WorldCom’s Crisis Of Ethics: Triumph Of Managed Storytelling

11 Pages 2760 Words

he U.S. telecommunication industry. Three years earlier, TIME magazine had crowned CEO Bernie Ebbers as one of its Cyber Elite (www.time.com/time/digital/cyberelite/11.html). Fortune magazine ranked WorldCom as the 42nd largest company in the U.S. and one of the 10 most admired companies in its industry. This was down from number 32 the year before. After a 65% leap in stock value in 1998, with acquisition of rival MCI, WorldCom’s growth slowed in 1999, despite rosy projections from analyst Jack Grubman of Salomon Smith Barney that “WorldCom remains the ‘must own’ growth stock for anyone’s portfolio” (“US-based operator,” 1999). From 2000 to 2001, the company’s revenues dropped 10% and its profits dropped 65%.
In March 2002, the SEC’s investigation of Arthur Andersen, the accounting firm that had shredded records for Enron, was expanded to include its work for two telecomm firms: WorldCom and Global Crossing (“Business Today,” 2002; “Business Briefs,” 2002). The SEC’s concerns included improper charges and valuations related to the merger with MCI and loans to CEO Ebbers, ousted April 29. Meanwhile, Cynthia Cooper, Vice President for Internal Audits, became concerned about improper release of financial reserves and launched a planned internal audit early, over the protests of CFO Scott Sullivan. After two months of investigation, Cooper’s team uncovered that WorldCom had improperly treated its payments to local telephone companies as capital investments (Ripley, 2002). On June 25, WorldCom fired Sullivan and reported itself to the SEC (Re: WorldCom, Inc., HO-09440, 2002). Following news reports that this might be one of the largest accounting frauds ever, WorldCom stock value dropped to 35 cents (Sandberg, Blumenstein, & Young, 2002). WorldCom filed chapter 11 reorganization in late July 2001.
President and CEO John Sidgmore fronted a massive strategic response that included testifying before Congres...