in an organization behave in a way that will be beneficial to the community at large. In the deontology theory it ensures that the decisions are made solely or primarily by considering one’s duties and rights and one that does not change as a result of circumstances.It was not ethical for the leaders of WorldCom to deceive their customers that the company would be successful in the future while it was massively insolvent. The top accounting firms did a bad job of falsifying the audit reports which made customers of WorldCom company to believe that it was a financially stable company.The WorldCom company fiasco sager had an impact on one individual who was known as Cynthia Cooper. She spearheaded the uncovering of the fraudulent activities of the company; she was later awarded a number of awards such as the Accounting Exemplar Award since she had made a notable contribution to professionalism, ethics in the accounting practice of the company. The chief executive officer that is Mr. Ebbers and Mr. Sullivan had contributed to the success of the business since the time they left the company Cynthia cooper was treated badly for uncovering the fraud in the company and her salary was frozen and her auditing position was taken over by another person because she flew to other places of the world since she was given the opportunity to do so.In the year 2004, the chief executive officer of WorldCom Mr. Ebbers was charged with an offense of committing a securities fraud and he had false fully field cases with the Securities and Exchange Commission in March 2005. He was found guilty of all the charges on July 13 that year he was sentenced to a lifetime imprisonment. Mr. Ebber’s lawyer applied for his conviction so that he could not serve the lifetime imprisonment, they falsified the case by giving the judge inappropriate information about Mr. Ebber’s knowledge of the WorldCom accounting fraud that took place in the company. His lawyers also claimed that his case had been manipulated because the three high-level WorldCom executives were not given permission to testify on his behalf. In August 2005, the former chief executive officer Mr. Sullivan was sentenced for five years in court due to the fraudulent practices of the WorldCom Company. He pleaded guilty of the offence that he had been charged against with and he was the only person who was to testify against Mr. Ebbers. Currently, Mr. Ebbers has been convicted in a court of law and he remains to pay a bail while he continues to pursue an appeal.The management of companies must ensure that the necessary mechanisms for production and allocation of resources are subjected to ethical constraints which ensure that the outcomes of exchange satisfy the demands of social justice and that the basic needs of the people are met because if people needs are not met then a company may not achieve its objectives of profit maximization. The state needs to regulate the society and the market so that the rights of al people in the society are regulated in the case of WorldCom where the company was liquidated because of the poor management of the resources of the company, the president’s intervention to regulate the market was a positive move because the other upcoming companies would not fall into the same problem.The management of company should prepare annual directors reports that include a more detailed operating and financial review of the company’s performance. This will enable shareholders and other people who are interested in the company’s affairs to make informed assessments of the company’s current position and future strategies so as to curb incidence of fraud that were noted in WorldCom company and this resulted to its closure.ReferenceMaasen, G.F (1999). An international comparison of corporate governance models”, Amsterdam: Spencer Stuarthttp://www.seu.edu/ethics/dialogue/cande/cases/worldcom-update.htmlhttp://www.be.wvu.edu/bl-online/news/badnews.htmKen, B. (2005) WorldCom’s audacious failure and its toll on an industry. New York TimesHooks, G. (1998) “Corporate welfare policy and the welfare state. Bank deregulation and the savings and loan bail out, “social forces Vol 77 ISS.4 pp 1644-1646