The WorldCom Financial Scandal

Surasak AkkarapongpaisarnBill HarrisSrinivas PeddadaAndreas Weiss

Ethical, Political, and Legal Context of BusinessRalph P. MiccioFinal PaperDue 11/14/02

1. ORGANIZATION - BILL..................................................................................................................- 3 -

2. INTRODUCTION - SRINIVAS.........................................................................................................- 4 -

A. HISTORY OF WORLDCOM..............................................................................................................- 4 -B. WHAT WENT WRONG AT WORLDCOM.............................................................................................- 6 -C. WHO IS AFFECTED.............................................................................................................................- 7 -D. WHO IS RESPONSIBLE....................................................................................................................- 8 -

3. SOCIAL RESPONSIBILITY & WORLDCOM - SRINIVAS......................................................- 10 -

A. WHY CORPORATE SOCIAL RESPONSIBILITY................................................................................- 10 -B. THE CASE FOR CORPORATE SOCIAL RESPONSIBILITY.....................................................................- 11 -

4. ETHICS - ANDREAS.......................................................................................................................- 15 -

A. WHERE THE WORLDCOM MANAGERS FAILED............................................................................- 17 -Bernard J. Ebbers................................................................................................................................- 19 -Scott Sullivan.......................................................................................................................................- 20 -Scott Sullivan & John Sidgmore..........................................................................................................- 20 -

B. CAN ETHICS BE TAUGHT..................................................................................................................- 21 -C. HOW TO PREVENT ETHICAL MISCONDUCT IN THE FUTURE............................................................- 23 -

Assess organizational values and vulnerabilities to misconduct.........................................................- 24 -Create opportunities for management to discuss organizational values and risks.............................- 25 -Develop and communicate clear standards of conduct.......................................................................- 25 -Refine management systems and practices to support the ethics program.........................................- 26 -

5. HUMAN INVESTMENT - SURASAK...........................................................................................- 27 -

A. THE WORLDCOM VISION: GENERATION D..................................................................................- 27 -B. EMPLOYEE BENEFIT AND COMPENSATION......................................................................................- 28 -

Health and Welfare Benefits................................................................................................................- 28 -Tuition Reimbursement........................................................................................................................- 29 -Paid Time Off.......................................................................................................................................- 29 -Relocation Benefits..............................................................................................................................- 29 -Severance Amounts..............................................................................................................................- 30 -401(k) Plan..........................................................................................................................................- 30 -Pension Plans......................................................................................................................................- 30 -

C. LAYOFFS...........................................................................................................................................- 31 -D. MOTION TO PAY MORE SEVERANCE AND COMMISSIONS............................................................- 31 -E. WORLDCOM EMPLOYEE LAWSUIT...................................................................................................- 32 -F. CONCLUSIONS ON HUMAN INVESTMENT.........................................................................................- 34 -

6. SOCIAL RESPONSIVENESS - BILL............................................................................................- 35 -

A. PERSONAL LOANS, AND THOSE INVOLVED..................................................................................- 35 -B. ACTION TAKEN BY WORLDCOM......................................................................................................- 36 -C. BOARD OF DIRECTORS.....................................................................................................................- 37 -D. RESPONSIVENESS TO EMPLOYEES................................................................................................- 40 -

7. CONCLUSIONS – BILL..................................................................................................................- 43 -

8. References...........................................................................................................................................- 45 -

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1.Organization - Bill

This paper is organized in a similar fashion as the textbook for the class, The

Corporate Social Challenge, by James E. Stacy and Frederick D. Sturdivant. We have

gone through each chapter that is relevant to the WorldCom story, and discussed in detail

the issues and concepts from each chapter as they pertain to the WorldCom case, and

applied them.

The chapters covered in this paper are Social Responsibility, Ideology and Ethics,

Human Investment, and Social Responsiveness. Although Openness of the system is not

discussed as a separate section in this paper, it is certainly discussed in the following

pages.

The Paper also includes a Table of Contents, Introduction and Background of the

WorldCom Situation, and a Conclusions section. The author of each section is indicated

next to the section title, both in the Table of Contents, and at the beginning of each

section.

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2.Introduction - Srinivas

US telecom giant WorldCom shocked the business world when it admitted that it

had massively overstated its profits for the 15 months from the beginning of 2001. There

are certainly echoes of other recent events. WorldCom's overstatement of profits is eerily

reminiscent of Enron's collapse last year. And the two used the same auditor, Andersen.

They've also lost their chief executives- and it is the chief financial officer in each

case who stands accused of being responsible for cooking the books. But the scale of the

overstatement is of a different magnitude. Enron overstated its profits by $600 million.

WorldCom's fiddled figures are six times as big. The following sections talk in detail

about the History of the WorldCom, How this scandal happened, who are affected, who is

responsible for it, what can be done to avoid this in the future, and what WorldCom is

doing to resolve the situation.

a. History of WorldCom

WorldCom was the quintessential New Economy Company. It was the second

largest long-distance telecom company in the United States and was also the biggest

carrier of Internet traffic and electronic commerce in the world. During the 15 years of its

existence, the company grew at a scorching pace, fuelled by the almost insatiable appetite

of its former chief executive officer (CEO) Bernard J. Ebbers for acquiring companies.

As long as the stock market boomed and the dot com business expanded recklessly, not a

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thought was given to the fundamentals of the company. Wall Street analysts and

investment bankers looked the other way even as auditors failed to exercise due diligence.

WorldCom has business interests in more than 65 countries, and a network that

stretches over almost 150,000 kilometers. It gobbled up several pioneering Internet firms

such as UUNET, MCI and CompuServe, which created the first e-mail services in the late

1970s. But, the company is now on the verge of collapse. The fate of its more than 75,000

employees across the world hangs in the balance.

Bernard Ebbers was an icon of the dot com era, a darling of Wall Street during the

height of the longest stock market boom in U.S. history, which came crashing down in

2000. Ebbers started off by investing in Long-Distance Discount Service (LDDS), a small

telecom company, in 1983. Two years later he took over LDDS as CEO, having been in

the right place at a time when the demand for Internet and telecom services was starting to

expand. LDDS basically bought bandwidth capacity from AT&T and resold it at lower

prices to customers. Just as Enron took full advantage of the deregulatory framework in

the power sector, Ebbers was quick to spot fresh opportunities in the wake of the

deregulation of the telecom industry in the United States. A series of acquisitions later,

by 1993, LDDS had become the fourth-largest long-distance telecom network in the U.S.

The booming stock markets enabled the company to leverage its own shares to raise debt

to make these expensive acquisitions.

In 1995, LDDS acquired its now-disgraced name, WorldCom. After the renaming,

the company started to acquire even bigger companies. Among them was UUNET, one of

the oldest carriers of Internet traffic and the inheritor to the publicly funded Internet

backbone, which was privatized by the National Science Foundation in the US. In 1998,

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WorldCom merged with MCI, in a deal valued at $40 billion, the highest-priced

acquisition in history at that time. The company, which already enjoyed a stranglehold on

the Internet backbone, met its first roadblock when its attempt to take over Sprint was

halted by regulators in Europe and the US in 2000.

b. What Went Wrong at WorldCom

Early 2001 WorldCom's internal auditors discovered that huge amounts of

expenses related to building out their telecom system weren't being treated as a regular

cost but as a capital expense. That resulted in a significant boosting of the company's

earnings before interest, taxes, depreciation and amortization, otherwise known as the

EBITDA, which WorldCom used as a critical gauge of its growth.

While it's not clear exactly what costs WorldCom capitalized, the process helped

boost cash flow because it treated the costs as an asset that can be written down over the

time, not immediately. The accounting treatment means the expenditure doesn't affect the

all-important operating cash-flow figure- though money actually may be going out the

door.

In a detailed report, the telecommunication giant confessed that its audit committee

has uncovered $7.8 billion in expenses that had been improperly booked as capital

expenditures; a gimmick that boosted the cash flow and the profit over the past five

quarters and that could be one of the largest accounting frauds in history.

The Mississippi-based telecom giant reported that, had it followed generally

accepted accounting principles, it would have reported a net loss for 2001 and the first

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quarter of 2002, instead of profits of $1.4 billion and $130 million, respectively.

WorldCom fired its long time chief financial officer, Scott Sullivan, and accepted the

resignation of David Myers, its senior vice president and controller.

Unlike the bewildering array of complex accounting tricks that led to the downfall

of the Enron, WorldCom's fraud was deceptively simple. The company took cash

outflows that should have been treated as expenses during the quarter they were made, and

instead treated them as capitalized costs so that they could be spread out over a longer

period of time. This had the effect of making WorldCom's earnings before interest, taxes,

depreciation and amortization - a measure of cash flow - and its profits look much better

than they actually were.

It was a misuse of basic bread-and-butter accounting that should have been spotted

by the auditors both inside and outside the firm. It shows a severe lack of oversight.

From Arthur Andersen (WorldCom's long time auditor) to the top management, and the

audit committee - all these guys have to be held responsible.

c. Who is Affected

As is the case with any corporate failure, there are going to be a few gainers but the

losers will be many. In the first instance, it's the employees. In the same statement that

revealed the fiddle, 17,000 WorldCom workers discovered they were getting the push

immediately.

Investors are obviously next in line. Anyone who bought WorldCom shares at the

top of the market in 1999, when they were worth more than $60, must be seething. Now

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they're worth no more than about 10 cents. The company's share and bondholders are left

holding practically worthless assets. With assets well below the company's debt of over

$30 billion, creditors are unlikely to get their money back. Over 600 mutual funds own

400 million of the three billion in outstanding shares of WorldCom. Ordinary investors in

these funds are likely to suffer severe losses. Moreover, there are also the 401(k) plans of

ordinary workers in these mutual funds.

Not just WorldCom shareholders, though. The fraud blasts a huge hole through

investor confidence in the rest of the Stock market and is hitting share prices in all major

markets. The common investor has not come to terms with the ground realities and shying

away from the Investing in the Stock market, which is a major blow to capitalistic

Corporate America

d. Who is Responsible

WorldCom is blaming its chief financial officer, Scott Sullivan. Its founder,

former chief executive Bernie Ebbers, has already left, but since he and Mr. Sullivan were

a well-known corporate double act, it would be surprising if some of the blame doesn't

land on him too.

But the rest of WorldCom's senior executives are unlikely to get away untouched. They,

after all, bear responsibility for the figures and the company's strategy as well.

And then there are the auditors. By improperly recording expenses as capital

investments, WorldCom was basically calling what was an orange an apple. And no one

appears to have taken a bite of the apple to make sure that's what it was.

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This is a lousy piece of auditing. Andersen, already reeling from its botched audits

of Enron, said its work for WorldCom complied with professional accounting standards.

In a statement, the embattled accounting concern shifted blame to WorldCom's chief

financial officer. Andersen said the CFO didn't tell Andersen important information about

the line-cost transfers, which falsely inflated the WorldCom's earnings, nor did he consult

with the Andersen about the accounting treatment. Experts insist that the WorldCom

scandal is such a gross overstatement that it should never have slipped by its auditors.

Either they didn't look or they looked and raised questions and let it go through anyway.

If Andersen let it slip through they deserve to get convicted again.

Andersen billed WorldCom $4.4 million in auditing fees and $12.4 million in all

other fees for 2001. This raises the question: who audits the Auditors?

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3.Social Responsibility & WorldCom - Srinivas

The duty of a corporation is that it must create wealth by using means that avoid

harm to, protect, or enhance societal assets. Set forth by Mahatma Gandhi in the 1940s,

this doctrine holds that all money and property belong to society. Therefore rich people

and companies hold their wealth in trust and are obligated to use it for social welfare.

a. Why Corporate Social Responsibility

All business enterprises- large, medium, or small- have an impact on society

beyond their established role of providing goods and services for a profit. Businesses do

transform societies. They not only shape our physical and our virtual worlds, but also

create new needs, new hopes, and new dreams. Indeed, because of its size and influence,

business must carry with it the commensurate measure of responsibility and

accountability. This is precisely what establishes the ground for corporate social

responsibility.

Economic responsibility is by no means incompatible with other corporate

responsibilities in society. A corporation’s responsibilities include how the whole

business is conducted every day. It must be a thoughtful institution, which rises above the

bottom line to consider the impact of its actions on all, from shareholders to the society at

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large. Its business activities must make social sense just as its social activities must make

business sense.

Business cannot operate any other way. If business only exists to make the highest

possible profits, nothing prevents the rich from getting richer, and the poor from getting

poorer. Any business that grows but, in the process, leaves the rest of society behind, will

eventually create the social fissures that could ultimately cause its demise. Thus, Adam

Smith's theory of the invisible hand when applied to social responsibility- that each

businessman pursuing his self-interest will automatically achieve the common good of

society- is simply not credible in the world we now live in.

Competitive pressures, Community pressures, Activist groups, Stock

holder/Investors, Customer, employees, Crises, Government and philanthropic requests

cause the business to undertake social programs.

b. The case for Corporate Social Responsibility

The recent wave of American corporate failures has brought to the fore the debate

over corporate governance in particular, and corporate social responsibility in general.

The US professes to offer to the rest of the world a robust model of governance worthy of

replication. Countries seeking to foster open and transparent corporate practices and

efficient capital markets are urged to embrace the American exemplar. WorldCom’s

bankruptcy and the morass of corruption and malpractice surrounding the collapse must

invite second thoughts.

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Bankruptcy is not in itself an event that proves that corporations can’t govern

themselves satisfactorily. If it proves anything it proves that sometimes mistakes are

made and businesses that make enough errors of commercial judgment eventually go to

the wall.

But the WorldCom affair raises other issues. When a very large corporation like

WorldCom files for bankruptcy and there is evidence pointing to deceit and concealment

of the truth from shareholders, capital markets and other stakeholders, then something

very much more serious has been happening.

The WorldCom story will surely present to the world a story that illustrates a weak

culture of governance overlaid by greed, with too many actors who could and should have

blown the whistle- preferring to do otherwise. WorldCom present perhaps in sharply

contrasting ways evidence of failures at the heart of governance– failures which highlight

deep weaknesses elsewhere.

The misery created by WorldCom and Enron is more widespread than might

appear. We only hear about and read about the worst cases. There are, however, many

others which are symptomatic of the same underlying disorder. One contributory cause is

that corporations spend precious little time ensuring that their own core values– those

values the corporation claims it stands for– are translated into operationally verifiable

policies. Some will argue that this is a consequence of the unrelenting drive within

commercial enterprises to achieve the best results possible– even if it involves cutting

corners or paying lip service to core values. This fact cannot be denied. A worthwhile

question for top management to ponder is how far this lack of balance in terms of the ways

in which it defines it commercial objectives and seeks to realize them can long be

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tolerated. This lack of balance could leave them seriously exposed when things start to go

wrong.

This is where Corporate Social Responsibilities offers such an important process of

renewal for the corporation. Corporate governance is part of a wider challenge of

management change. The upholding of a proper ethical code within a corporation requires

more than box ticking on the one hand, or a bible of thou shalt not commandments on the

other. A full understanding at all levels of management about the importance of these

matters is essential. Ethical codes inevitably cover matters wider than the more narrowly

circumscribed imperatives of governance. But the dichotomy is false. For a corporation

to credibly embrace the full range of its responsibilities as a best practice entity it must be

prepared to invest time and effort in ensuring that it can, seamlessly, move from its core

principles as a corporation- to the demanding, everyday reality of living up to those ethical

standards in terms of operational practices.

Are things today so different? Is the WorldCom story telling us something we

didn’t know before? The answer is that corporations- especially publicly quoted

corporations– do carry very heavy responsibilities. These responsibilities are not just

defined by law as for example in the Companies Act. They also cover many other areas

where good corporate governance is coterminous with ensuring that the highest standards

of corporate governance are achieved through a well-managed and monitored program of

Corporate Social Responsibility. What is different today is that corporation reputations

are increasingly being assessed on these terms. Get it wrong and your reputation could be

tarnished.

It also means that buy-in by top management is indispensable whilst we remember

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the sad fact that in WorldCom, as with all other examples of corporate abuse of power, the

problem in the end comes back to the leadership of the enterprise. Unless top

management is committed to the highest standards of governance, supported by a rolling

commitment to Corporate Social Responsibility, nothing much will happen. What

happens further down the line depends upon leadership from the top. Failure to recognize

this leaves the corporation and their various stakeholders exposed to unacceptable levels

of risk– a situation any corporation ignores at its peril.

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4.Ethics - Andreas

Ethics are:

“Moral principals and values that govern the actions and decisions of an individual

or group. They serve as guidelines on how to act rightly and justly when faced

with moral dilemmas.”

Companies have four types of corporate social responsibilities: Economic, Legal,

Ethical, and Philanthropic. Economic and legal corporate social responsibilities are

required. The ethical and philanthropic corporate social responsibilities are only expected

and desired by the society. However, there are many big businesses that believe that they

do not have any responsibility to their communities’ philanthropic activities.

There are many advantages found in disregarding ethical responsibilities. It is

profitable for some and less stressful for others to ignore their ethical responsibility. Even

though a theory has been developed to benefit stakeholders, some companies still believe

their only responsibility is to make a profit.

Since top management is where the negative attitude starts, it carries down and is then

present in the company’s culture.

The management of many public corporations is in such a disorder today that the

consequences are severe. The sudden crash of hundreds of dotcom and high-tech

companies two years ago did not happen mysteriously or by accident. The managers and

directors of WorldCom and their allies in the accounting, securities and banking firms

knew or should have known the truth about corporate assets, purchases, costs, revenues

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and profits. They had the professional and ethical responsibility to know the relevant facts

and, according to their respective roles, provide truthful information to employees,

investors and the public. Instead, too often, management withheld this information from

shareowners, lenders and the public, disregarding the consequences of their actions for

these stakeholders, but profiting personally from the information they denied others.

The stewardship responsibilities inherent in the positions of corporate managers

and directors do not require mathematical and accounting brilliance; we are talking about

maintaining factual balance sheets and adhering to standard accounting practices. This is

not about managerial genius and once-in-a-lifetime leadership; it is about knowing what

business your company is in, a basic principle of management, and directing human and

other resources prudently and wisely to serve customers well and enhance shareowners'

value. Managers need not be saints; what lenders, shareowners, employees, customers and

the public ask and have a right to demand are integrity, honesty and fairness.

The men and women chosen to manage and direct public corporations accept

responsibilities when they take office. Their jobs are difficult and often stressful, so they

should be paid well. Bernard Ebbers has taken advantage of his positions to build or

fatten his own fortunes, while the corporations entrusted to them have lessened or

crumbled, with disastrous effects on shareowners, employees and customers and a loss of

public confidence in business.

Too often senior managers of WorldCom, and others, have dishonestly and

unfairly pocketed enormous salaries, bonuses, stock options, lavish severance payments,

special retirement benefits, and more, while ordinary employees, kept in the dark about

their companies' real sales, revenues and profits, have seen their jobs and their retirement

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savings vanish before their eyes. Shareowners, meanwhile, uninformed and misguided by

management, accountants and analysts, now look forward with dread to their next

quarterly securities statement.

a. Where the WorldCom Managers Failed

Executives who are building $10 million homes when laying off tens of thousands

of employees

Chief Executive who receives $366 million in loans from his company that is

struggling financially

CEO does receive $1.5 million severance pay per year when company may go

bankrupt

Not taking Proper Steps to Safeguard Employee Stock (Purchase and Options)

Do not Accept Responsibility (Jail?)

Documents released by House Financial Services Committee show that a small group

of WorldCom executives, knowing that their business was dying rapidly, discussed

various accounting maneuvers that would help prop up the company's bottom line.

In July 2000, a handful of senior financial executives at WorldCom were starting to

confront the reality that their bubble-fueled telecommunications business was melting

down. They were worried about how to characterize the health of the business in a way

that didn't send investors heading for the exits.

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Bernard J. Ebbers, the former chairman of WorldCom, received almost one million

shares of stock in hot initial public offerings from Salomon Smith Barney over four years,

according to documents released by a Congressional committee investigating the collapse

of WorldCom.

Six other WorldCom executives or directors received the opportunity to buy thousands of

shares as well. Among them was Scott D. Sullivan, the chief financial officer who

oversaw the company's books during the years when $9 billion in accounting

misstatements were made.

The documents, submitted under subpoena by Salomon to the House Financial

Services Committee, show that Mr. Ebbers received 869,000 shares in 21 companies from

1996 to 2000. The largest allocation to Mr. Ebbers was 205,000 shares of Qwest

Communications, a telecommunications company that went public in June 1997. Salomon

led the group of brokerage firms that sold the company's shares.

In November 1999, Mr. Ebbers received 20,000 shares of KPN Qwest, a European

venture by Qwest. That allocation is remarkable because it represented 2 percent of the

shares Salomon had set aside for all of the firm's individual clients. And the 10,000 shares

of Juno Online Services that Mr. Ebbers received in May 1999 represented 1.1 percent of

the shares the firm gave to its entire network of individual investor clients.

During the mania for technology shares, investors battled for new stock offerings,

because prices typically surged the moment trading began. In 1999, according to Sanford

C. Bernstein & Company, the brokerage firm, new stocks raised an average of 60 percent

in their first day of trading. From 1986 to 1994, the average first-day move was 10

percent.

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The Salomon documents indicate where big chunks of some of these offerings

were going and therefore why it was hard for small investors to get in on the deals. It is

unclear how much the WorldCom executives profited on the shares they received from

Salomon because data surrounding their sales of these shares were not made available.

At issue is whether Salomon handed out such allocations to ensure that companies

like WorldCom continued to give the firm investment banking business. "There's nothing

wrong with favoring your best customers," said Lewis D. Lowenfels, an authority on

securities law at Tolins & Lowenfels in New York, "But when you see a pattern of this

coupled with the magnitude of it at the same time that the individual's company is paying

substantial investment banking fees to the underwriter, it has to raise questions of whether

there was a quid pro quo. If there was, then federal securities laws may well have been

violated." The violation would involve the failure to disclose to investors that significant

numbers of shares were being allocated to executives of large clients.

When it released the documents, Salomon said it was industry practice to give its

best customers the largest allocations of initial public offerings. Salomon has denied that

it gave Mr. Ebbers the shares to cement the firm's already close relationship with the

executive and WorldCom. After all I think it is a very poor business practice not to have

an even playing field, for each customer.

Bernard J. Ebbers

Bernard J. Ebbers made more than $11 million in four years on 21 hot stock

offerings he received from Salomon Smith Barney. Documents released by House

Financial Services Committee show WorldCom, Inc.'s former chairman Bernard J. Ebbers

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received almost one million shares of stock in hot initial public offerings from Salomon

Smith Barney over four years.

Mr. Ebbers and others may also have received other still undisclosed shares

through trusts, partnerships or limited liability corporations.

"Many corporate officers had partnership accounts in different names," Mr.

Chacon said. "You'd see multiple allocations to the same individual under different

names." Mr. Chacon was fired from Salomon for violating corporate policy.

Did Ebbers at any point stop to consider that taking a $366 million loan from his

company might be a questionable act?

Scott Sullivan

Did Scott Sullivan really think he could get away with it? Did the now-fired chief

financial officer of WorldCom believe that he could forever cover up nearly $4 billion in

expenses? Did he even realize that what he allegedly was doing was objectively wrong?

Scott Sullivan & John Sidgmore

The company was scheduled to report its quarterly financial results on Oct. 26. In

an e-mail exchange over two days that began on Oct. 21, Sullivan told then-Vice

Chairman Sidgmore that the company was in a "really scary" situation of escalating costs

and declining revenue growth in certain key areas. Just two months earlier, Sullivan had

sold stock worth $18 million.

He told Sidgmore, for instance, that revenue from one of the company's biggest

customers, America Online, was growing by only 1 percent, in part because its Internet

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traffic growth had slowed and much of the data was being carried on lines leased, not

owned, by WorldCom.

"Wow! I had no idea that the revenue growth had deteriorated that much,"

Sidgmore wrote back, adding that "it's going to take some pretty fancy explaining."

Sullivan agreed, telling Sidgmore he would be making some accounting changes

that would result in better margins for certain parts of the business. Sullivan said he would

be taking two sources of revenue totaling about $225 million- in one case certain fees and

in another case some equipment sales- and reclassifying them as cost reductions.

Although the changes Sullivan discussed with Sidgmore might not technically

violate accounting standards, they were "baldly manipulative." The adjustments did not

alter the company's bottom line, but they served to enhance the company's operating

margin, a key statistic for Wall Street. Shouldn’t have Sidgmore become advertent by this

conversation and suspect that other, probably illegal, changes were also done at the

accounting?

b. Can Ethics be Taught

In an editorial, the Wall Street Journal announced that ethics courses are useless

because ethics can't be taught. Although few people would turn to the Wall Street Journal

as a learned expert on the teaching of ethics, the issue raised by the newspaper is a serious

one: Can ethics be taught?

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The issue is an old one. Almost 2500 years ago, the philosopher Socrates debated

the question with his fellow Athenians. Socrates' position was clear: Ethics consists of

knowing what we ought to do, and such knowledge can be taught.

Most psychologists today would agree with Socrates. In an overview of contemporary

research in the field of moral development, psychologists summarize the major findings as

follows:

Dramatic changes occur in young adults in their 20s and 30s in terms of the basic

problem-solving strategies they use to deal with ethical issues.

These changes are linked to fundamental changes in how a person perceives

society and his or her role in society.

The extent to which change occurs is associated with the number of years of

formal education (college or professional school).

Deliberate educational attempts (formal curriculum) to influence awareness of

moral problems and to influence the reasoning or judgment process have been

demonstrated to be effective.

Studies indicate that a person's behavior is influenced by his or her moral

perception and moral judgments.

Recent surveys indicate that most Fortune 500 corporations have developed

written codes of ethical business conduct and training programs to communicate those

standards to their employees. But many American executives, managers and employees

still question the justification of spending valuable company time and resources on ethics

training. "Can ethics really be taught to mature adults," they ask, "or is it something that

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you absorb as a child from your family or religious upbringing?" If ethics cannot truly be

"learned" in significant ways by adults, then the value of corporate ethics training

programs would indeed be suspect (except, say, as a cynical form of public relations, or as

window dressing for an government regulatory agency).

c. How to Prevent Ethical Misconduct in the Future

Life is rarely black or white. And in recent months it's become even grayer,

considering corporate scandals. To prevent ethical misconduct in the scale seen in the past

month, we suggest that managers start to think in a more simple way. The wide known

"Golden Rule" which says “we should do to others what we would want done to

ourselves”, does not at all give sufficient information about how to act ethically.

In order to prevent ethical misconduct, managers should forget about the

complexity of today’s business, but instead should ask themselves some simple questions.

A checklist for Ethical decision making could contain the following questions when one is

up against a slippery situation, in order to maintain ethical integrity:

Is the action honest?

Does it reflect what you were taught by your parents, your school?

How will it affect others?

Are you doing this only because everyone else is?

Do you feel at all uncomfortable with it?

What kind of message do you send to your children, friends, colleagues?

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Would I be embarrassed if a customer found out?

Would my superiors disapprove?

Would most sales reps/managers find this behavior unusual?

Am I doing this because I think I can get away with it?

Would I be upset if a competitor did this to me?

Would my family or friends think less of me if they found out?

Am I concerned about the possible consequences of this behavior?

Would I be upset if this behavior or activity was publicized in the media?

Would society be worse off if everyone engaged in this behavior or activity?

What steps can executives take to develop and implement a comprehensive, long-

term enterprising spirit in organizational ethics? Here are the measures recommended by

the Ethics Resource Center, a private, not-for-profit corporation based in Washington, DC:

Assess organizational values and vulnerabilities to misconduct.

Many organizations make the mistake of assigning a small group of staff (usually

from the legal department) to write a code of ethics, without first making any attempt to

find out what kinds of ethical issues employees really face in their day-to-day jobs. Not

only does an inadequate upfront organizational assessment result in a weak and irrelevant

code of ethics, it also means that management remains ignorant of the kinds of problems

that can’t be addressed in a code alone.

Management simply can’t afford not to know, for example, whether the

organization’s goal-setting practices, incentive and reward systems, and performance

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evaluations encourage ethical conduct or undermine it. It does little good to state in a

code of ethics that quality and safety are paramount if in practice employees are constantly

rewarded only for cutting costs. Making the effort to identify employee values can also

provide the foundation for consensus on the organization’s fundamental ethical principles.

Create opportunities for management to discuss organizational values

and risks.

Data emerging from an organizational assessment will often call for developing

clear standards of conduct, employee training, and changing management systems and

practices. Management must reach consensus on the high-priority issues as well as action

plans that must be formulated to tackle those issues head-on. If management does not

develop a strong sense of ownership of the ethics program, employees will perceive it to

be merely a temporary fad and not a long-term commitment.

Develop and communicate clear standards of conduct.

Once management understands the issues, a written code of ethics can be created

or revised. This code should affirm a basic set of organizational values, principles or

commitments, establish ground rules in areas where they are needed, provide illustrations

and guidelines in some of the "gray" areas, and explain how employees can obtain further

advice and counsel without fear of retribution. New-employee orientations should include

a healthy dose of instruction in the organization’s ethical standards and ethics-related case

studies. In addition, ongoing discussions should be woven into managerial training

courses.

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Refine management systems and practices to support the ethics

program.

This is at once the most difficult and the most important step, because it gets at the

basic tools that managers use to manage: goal-setting (strategic, departmental, individual),

incentive and reward systems, performance appraisals, and disciplinary practices. All of

these practices need to be evaluated according to whether they serve to reinforce the ethics

program. This isn’t a single step, but an ongoing process of refinement and improvement.

A successful ethics program cannot be measured by the number of employees who

can certify having read the corporate code or attended training sessions. Ethics has to do

with the organization’s basic culture and operating values- the pride and satisfaction

employees find in their work, the attention to quality and service, the degree to which

suppliers and customers are treated fairly and honestly- all of which impinge upon the

organization’s overall reputation and success.

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5.Human Investment - Surasak

WorldCom, the preeminent global communications company, together with

approximately 200 direct and indirect domestic subsidiaries and 200 foreign affiliates

provides a broad range of communication services in over 200 countries on six continents.

Through its core communications services business, including voice, data, Internet and

international services, the company carries more data over its networks than any other

entity. WorldCom hired more than 80,000 employees to implement its business.

a. The WorldCom Vision: Generation d.

The company vision is to be a leader in the digital revolution and setting the

standard for business communications in the 21st century. This bold vision is shaped

everyday by the innovative thinking and dynamic talent of WorldCom employees.

WorldCom widens this vision and call it, Generation d, digital generation. A generation

unlike any that has preceded it – defined not by an age, but rather an attitude. It is the first

generation characterized not just by people, but by a whole new way of thinking. The

business that succeeds will make full use of next-generation digital communications

technology and WorldCom employees understand that.

The WorldCom workplace exemplifies generation d by providing employees with

innovative technologies to help them their jobs. WorldCom focuses on the cutting edge of

technology, every aspect of WorldCom workplace is designed to streamline day-to-day

activities through the smart use of technology. Employees are empowered to share ideas

27

and strategies that will help shape the future of the company and are encouraged to work

together to establish and maintain a standard of excellence.

WorldCom’s size and broad range of services translate into countless possibilities

for career growth and development. Regardless of the employee field, each step in career

path at WorldCom offers valuable hands-on experience that will help develop skills and

prepare employees for advancement. With offices in 65 countries, the employees have a

world of opportunities.

WorldCom understands the importance of high-quality, highly motivated

employees in maintaining its position as a leader in the digital generation. The company

provides the training and development necessary to help employees achieve their career

goals and succeed at the highest possible level. In addition, WorldCom offers extensive

programs for ongoing development and education, and regularly offers courses to cultivate

new potential. Employees can also engage in continuing education by exploring other

avenues, such as colleges and universities, via WorldCom educational assistance program.

b. Employee Benefit and Compensation

Health and Welfare Benefits

WorldCom estimates that its aggregate annual expenditures under the Health and

Welfare Plans for Employees is approximately $340 million. WorldCom sponsors several

health and welfare benefit plans for the Employees, such as insurance plans, including,

medical, health, life, death and dismemberment, dental, vision care, short-term and long-

tem disability, and flexible medical and dependant spending.

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Tuition Reimbursement

WorldCom has the Educational Assistance Program, designed to encourage

employees to continue their formal education. Eligible employees are reimbursed up to

$4,500 per year for full-time employees and $2,500 per year for part-time employees, for

college tuition and fees and career-related certificate courses.

Paid Time Off

Under WorldCom’s paid time-off policy, PTO Plan, eligible employees accrue

paid time off, including vacation, floating holiday, personal or sick time, based on weekly

hours worked and length of service at the WorldCom. According to the PTO plan, eligible

employees earn their full wages for each vacation, personal or sick day, up to the

maximum number of days accrued by employee. Unused vacation and floating holiday

pay are generally paid to employees only upon termination of employment.

Relocation Benefits

As a global enterprise on six continents, the company often requests employees to

relocate on a temporary or permanent basis to other offices in accordance with the

requirements of the company’s businesses. Employees, who relocate at the company’s

requests are reimbursed for various expenses including, rental lease payments, moving and

transportation costs, dependent education assistance and annual visit privileges.

Additionally, for Employees working abroad, the company pays taxes for such employees

to the extent that the tax liability of such employees exceeds the federal, state and social

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security taxes that would have been paid by such employees if they were employed only in

the United States. Moreover the company pays certain additional expenses in connection

with their working abroad, including housing housing allowance, education allowance,

home visitations and repatriation costs.

Severance Amounts

During the ordinary course of business, WorldCom maintains a severance policy

for eligible employees, Severance Program, providing for severance pay benefits and

extended medical and dental benefits for a period of time based upon employee’s level and

years of service with WorldCom.

401(k) Plan

WorldCom maintains the 401(k) Salary Saving Plan which participating

employees may defer a portion of their salary. In addition, WorldCom makes a matching

contribution to the 401(k) plan based on the employee deferrals.

Pension Plans

WorldCom sponsors and maintains two non-contributory defined benefit pension

plans, the WorldCom International Data Services, Inc. Pension Plan and the MCI Pension

Plan which allow eligible employees and former employees to receive certain benefit

amounts upon retirement.

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c. Layoffs

WorldCom Inc., the parent company of both WorldCom Group and MCI,

employed more than 80,000 people in early 2001. The company announced its first major

layoff on April 4, 2002. The dramatically slowing down economy decreased the growth

rate of WorldCom on its primary business, sales of data service, which forced the layoff of

the 3,700 employees or 6 percent of the workers in its data, Internet and international

business unit. Again on June 28, 2002, WorldCom announced another major layoff of the

5,100 employees. As of June 30, 2002, WorldCom employed more than 63,900

employees, of which approximately 57,700 were full-time employees and approximately

6,200 were part-time employees. Approximately only 425 employees of WorldCom are

represented by organized labor unions.

d. Motion to Pay more Severance and Commissions

On September 3, 2002 WorldCom filed a motion with the Bankruptcy Court

requesting approval to pay the remaining Severance Obligations to Terminated employees.

According to WorldCom, in order to maintain employee morale, the company seeks

authority to continue to provide the June terminated employees with Severance Benefits

not yet paid, subject to the $4,650 per severed employee cap. However, the American

Federation of Labor-Congress of Industrial Organizations or AFL-CIO, which represents

many of the WorldCom employees viewed this motion was a result of growing pressure

from laid-off WorldCom workers and try regain public support.

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On October 1, Judge Arthur Gonzales approved the additional payments, which

come on top of the $22 million WorldCom has already promised to its former employees.

The additional $36 million includes:

1. $28.5 million in severance benefits

2. $1.9 million in unpaid accrued Paid Time Off

3. $4.4 million in sales commission

4. $250,000 in tuition reimbursements

They ORDERED that WorldCom is authorized, but not required, to pay the

Severance Benefits, up to the $4,650 cap, to each employee whose employment was

terminated, was the statement that former WorldCom employees did not understand. Why

did not the Judge requires WorldCom to pay every employee. In fact, there were not

specific both timeline and which employees who qualify for the payment.

e. WorldCom Employee Lawsuit

After WorldCom filed under Chapter 11 on July 21, many employees were laid off

and those who were lucky enough to keep their jobs, face constant uncertainty as the

Company's survival is very questionable. But to make matters worse, WorldCom

employees also lost an incredible amount of money in WorldCom options and stock.

WorldCom employees received bad advice from Salomon Smith Barney, who was

WorldCom's exclusive employee stock option administrator.

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In 1997, Salomon Smith Barney became WorldCom's exclusive employee stock

option administrator. More specifically, Salomon Smith Barney's "Atlanta Brokers Group"

was given the responsibility to oversee all WorldCom employee stock options. Any

WorldCom employee wishing to exercise his or her stock options had to do so through the

Atlanta Brokers Group.

Salomon Smith Barney's Atlanta Brokers Group consisted twelve employees who

were young and inexperienced in dealing with stock options. The group soon became

overwhelmed with WorldCom employee business. By 2000, this group of roughly a dozen

brokers had opened 2,000 WorldCom employee accounts. The brokers quite often advised

the employees to use Salomon Smith Barney's credit line to pay the high exercise price

and withholding taxes associated with the "exercise and hold" strategy. The employees

took the brokers' advice unaware that they were essentially borrowing money from

Salomon Smith Barney and creating high risk for themselves. This arrangement led to

well-paid margin interest for Salomon and high compensation for the individual brokers.

As a result of Salomon Smith Barney's irresponsible, inappropriate and unethical

treatment of WorldCom employees, many employees had their entire net worth in their

WorldCom stock options and stock. These employees were never explained the benefits of

diversification or the danger of holding stock in only one single company. During the

downturn of the WorldCom’s stock in the fall of 2000, the Atlanta group continued to

advise employees to hold and predicted the return of the stock’s value. The end result was

WorldCom’s stock became worthless. Many lost all the money they had saved and many

now owe Salomon Smith Barney money as a result of margin calls.

33

The main problem for the employees was that they did not receive proper advice

about financial strategies to protect their assets though diversification.

f. Conclusions on Human Investment

As the company filed the bankruptcy protection, many of the employees’ savings and

retirement plans evaporated to the worthless stock. With the 401(k) lawsuit is on going,

the current employees are in doubt about the company’s attitude toward its employees.

WorldCom mistakenly destroys employees’ morale. Many of them feel insecure about

their employments at WorldCom and start looking for new jobs possibly at its competitor

companies. The company most likely loses the employment of its best employees first,

since they are very skillful and their qualifications will easily attract the potential

employers. The time to develop the new employees’ skills to the specific tasks is the

company future investment which may not be wise, since in short run the company need

to minimize the turnover rate in order to catch the attention of the customers. The

remaining employees might have the motive to change the jobs when the opportunities

come. The high chance of possible layoff in the near future reduced the employees’ effort

and eventually impacts WorldCom. WorldCom could not provide trust and confident,

which are employees’ most concern at the frustration time. To lose a job during the

downturn of the economics might be acceptable, but to be rubbed by employer’s company

is unethical. It is sure to take a long time for the company to regain the employees’ trust if

the company ever comes back to the market again.

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6.Social Responsiveness - Bill

Although WorldCom was caught with its pants down, the company seems to be

have responded reasonably well to the situation. It appears that most of the major players

in the recent scandalous activities are now out of the picture. Many of them have been

mentioned above, but there is more to the story. Many of these managers were also

involved in some very questionable practices involving person loans from the company.

a. Personal Loans, and Those Involved

The misrepresentations in WorldCom’s earnings statements were not the only

fishy activities taking place over the past year or so. There were also many questionable

personal loans made to various Executives using Company funds. The most well known

would be the $408 million dollar loan to the former CEO Bernard Ebbers. In turn, Ebbers

gave a $650,000 loan to Ron Beaumont, the Chief Operating Officer, to cover the money

Beaumont lost buying company stock on margin. The loan supposedly came straight from

Mr. Ebbers’ own account, but with Mr. Ebbers himself indebted to the company for $408

million, it’s not hard to connect the dots. Investigators are particularly interested in this

loan, because they wonder if it was a pay-off to encourage Beaumont to keep what he

knew about the fraudulent accounting practices to himself.1

1 www.msnbc.com/news/809031.asp

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Mr. Ebbers also struck a deal with a member of the Board of Directors, Stiles A.

Kellett, allowing him use the company jet, leasing it for a mere $1 per month, in addition

to maintenance costs.2

b. Action Taken by WorldCom

Most of these bad eggs have been eliminated. Mr. Ebbers resigned from his CEO

position several months ago, and Mr. Kellett resigned from the Board of Directors on

October 27th, at the request of the Board. He also agreed to pay back $120,000 to the

company for the use of the aircraft. WorldCom’s Controller, David F. Meyers, has also

left the company, along with Ebber’s “partner in crime”, so to speak, Chief Financial

Officer Scott Sullivan, who was fired when the first accounting errors were found..

The Board of Directors is not finished with its restructuring, however. There still

remain one or two long-time friends of Ebbers, who will likely be asked to resign in the

next few months. They are also looking for new members to fill the gaps left by former

board members. C.B. Rogers, the former CEO of Equifax, Inc. was elected to the board in

the end of August along with 2 more new members. More well qualified members will

likely be added to the list in the near future.

The company is also in the process of filling other open positions on the board.

John Dubel was hired as the new Chief Financial Officer, and they are looking for a new

Controller. WorldCom is also creating some new positions under the CFO, to help avoid

2 www.msnbc.com/news/809031.asp

36

situations like this in the future. The company is also beefing up its internal auditing

departments for the same reason.3

c. Board of Directors

All in all, the Board seems to be doing a good job attempting to pull the company

through the mess. Chairman of the Board, Bert Roberts, appointed John Sidgemore, the

Vice Chairman, to serve as temporary CEO of the company, until a permanent

replacement can be found. Mr. Sidgemore, Mr. Roberts, and the rest of the Board have

filed for Chapter 11 protection, and have a plan to emerge from bankruptcy and start

making profits in mid-2003.

Some may also argue that there is no reason to believe that the entire Board of

Directors wasn’t involved in the scandal. But there are several reasons why this doesn’t

make any sense. Three of them are listed and explained in the following paragraphs.

1. The errors were discovered by internal auditors, not external

2. Most of those involved in the scandal are below the Board of Directors in the

hierarchy chain. Those members of the board who were associated with Mr.

Ebbers and his associates have been removed from their positions. This “house

cleaning” attitude suggests that the majority of the board does have honest

intentions.

3 http://www.worldcom.com/infodesk/

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3. The Committee of Unsecured Creditors has publicly acknowledged that

WorldCom is being very cooperative in resolving the situation.

First of all, the accounting errors were discovered by the internal auditors. Vice

President of Internal Auditing, Cynthia Cooper, was the one who found the errors. If the

entire Board of Directors was involved in cooking the books, their fraudulent activities

would never have been exposed from inside. Although Anderson’s attention to detail is

obviously not what it should be, given their involvement in the Enron, Global Crossing,

Sunbeam, and Waste Management scandals, they would have eventually found the errors.

However, an entire board of directors, backed up by the CEO, CFO and controller would

probably have been able to keep the secrets from their internal auditors for longer than

they did.

Another indicator that the entire board was not involved is the way the Board is

currently behaving. The Board has asked at least one of its members (Kellett) to resign,

and it appears that one or two more are on the way. The rest of the members, however, are

still there. They have eliminated (by firing, or resignation), their CEO, CFO, and

controller. They have also eliminated one of their board members, with possibly 2 more

to come. That leaves almost ¾ of the board (there were 11 board members at the time of

the scandal) intact.4 If the entire Board were involved, including Bert Roberts and John

Sidgemore, they would have used the CEO, CFO, and controller as scapegoats, but

stopped there. There would be no division in the board between those loyal to Ebbers and

those loyal to the “new way”, as there is now.

4 http://news.com.com/2009-1022-943517.html?tag=fd_nc_1

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Perhaps the most qualified people to comment on WorldCom’s Responsiveness are

WorldCom’s Creditors. On November 7, The Co-Chairmen of the Committee of

Unsecured Creditors of WorldCom issued the following statement:

"We are perplexed as to the source and content of positions attributed to the

Committee regarding its relationship with Company management in recent press

reports. Contrary to the suggestion in today's New York Times, the Committee has

been working harmoniously and amicably with John Sidgmore and Bert Roberts

and the Company's management and professionals in connection with the

Company's reorganization. An agreed upon search process for a new CEO is

underway and a nationally recognized executive recruitment firm has been

identified and is in the process of being retained. The Committee has formed a sub-

committee to participate in the search process and anticipates that the search will

be concluded on an expedited basis. Accordingly, the Committee expects that the

new CEO will have the support of both the Company and the Committee. The

Committee appreciates the manner in which Messrs. Sidgmore and Roberts have

cooperated with the Committee in both the search process and in the restructuring

efforts to date."5

The Unsecured Creditors Committee is obviously satisfied with the way

WorldCom has been handling the situation to date. In fact, this statement seems be almost

praising Bert Roberts and John Sidgmore for the way they have handled things to date. 5 http://www.worldcom.com/infodesk/news/

Note: Although this article was found on WorldCom’s website, and therefore is questionable, the statement can be found in several other sources as well, and has therefore been confirmed.

39

For all these reasons, it appears that the majority of the Board of Directors was not

involved in the scandal, and that they have a genuine desire to fix the situation and

conduct their business in an ethical and legal manner in the future.

d. Responsiveness to Employees

WorldCom’s has had an interesting attitude regarding its employees. Although

there have been a large number of layoffs as a result of the financial difficulties the

company is going through, this is to be expected when a company files for bankruptcy.

It is now known that WorldCom is in serious financial trouble. A review of the

corrected financial statements shows that WorldCom is losing money, and is heavily in

debt. In fact, on July 21, at the time of its filing for Bankruptcy protection, WorldCom

was in the red for $41 billion total. In the past few months, this number has gone up.6

Creative accounting methods managed to keep the company’s nose above the rising water

for a little bit longer, but still didn’t change the fact that the company was indeed losing

money. Now that the scandal has been exposed and those responsible have been

eliminated, the “new” management must do all it can to make the company profitable

again. This, of course, involves cutting jobs.

Layoffs are obviously bad for employees, but what is the alternative? If

WorldCom kept all its employees onboard, the company would go under for sure. All of

WorldCom’s employees (over 60,000 people currently- after the mass-layoffs7) would lose

their jobs. The services WorldCom offers would also be eliminated. Thousands of people

6 http://stacks.msnbc.com/news/815679.asp7 http://www.worldcom.com/global/about/people/

40

would lose their local and long distance phone carriers. Thousands more would lose their

internet service.

More important than these services, though, is the hardware that WorldCom owns

and operates. What would happen to all the phone lines cris-crossing the country? What

about the hardware operated by WorldCom that the internet is built upon? Other

companies would of course buy up all these assets, but the equipment once operated by

one company would suddenly be divided up among dozens of other companies. Serious

problems may occur. Would it be possible for the internet to crash, for a short period of

time?

WorldCom’s only option then, is layoffs and restructuring. The company had

approximately 75,000 employees, worldwide, at the time of the initial announcement of

accounting irregularities. Now, approximately 12,800 of those employees have been laid

off.8

This is not as bad as it sounds, however. Many of these layoffs were necessary

because of WorldCom’s restructuring. The company is selling off some of its assets, such

as plants, and smaller companies. It is very likely that many of the employees who used to

work in these facilities will be re-hired by the new owners of the facilities they used to

work in.

Although the layoffs are necessary for the company to rebuild, WorldCom pulled a

nasty trick with regard to its severance pay. The company policy had always been that

employees received one week’s pay for every year they had worked with the company,

with a minimum of 6 weeks pay. This was paid in one lump sum. Just before filing for

Chapter 11 protection, however, this policy was changed so that the money was paid out

8 http://stacks.msnbc.com/news/815679.asp

41

in pieces every 2 weeks, exactly like a paycheck. When WorldCom then filed for

bankruptcy, they became protected from these severance payments. Former employees

who are owed money are, after all, creditors. Had the company not changed its policy, it

would have had to pay out the lump sums immediately, before it filed for Chapter 11

protection. By switching to a paycheck method, however, they were able to dodge paying

the full amount.

Although the bankruptcy court did allow WorldCom to pay out $22 million in

severance pay, bankruptcy code only allows severance pay of $4650 per person. So, by

manipulating their rules, WorldCom was able to dodge giving their own former employees

what they deserved.9

It could be argued, however, that even this is in everyone’s best interest. Every

penny that WorldCom saves takes them that much closer to emerging from Bankruptcy

and becoming profitable again. This would allow them to take better care of the 60,000

remaining employees, provide more and better services, and possibly even hire back some

of the employees they laid off. In short, everyone stands to lose if WorldCom goes under.

So, it is in everyone’s best interest that WorldCom do whatever is necessary to stay in

business.

9 http://stacks.msnbc.com/news/815679.asp

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7.Conclusions – Bill

WorldCom’s management made some very bad business decisions, and they now

paying dearly for them. The company is $41 billion dollars in debt, and has miss-

represented its financial statements to the order of $9 billion dollars.

WorldCom now faces the challenge of restructuring the company to emerge from

bankruptcy and once more become a profitable business. They must adhere to the

Generally Accepted Accounting Principles in the future, and somehow regain their

financial stability. They must re-affirm their loyalty to their employees, and regain the

trust of their employees, stockholders, and customers.

WorldCom must also eliminate some of the bad business practices that contributed

to the current situation as well. Executives should not be building $10 million dollar

homes while simultaneously laying off thousands of employees. Executives should not be

taking personal loans from the company. The idea of borrowing $408 million from your

company, when it already $41 billion dollars in debt is absurd. CEO’s must also stop

receiving severance payments totaling millions of dollars, when the company they have

been managing is on the verge of bankruptcy.

However, WorldCom has started to put the pieces back together, and is off to a

good start in some areas. Those responsible for the current situation have either resigned

or been fired. Many are facing criminal charges, and are sure to receive jail sentences.

The remaining management is bringing in new blood to the Board of Directors and Top

Executive pool, and is making a fresh start. A plan has been presented for emerging from

Bankruptcy in mid-2003- just under a year from now. Some thinning of the ranks is to be

43

expected of course, but even if the accounting errors had not occurred, the company would

still be losing money, and layoffs would still be necessary.

WorldCom has dug itself into a very deep hole, and is going to have a difficult

time climbing out of it, but they have taken the necessary first steps to become profitable

again.

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8.References

“WorldCom Loans Scrutinized”, Jared Sandburg and Susan Pulliam, 9/17/02

www.msnbc.com/news/809031.asp

“Drawing Lessons from WorldCom”, 7/14/02

http://news.com.com/2009-1022-943517.html?tag=fd_nc_1

WorldCom’s Press Release Site

http://www.worldcom.com/infodesk/news/

“WorldCom Cleared to Pay Severance”, Shawn Young, 10/01/02

http://stacks.msnbc.com/news/815679.asp

WorldCom’s Employment Site

http://www.worldcom.com/global/about/people/

“More WorldCom Bankruptcies Declared”, Barbara Powell, 11/8/02

http://seattlep-i.nwsource.com.edgesuite.net/business/aptech_story.asp?category=1700&slug=WorldCom

“WorldCom Board Member Resigns”, 10/28/02

http://stacks.msnbc.com/news/827381.asp

“WorldCom Creditors Committee Officials Deny Negative Relationship with Management”, 9/23/02

http://www.institutionalinvestor.com/iiochannel/aroundthemarket/20020920000900.htm

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