Presented by students of Shri ram murti ram smarak international business school in Business ethics and corporate governance

1. How Unethical
Practices
Almost
Destroyed
WorldCom

2. Group Members
• Amit Yadav
• Samarpal Singh
• Ravindra Kumar
• Apporva Verma
• Saurabh Tripathi
• Udit Varshney
• Vimal Verma

3. WORLDCOM LEADERSHIP
CEO Bernard Ebbers CFO Scott Sullivan

4. COMPANY BACKGROUND
• Worldcom founded in 1983 in hattiesburg ,
mississippi
• Initially called LDDS- Long Distance Discount
Service
• Bernard Ebber as CEO in 1985
Growth=survival
$650000=$1.5 m
• Worldcom went public in 1989
• 1993-metromedia co. & resergens communication
• 1995- william technology
• 1998-Biggest acquisition($40 billion revenues)

5. • 1999 sprint merger worth $129 billion crashed
• Stock declined by 2000
• Heavy loans unstabilized his position as he left he
said
• New CEO-John Sidgmore & CFO Scott Sullivan
• investigation launched by :-
SEC (Security exchange commission)
Internal auditor
• Purchased by Verizon communication on 2001
known as Verizon business.

6. Truth Behind the Scandal
• Unrealistic financial targets and inability to meet them
• Recording of a/c entries without any evidences
• Company was capitalizing its line costs. Line costs were
operating expenses but classified as capital expenditure
• False figures 3.055 Bn $ in 2001 & 797 Mn $ in 2002
• In 2000 and 2001, WC claimed pre tax revenue of 7.6 and
2.4 Bn $ respectively. Later discovered as loss of 49.9
and14.5 Bn $ for the respective years
• Reserve accounts were manipulated to increase figures
• Two versions of accounts the actual version and the Final
version for investors

7. Nemesis catches up with world com
Attempt to acquire sprint in oct 1999 but failed.
Ebbers lacked strategic sense of direction and company
started drifting.
A company suffered financial crunch because of decline in
revenue,over capacity and huge debts.
Fear amongst CEO and the top brass of the company.
Stock price dropped to 0.5 $ in jan 2002.
In june 2002,co. announced inflation of profits and improper
accounting of 3.9 Bn$.
In august 2002,another 3 Bn$ was improperly accounted.

8. Why WorldCom
failed????

9. Reasons for the fiasco
Corporate culture
Variety of people
Acquisition of various
business entities
Department were distant
from each other
Hierarchical nature of the
organization

10. Inorganic growth
Acquisition of business
units
Financed by companies
high value stock
Industrial slow growth rate
and recession

11. Failing leadership
No technical qualification ,
no experience
Priority to personal interest
over organization's interest.
No backup plan

12. Unconcerned and Malfunctioning
Board of directors
Unalert top management
Whimsical CEO
Large pay packages of top
executives
Unreasonable long tenures of
board members
Unreasonable loans and
benefits given to Ebbers

13. Other reasons
Recession of the economy
Vast oversupply of capacity
Unhealthy focus on profits

14. THE FINANCIAL MESS
SEC revealed the fact that
WorldCom had a debt of 5.75
billion dollar.
WorldCom has also signed
a deal with 26 banks
according to which It has to
pay 2.65 billion dollar per
year.
Banks agreed to give the
loans without any collateral.
WorldCom manipulated the
value of its total assets

15. WorldCom also defaulted
to give 0.60 dollar on its
MCI group tracking
stock.
This step was taken by
WorldCom stating the
fact that by this it can
save upto 284 million
dollar a year.

16. How the stakeholders
were affected?

17. Decline the value of stock
Workforce cut down drastically
Customer
Financial institutions
The Indian connection

18. The Blame Game
• Arthur Anderson was external auditor of
WorldCom since 1989.
• They denied any involvement in the
Fiasco.
• Arthur Anderson missed opportunities
where they could have disclosed the
fraud. They have been criticized for their
way of handling WorldCom accounts
books and policies.

19. • Arthur Anderson had series of audit
fraud including Enron and
WorldCom.
• Observers commented that Arthur
Anderson could have paid more
attention towards aggressive
practices when it was aware of such
practices before.

20. Summary
• WorldCom is not only about “greed”
• Corporate fraud is the result of how a corporation is
led, how employees are motivated, the nature of the
work, and the degree of individual autonomy
• Ethics training and compliance programs don’t work
in a culture that is exclusively materialistic and that
devalues the dignity of work and workers
• The basic assumptions about how corporations are
organized and run need to be rethought
• Corporate executives must re-learn how to lead
• Leadership training must be holistic, emphasizing free
will, personal responsibility and transparency i.e.:
continuous, open, information-sharing

21. Why ‘good’ managers make bad ethical
choices (
Four Rationalizations To Justify Questionable
Conduct
1) Believe that the activity is not “really” illegal
2) Believe that it is in the individual’s or
corporation’s best interest
3) Believe that it will never be found out
4) Believe that the company will condone
actions that are taken in its interest and will
even protect the managers responsible
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22. Conclusion
 A good way to avoid management oversights is to
subject the control mechanisms themselves to
periodic surprise audits…
 The point is to make sure that internal audits and
controls are functioning as planned
 It is a case of inspecting the inspectors and taking
the necessary steps to keep the controls working
efficiently
 It is up to Top Management to send a clear &
pragmatic message to all employees that good
ethics is still the foundation of good business
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23. Key Take Aways
• No job is worth breaking the law or committing
unethical acts for
• Your personal integrity is your most important
asset – you own it and control it
What will it profit a man if he gains the
world but loose his own soul?
(Mark 8:36)Jesus
Christ