Ethical Considerations in Business Decisions and Operations: The WorldCom Case Name Institution Ethical Considerations in Business Decisions and Operations: The WorldCom Case Ethical Considerations When a Company Loans Its Executives to Cover Margin Calls on Their Purchase of Shares A margin call occurs when the balance of one’s trading account falls below the required margin for active trading necessitating that more money be added to the account to keep it active…
Liberation of the financial services sector in the USA in the late 1990s translated to the freedom of financial institutions to offer a wide range of financial services to clients. Banks are allowed by the Securities and Exchange Commission to offer securities as they deem okay to their clients where it is the major financial players who usually benefit. The advantages of such a scenario are that it is good for the banks which are businesses just like any other hence interested in maximizing income. Banks also argue that distributing securities to established investors as opposed to small ones is a sure way of raising the much-needed publicity for small firms launching in an IPO. This happened between WordCom’s Mr. Ebbers and Salomon Barney through Mr. Grubman - an underwriter who enabled Mr. Ebbers to make $11 million in four years from IPOs (Romar, 2006). Ethical concerns, however, arise in cases involving very close relationships with financial institutions, analysts, and investors. A case in point is the close relationship between Mr. Ebbers and Mr. Grubman which resulted in high rankings for WorldCom even when its stocks were actually falling. In the end, there was a misrepresentation of information to shareholders that kept them in the dark about changing fortunes (WorldCom's stocks had fallen by nearly 90% by the time Mr. Grubman came clean) finally leading to losses when WorldCom went bankrupt (Gini and Marcoux, 2008)....
This was only sustainable through continued acquisitions hence when the government denied WordCom the permission to acquire Sprint in 2000 the management had to focus on raising value of the previous acquisitions which would be accompanied by fall in share value. In 2002, WordCom filed for bankruptcy admitting to financial adjustments of operating expenses as capital expenses to a tune of $9 billion in three years (Moberg and Romar, 2003). The situation at WordCom reveals a need to protect shareholders from bearing losses since they are the ultimate losers in the scenario where a company files for bankruptcy. The suggested protection needs only transparency and accountability in acquisition alongside ensuring that the GAAPs are strictly adhered to. This can be achieved through undertaking proper audits of acquisition processes since wholesome shelving of acquisition is waste of an opportunity for growth. Ethical Considerations when Banking Firms offer Special Clients Privilege in “Hot” IPO Auctions Liberation of financial services sector in the USA in the late 1990s translated to the freedom of financial institutions to offer a wide range of financial services to clients. Banks are allowed by the Securities and Exchange Commission to offer securities as they deem okay to their clients where it is the major financial players who usually benefit. The advantages of such a scenario is that it is good for the banks which are businesses just like any other hence interested in maximizing income. Banks also argue that distributing securities to established investors as opposed to small ones is a sure way of raising the much needed publicity for small firms launching in an IPO. This happened ...
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