Academic journal article Journal of Applied Management and Entrepreneurship

WorldCom: A Failure of Moral and Ethical Values

Academic journal article Journal of Applied Management and Entrepreneurship

WorldCom: A Failure of Moral and Ethical Values

Article excerpt

Executive Summary

WorldCom, now named MCI, recently emerged from bankruptcy protection after reporting accounting irregularities of $11 billion (Young, 2004). These accounting irregularities have resulted in many of WorldCom's previous executives being prosecuted on securities charges. This article will summarize many of WorldCom's shortcomings and evaluate how the company is moving forward in light of their past. In the past 18 months MCI has fired the CEO, COO, CFO, controller, general counsel, the entire board of directors and over 400 finance and accounting employees. In addition to establishing a code of conduct and guiding principles, Michael Capellas, MCI's current CEO, has established an ethics office, hired a Chief Ethics Officer, and required all MCI employees to have extensive ethics training. However, it remains unclear if these actions are enough. This article also suggests some additional actions MCI can take to better establish a culture of ethical values.

WorldCom, now named MCI, recently emerged from bankruptcy protection after reporting accounting irregularities of $11 billion (Young, 2004). As part of their emergence settlement, MCI paid the securities and Exchange Commission (sec) fines totaling $750 million and former bondholders received 36 cents on the dollar in stock in the new company (Young, 2004). These accounting irregularities have resulted in many of WorldCom's previous executives being prosecuted on securities charges. On March 2,2004 Bernie Ebbers, WorldCom's ex-Chief Executive Officer, was charged with conspiracy to commit securities fraud, securities fraud, and falsely filing with the sec and on May 24,2004 six additional counts were filed against him (Davidson, 2004; Moritz, 2004). On March 15,2005 Ebbers was found guilty on all nine counts (Crawford, 2005) and faces a maximum penalty of 85 years in prison and an $8.25 million fine (Davidson, 2004). On the same day the additional charges were filed against Ebbers, Scott Sullivan, WorldCom's ex-Chief Financial Officer, according to Reuters television stated that "as CFO at WorldCom I participated with other members of WorldCom to conspire to paint a false and misleading picture of WorldCom's financial results."

Scharff (2005) posited that much of WorldCom's unethical behaviors may have been caused by groupthink. Groupthink is caused when concurrence seeking becomes paramount in team decision-making. Janis (1982) defined groupthink is a "mode of thinking that people engage hi when they are deeply involved in a cohesive in-group, when the members' strivings for unanimity override their motivation to realistically appraise alternative courses of action" (p. 9). Janis (1982) maintained that some popular examples of groupthink included President Kennedy's decision to invade Cuba at the Bay of Pigs or America's decision to escalate to war in Vietnam. Whyte (1989) suggested that the space shuttle Challenger disaster and President Reagan's Iran-Contra arms for hostages dealings be added to Janis' (1982) examples of groupthink. The characteristics of groupthink include a feeling of invulnerability, ability to rationalize events and decisions, moral superiority within the group, group pressure on dissenters, use of stereotypes, self-censorship within the group, and unanimity (Janis, 1971, 1982). While groupthink may have contributed to the number of people involved in the unethical behaviors as well as the length of time over which WorldCom's fraud occurred, groupthink does not resolve the ethical concerns with the senior level executives or the board of directors responsible for creating the culture which led to these events.

WorldCom has been just one of many companies caught in ethical quandaries and predicaments over the past few years. It appears that while some companies and their executives have maintained a strong focus on ethical behavior regardless of economic conditions, others have not. This article will review the major theories of ethical behavior followed by an assessment of WorldCom's executive management hi light of the theories of ethical behavior. …

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