Business faliure

1. WORLDCOM’S FAILURE

2. OVERVIEW
 It began as small company in Jackson, MS by Bernie Ebbers and
became the darling of Wall Street
 The industry provided :
• Internet services
• Long distance services
 WorldCom was the second largest telecommunication provider in the
United State.
• Grew rapidly through acquisitions and increased demand for
telecommunication services
• Continuous increase in stock values facilitated acquisitions

3. WO R L D C O M ’ S AC QU I S I T I O N S
 75 mergers of acquisitions of other companies
 MCI acquisition
• The largest merger in the US history
• On November 1997, WorldCom and MCI Communication
announced their $37 billion merger to form MCI WorldCom
 Proposed Sprint merger
• On October 1999, Sprint and MCI WorldCom announced a $129
billion merger agreement
• The deal did not go through due to concerns of it creating mnopoly

4. ORGANIZATION’S FAILURE
 The collapse of the organization
• In July of 2002 WorldCom filled the biggest bankruptcy ever in the
U.S history with a $41 billion dollar debt load and more than $ 107
billion dollars in assets
• Filling chapter 11 bankruptcy due to:
• Fraud
• Accounting misstatements
• Managerial issues after the mergers
• Bored of director failures

5. ACCOUNTING FRAUD
 $ 11 billion accounting fraud over 3 year period ( 1999-2002)
 The fraud was accomplished in two main ways:
• Understatement of operating expenses by capitalizing these costs on
the balance sheet rather than properly expensing them
• The company inflated revenue by $ 1 billion dollars

6. I S S U E S A F T E R T H E M E RG E R S
 Management
• WorldCom needed time to learn how to run and manage acquired
companies
• Failure to inform Wall Street of the time needed for consolidation
and digestion of acquisitions
• Ebbers desire to protect and build his personal financial condition
• Falsification of net growth.

7. BOARD OF DI RECTORS FAI LURE
 Neglected the unethical and fraudulent behavior of Ebbers
 Failed to take initiative to step in and prevent financial fraud

8. IN CONCLUSION
 How it happened?
• The domination of Ebbers and no checks and constraints placed on
his actions.
• For personal gains under pressure to meet numbers
• Employees failure to communicate fraudulent activities
• A financial system with no control mechanism
• Audit company’s failure of the company and its culture
understanding
• Inadequate audit by independent auditors