During the 1990s, WorldCom disrupted the telecom industry through multiple acquisitions. The company acquired over 60 companies. The compathe any acquired MCI in 1997 to become the second largest data carrier. By 2001, the company controlled a third of all data cables in the US (Obringer, 2011). The company eventually collapsed due to mismanagement arising from the greed of the executives who defrauded the company off billions.
Major characters
The main character in the WorldCom fraud was the former chief executive officer Bernie Ebbers. The former chief finance officer Scott Sullivan was his accomplice. Ebbers borrowed over $365 million to allegedly cover losses in the stock. The amount was not repaid. Additionally, he secured huge loans from the company for personal investments. These included the purchase of a Canadian ranch.
He netted nearly one hundred and forty million US dollars from the transactions associated with the corporation. Sullivan served as the company treasurer and secretary in addition to CFO. He directed employees to make fabricated bookkeeping entries. He individually made fabricated and deceptive public statements about the company finances. He netted $45 million from company sales (Boatright, 2011).
The ethical issue faced
The practice of dubious accounting practices and deception drove the company to insolvency. The deceitful reports and public statements made by the CFO contribute to the unethical issue of fraud. The root of the fraud was the siphoning of the company’s finances for personal use through loans that were not reflected in the books of accounts. The records were kept a ‘secret’.
Ethically, it is erroneous to withhold such information from investors who put huge amounts of capital in the company. There was a faked price increase in the company proceeds through financial records that were set aside. The amount set separately as the reserve was recorded as profits.
Reconciling reaction to the issue
The main players in the fraud conspired to deceive the stakeholders. The financial statements indicated that the company was making profits. In reality, the company was making losses because the loans extended to top executives were not repaid.
The audit conducted revealed that the management would not account for the extra profits. Having a reserve account is not illegal or unethical. However, the executives inflated the reserves with a hideous plan. They would reach the reserve account to gratify the investors.
The stakeholders affected by the decision
the The major stakeholders affected by the fraud were the investors. They lost millions in investment in the company’s stock.
The involvement of the investors was loose. When internal auditing was taking place, the investors were often unaware. Information was held back from them. The dubious accounting practices impacted the company’s employees. When the company filed for insolvency and the related legal matters, many workers were laid off.
How stakeholders were affected by the decision
The declaration of bankruptcy by the management was detrimental for the company investors. Considering that the company was insolvent, they could not sell their stock or receive dividends. The move also saw the laying off of many employees to minimize expenses.
An alternative course of action
The company’s management should have implemented operational internal controls. The strategy would have prevented the executives from manipulating the subordinate staff since the fraud would have been detected before billions were lost.
Proper checks and balances should have been implemented. The separation of duties made it easy for top managers to be manipulated by the CEO and the CFO. When the company was declared insolvent, the government should have intervened to save the thousands of jobs that were lost since they affected the economy.
References
Boatright, J. R. (2011). Ethics and the conduct of business. Upper Saddle River, NJ: Prince Hall.
Obringer, L. A. (2011). How cooking the books works.