The Concept of Evolution of WorldCom as a Company - Case Study Example

WORLDCOM The concept of evolution of WorldCom as a company happened in the year 1983 in Mississippi. The person behind this evolution is Bill Fields. He named the company as Long Distance Discount Services (LDDS). After some years the company was renamed as WorldCom. Since then the company grew step by step and transformed itself as a giant in the telecommunication world. The company is famous for its acquisitions of a number of small companies. The company landed in stage where no further large scale acquisitions were allowed by the US government. It was at this point the company began drifting. Political behavior is something which is self-serving in nature and is not at all accepted by any organization. Political behavior has a numerous negative consequences which may result in conflicts and disharmony within the organization. Such disharmony and conflicts can be noticed when people in an organization pit against one another or even against the organization. We can observe this kind politics been played by the employees of WorldCom. There was an instance when the Controller of the company David Myers made a false accounting entry of $370 millions as accruals. David Myers first asked the Director of International Fixed costs Mr. Timothy Schneberger to release the above mentioned amount as accruals. But as her refused to do that and also denied to provide the account number to Myers to make the entry, another senior manager in General accounting named Betty Vinson helped Myers in the task. The account number was obtained by Vinson from a lower level analyst in Schneberger's group and after this the entry was made by one of the subordinate of the analyst. This practice of releasing accruals as and when required continued and employees in the General accounting department also started doing the same thing. All this happened without the employees consulting their superiors or the department heads'. One more relevant incident happened when the General accounting department released an amount of $281 millions against line costs from the tax department's accruals and the tax department was not aware of this act until the year 2001. The release of undue and false figures of accruals was easily done by making the employees act one against other. The work that was to be actually done by the respective employees was carried out by employees in a different department who were actually loyal to the top management rather than company. When David Schneeman, the acting CFO of UUNET refused to book 9 line accruals as instructed by David Myers for his business unit, staff in the department of general accounting made the entry. Finally, it so happened that an amount of $3.3 billions were released in a span of only one year. The corporate environment of WorldCom was not so healthy. The finance department of the company was located at Jackson, Mississippi. The department had none of the senior lawyers located in Jackson. The lawyers were kept away from the inner circle of the company or it's CEO. They were consulted only when the CEO Ebbers felt some necessity. Never was an advice given by the lawyers was like by Mr. Ebbers. He used to convey them personally, his displeasure about the advice, if any, given by them. The culture of WorldCom was created in such a way that the legal function was less influential and was not welcomed by a healthy corporate environment or culture. There was a sever attitude problem among the employees of WorldCom. The attitude of the employees sent a clear message that none of the employees should question their superiors and need to simply do what was instructed to them. Even the senior managers of different departments were not excluded from this. In fact, they used to face personal criticism and threats. A relevant example for this happened in the year 1999. One of the senior managers in the General accounting department was warned by Buddy Yates, director of General Accounting for showing the actual accounting figures in the accounts of the company. Employees in selected departments like finance, accounts and investor relations departments' were unduly rewarded by the Ebbers and Sullivan. They used to grant compensations beyond the salary and bonus guidelines approved by the company to reward selected employees who were actually loyal to them. This used to happen frequently. When in the year 2001, as there were only very few accruals left which were actually insufficient to achieve the targeted E/R ratio, David Meyers again committed the act of using the accounting principles to his convenience. The employees were asked to treat the cost of excess network capacity as a capital expenditure rather than operating cost as this would lead the company to enter the market in a very less time when demand becomes stronger than its current position. The financial figures of the company were almost all the times were misrepresented by the employees of the general accounting department. This was done for various reasons and as instructed by the top management. Sometimes it was deliberate and some times it was by mistake. This practice was not at all hindered as the external auditors focused on identifying risks in order to assess whether the company would be able to handle those risks. The auditors assumed that the accounting information that was recorded was valid. Even the board meetings were carried out according to a pre designed format. It was a regular habit that prior to one week of the board meeting, the board of directors was sent a packet that consisting the agenda, previous quarter's financial information, minutes of the earlier meeting, summaries of investor calls' and the necessary resolutions that were to be taken in the forthcoming meeting. Even the capital expenditures and line costs' information that were presented to the board were manipulated by Sullivan. The financial figures and other accounting information that were given regarding the company to the Board of directors and the Audit Committee were always false. At a later stage it was found out that the Board of the company was always distant and detached from the company's business and working. The political behavior and mismanagement of both Ebbers and Sullivan are clear from all the above mentioned incidents that took place in the company and ultimately which lead to the failure of the telecommunication giant, WorldCom. The kind of malpractices and politics played by the top management and also the other employees of different departments' of the company who were loyal to the top management rather than organization clearly depicts that the consequences of the organizational failure were internal events and not any thing else. References: 1. Accounting Fraud at WorldCom. PDF (Page numbers. 3 - 6) 2. Organizational politics and employee stand. PDF (Page numbers. 482 & 483) 3. Ibid., p:19 4. Kay E.Zekany, Lucas W. Braun, and Zachary T. Warder, "Behind Closed Doors at WorldCom: 2001," Issues in Accounting Education (Feb '04). 5. http://www.scu.edu/ethics/dialogue/candc/cases/worldcom.html Read More