Business Ethics - WorldCom - Essay Example

Business Ethics WorldCom had acquired several companies which demonstrated the greed of the CEO who had used the CFO to nurture his desires. The company came crashing when financial excesses were discovered. The external auditors may not have detected the anomalies or there may have been hidden complicity between the two. The principles of corporate governance were not adhered to and the facts and figures were not made public. All these were against business ethics but MCI bailed out WorldCom by attempting to reestablish itself. It wanted to capitalize on its brand and product and had the protection of the US bankruptcy laws. It is now again trying to sell itself inviting offers from Qwest and Verizon, both of who are also recovering from debts. They are trying to outbid others and making promises which they may not be able to maintain as business deteriorates. This is again a matter of concern because ethics are compromised under such circumstances. What are the factors that caused WorldCom to crumble? The Corporate Governance norms were violated at WorldCom, which is unexpected of the Directors and the CEO. Over ambitiousness of the CEO to acquire several companies with the stocks of WorldCom led him to boost the company’s profits artificially by as much as $3.9 billion (Bhattacharya, 2004). Costs were considered as capital investment which helped the company to sustain its apparently smooth and rapid earning growth. They even claimed depreciation of the ‘capital investments’. The behavior of the CEO and the CFO were the driving forces behind the unethical conduct. The CEO utilized the company loan of $400 million to buy ranches and other personal properties, which is unethical. He used the services of the CFO to ensure rising stock prices so that his personal stake would provide the security for the loan. They hid the information from the external auditor. Additionally, the big names in auditing and accounting have failed to detect the irregularities or to guide the firms. This would amount to hidden complicity between the auditors and WorldCom. The audit committee did not have a financial expert. Besides, they had the sole authority to appoint, retain, compensate, evaluate and terminate the company’s independent auditors (Petra, 2006). Why did MCI bail out WorldCom? WorldCom had crumbled because of its unethical practices. MCI on the other hand was reputed for its “integrity, innovation and value” (Thurston, 2007). WorldCom’s name was changed to MCI as a part of the reorganization plan filed in the bankruptcy court in US. According to the executive vice-president, they wanted to re-establish MCI as a good corporate citizen (Morris, 2003). They were dedicated to ‘doing the right thing’ and their intention behind bailing out WorldCom was to repair the credibility of MCI. They wanted to rebuild the good will that they had always enjoyed before they merged with WorldCom. MCI had a strong brand, good products and enjoyed reputation. MCI wanted to exploit the opportunity of financial restructuring to lower operations cost by accelerating the deployment of IP infrastructure. The move made by MCI allowed it to work under the US’s bankruptcy regulations. If MCI hits trouble again, it can reapply for protection. Thus, in bailing out WorldCom, MCI had nothing to lose but got an opportunity to recapture the market, reestablish its credibility and brand name. It was willing to offer the same product at a lower cost to reestablish. Why did Verizon and Qwest go after MCI? There is excessive competition in the telecom industry. Mergers increase competition in the well-defined market. Technology is continuously being developed and competition leads to creation of new products offered to consumers. Mergers form an important part of the competitive process. While the merger of Verizon and MCI will reduce one competitor from the telecom field, jointly they expect to be an active competitor in finding new and better ways of delivering service to the consumers (Wagner, 2005). Verizon has a presence in the wireless telephony while MCI is a major provider of internet backbone. They are attempting to find a place of commercial prominence in the telecom world. Besides, Verizon would become a player in web hosting, particularly in the enterprise space. MCI is the world’s ninth largest host with 878,000 hostnames. Its customer base is growing at a rapid pace and its high-profile clients include The Weather Channel and Bloomberg (WHIR, 2005). Qwest too recovered from a financial scandal like MCI. Qwest was after the merger to get benefit of the customer base of corporate and consumer clients of MCI. The merger of SBC-AT&T also fuelled the need for Qwest to seek merger with long distance service providers like MCI and Sprint to reduce competition and remain ahead (Tulsa World, 2005). Are there any ethical concerns in the future of Verizon, Qwest and other? Since MCI emerged from bankruptcy, it has been shopping itself around. MCI is equally weak like Verizon in the local-long distance fence, hence Verizon is only after the customer base. As the telecom industry is consolidating, Verizon also fears it may be difficult for them to continue in the industry unless they take over something like MCI. Qwest had to pay $250 million fine to settle a fraud case in addition to heavy debt it carries. Verizon too is involved in repaying a heavy debt. Qwest and Verizon, both are trying to counter each others offers, which MCI is using as a bargaining point. The competition underscores the rush for merger as MCI is the largest independent carrier serving large corporations. Qwest is trying to reassure MCI that it would stick to its bid even if the business conditions deteriorated. MCI has demanded that even if the earnings fall below $300 million Qwest should move ahead (Belsen & Richtel, 2005). Promises like thee in the corporate world ultimately lead them to resort to unethical practices. The principles of corporate governance are compromised with to maintain commitments. Financial excesses seem to be common place with most large companies where the top management withdraws money or takes decisions independently. References: Belsen, K., & Richtel, M., (2005), Qwest Raises Its MCI Offer to $30 a Share, 16 May 2007 Bhattacharya, S., (2006), STREAM: Critical Accounting and Challenges to Notions of Progress, Issues in Corporate Governance, < http://www.mngt.waikato.ac.nz/ejrot/cmsconference/2005/proceedings/criticalaccounting /Bhattacharya.pdf> 16 May 2007 Boyd, D. P., (2003), Chicanery in the corpoarte culture, WorldCom or world con? Corporate Governance, Vol. 3 No. 1 pp. 83-85 Morris, F., (2003), MCI answers Heritage sponsor call, 16 May 2007 Petra, S. T., (2006), Corporate governance reforms: fact or fiction? Corporate Governance, VOL. 6 NO. 2 2006, pp. 107-115 Thurston, A., (2007), WorldCom reborn as MCI, 16 May 2007 Tulsa World (2005), MCI-Qwest Strange Pairing, 16 May 2007 Wagner, R. E., (2005), Verizon and MCI: A Merger that Promotes Competition, Pilot Study, 16 May 2007 WHIR (2005), MCI Mulling Sweetened Qwest Offer, 16 May 2007 Read More