Speaking about the state and problems of WorldCom

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Section 1. Normative Analysis

Speaking about the state and problems of WorldCom, Inc., one should address the problem of ethics in accounting. Violation of ethical principles in accounting provoked a big scandal and has negatively influenced the company’s environment. The purpose of ethical standards is to provide ethical guidelines and urge the employees of a company to abide by a certain code of conduct. One should also mention that accounting ethics is a concept that is both descriptive and normative. The scandal at WorldCom, Inc. refers to the case of a violation of normative part. Illegal activities of the employees were related to the misstatement about additional $3.831 billion by improper accounting practices, and accounting errors that amounted to more than $7.683 billion over the past three years (Kaplan & Kiron, 2007). Consequently, WorldCom, Inc. has become one of the biggest cases of corporate accounting fraud in the world.

The company’s background demonstrates that it was a reputable, prestigious, and profitable organization. WorldCom, Inc. has become a full-service telecommunications company which provided high quality services. Consequently, committing fraud as a way of protection from bankruptcy resulted in tragic outcomes not only for the organization itself but for its stakeholders too. The crime that occurred at WorldCom, Inc. was that the company made accounting misstatements, hiding the real and unfavorable financial conditions of the company. More than $9 billion worth of unsupported accounting entries were added into the organization’s financial system in order to achieve a positive financial outlook (Kaplan & Kiron, 2007). Bernie Ebbers, the CEO who suggested such a business strategy for WorldCom was the main perpetrator of the fraud. He focused on demonstrating an impressive rate of growth of the company through an acquisition. Bernie Ebbers employed a deception, but it could not be sustainable in the long run. He demonstrated an ever-increasing income and revenue by applying certain financial gimmickries. It means that he violated not only the normative standards of the company but his personal moral values as well.

One should say that Bernie Ebbers violated his fiduciary duties by resorting to unacceptable ways of saving WorldCom from bankruptcy. First of all, he damaged the company’s reputation. Second, he ignored the interests of the stakeholders. Moreover, Bernie Ebbers relied on his forces and strategies without consulting with other experts and managers of of WorldCom. It is evident that the company needed time for its management. However, Bernie Ebbers did not adhere to this point of view, thus putting WorldCom under a threat. Another person who violated his fiduciary duties was Scott Sullivan. It is important to mention that Bernie Ebbers and Scott Sullivan were both members of WorldCom’s leadership. Consequently, they bore the highest level of responsibility not only for making their decisions ethical but also for those of other employees. The fraud that they committed had been carried out in two principal ways. First, the accounting department of WorldCom underreported the company’s ‘line costs’. Second, they inflated revenues and unallocated revenue accounts (Kaplan & Kiron, 2007).

It is evident that those illegal operations could not have been performed without Bernie Ebbers’s and Scott Sullivan’s consent, as they were the leaders of the company. As a result, they violated their fiduciary duties reducing the amount of money and moving them into the revenue part of the company’s financial statements, classifying operating expenses as long-term capital investments, and in effect turning losses into profits. However, the leaders forgot about the principles of business ethics and about following normative standards, which are essential principles of success and profitability. Any fraud can be found out. First, the internal auditor of the company uncovered fraud. Second, Securities and Exchange Commission launched the investigation (Kaplan & Kiron, 2007).

The stakeholders suffered a significant negative impact of the unethical practices of WorldCom. First of all, the stock values suffered as the prices for their services fell and profits and market share decreased significantly. Secondly, 17, 000 employees lost their jobs. Moreover, their reputation was also under a threat as they could possible be also blamed for the unethical practices of the company. Thirdly, shareholders lost approximately $180 billion (Kaplan & Kiron, 2007). Moreover, the company’s future also became uncertain. It is evident that WorldCom lost its customers as they switched to other telecommunication organizations. Additionally, since the scandal WorldCom did not receive federal government contracts anymore. The fraud and its consequences happened because the weaknesses of corporate culture, an imperfect financial system, and inadequate audits (Kaplan & Kiron, 2007).

Section 2. Ethical Systems Design

If I were in charge of a company like WorldCom, Inc., I would try my best to prevent a similar situation with fraud and unethical decisions. First, I would not allow any manifestation of an unethical work culture, as was the case at WorldCom. I would replace the autocratic style of management with a democratic one. I believe that employees should feel themselves as a single team and not distance themselves from the leadership. To me it seems unacceptable to pressure employees to manipulate accounts. I would forbid and punish any fraud, deception or manipulation. Employees should have the courage to inform the management about any fraudulent activities. However, they should be sure that revealing such information would not cost them their jobs. This mean that compensation should be the method of promiting truthfulness and sincerity.

I believe that every employee should upkeep the corporate culture of the company that he/she works in and be socially responsible for his/her activities. Diligent and moral employees should be promoted and otherwise encouraged. Those employees who violate discipline and principles of corporate culture should be dismissed immediately in order to prevent further cases of deception and fraud. I find it unacceptable to fudge up accounts and mislead the stakeholders of the company. Consequently, I would severely punish any cases of violation of any ethical values. It is evident that such companies as WorldCom, Inc. face many decision-making processes. As a result, it is obligatory constantly have stakeholders’ interests in mind when making decisions.

It is necessary to change the rules and other aspects of the environment in order to avoid problems related to corporate culture and business ethics. WorldCom’s case study demonstrates that following the principles of business ethics is a crucial factor for success or failure of a company. Opportunistic marketing, equity overvaluation, dishonest accounting practices, selfish and unreliable management would be forbidden as they could lead to failure even the most successful and profitable organization. A sound recommendation would be to change the opportunistic marketing into a more strategic and dynamic one in order to avoid further business ethics violations. It is obligatory to avoid dishonest accounting practices and selfish and unreliable management as they damage the reputation and image of the organization on the market. It is evident that WorldCom’s case should become a lesson for other companies who commit or think about committing a fraud or any other unethical practices.

If I were in charge of a company like WorldCom, Inc., the Code of Ethics would become a must for following. As a leader of the corporation, I would pay respect and tolerance to the company’s employees, suppliers, and customers, as they are interrelated and determine company’s success. The corporate culture would forbid to abuse of power, or be rude, and intolerant. The principles of mutual business ethics between the company, suppliers, and customers are cooperation, support, mutual help, focus on offering high-quality services, caring about the customers, and respect. Moreover, the success of the company heavily depends on a leadership that must be democratic and exemplary in order to bring positive changes and benefits.

Motivation is another crucial factor that determines productivity and performance of employees and influences the corporate culture of the organization. As a result, I would find the ways to increase it and respect the degree of employees’ autonomy. The culture of my company should not be exclusively materialistic as ethics training, and compliance programs cannot work there. One cannot oppress the dignity of employees imposing them fraud and other illegal activities. They should have a choice in their actions even when it comes to their job. Moreover, leadership training should be, open, continuous, and focused on information-sharing. They should emphasize personal, responsibility, transparency, and free will.

This article is written by Charles Pfeifer who is an editor at https://advanced-writer.com/