World.Com was a telecommunication company whose headquarters were based in Clinton. By 1980, the company had more than 20 million clients and 80 thousand workers (Banks and Kirsten 80). In 1983, Murray Waldron and William Rector formed a business plan which focused on improving long-distance telephone services (Kim 74). By then, the company was known as Long Distance Discount Services (LDDS). Over its course services, the organization made a series of acquisitions, which gave the company advantages in the market. In 1995, the management decided to change the company name from LDDS to World.Com (Banks and Kirsten 74). The administration believed that the name had a close connection with the organization's objectives. Therefore, the name could effectively illustrate what the management is focused on achieving. The essay will elaborate more on the roles of World.com
In 1997, the company merged with Microwave Communication Inc. (MCI) (Wisner and Brandy 131). At this time, the company became the second-largest telecommunication firm in America. After merging, the company was named as MCI WorldCom. Due to the high performance of the organization, the CEO, Bernard Ebbers, become one of the wealthiest individuals in America. The company continued to improve its business by merging with other companies such as CompuServe. After 2000, the market for telecommunication was profoundly impacted (Wisner and Brandy, 128). This aspect profoundly influenced the performance of WorldCom. From that time, the revenue rate highly decline. The company suffered a lot of debt and other obstacles.
What Caused WorldCom's failure?
Due to improper management in the company, the company experienced financial failure. In June 2002, the company declared that the company had suffered from financial management (Banks and Kirsten 53). As such, the company filed Chapter 11 about the bankruptcy state. This was the most significant filing the country has ever experienced. Based on the filing, the organization listed $103.8 billion in assets and $41 billion in debt (Banks and Kirsten 34). Due to these financial challenges, the company was forced to lay off 17,000 employees (Kim 71).
This was about a 50 percent decline in business performance (Banks and Kirsten 87). Additionally, the company's revenue outflow was treated as capital expenses, which caused an overstatement of profits by $3.8 billion in the financial outcome (Wisner and Brandy 97). In illuminations of these disclosures, Arthur Anderson announced that the internal audit of the company would not be depended on explaining the financial performance.
The company had been engaging in false price stock, which inflated the firm from making a profit (Banks and Kirsten 95). As such, the company was forced to hire an external auditor who would investigate the ongoing financial issues. After the report was released, the CEO was charged in criminal court for engaging in fraud, conspiracy, and filing incorrect information. Due to the action, he was jailed for 25 years (Kim 49). Other officials were found guilty of committing in different forms of fraud. In which, others were found engaging in the firm's financial misstatement.
According to Kim, fraud in the organization occurred after the management reduced the reserve accounts due to the manipulation of financial statements (59). The manipulation of accounting statement affects how the organization was allocating its revenue. Additionally, the fraud was also experienced due to underreporting the expenses (Wisner and Brandy 84). The management engaged in illegal activities so as to increase the stock price. Due to this action, the company lost millions, and hence, it was not in a position to cater for other activities.
Unethical Practices That Lead to WorldCom Downfall
It was wrong for management to engage in illegal activities such as fraud. This was against business policies and rules. Dishonest operations were a critical practice that stimulated organization failure. Leaders in the organization were not honest about various activities they were engaging in (Kim 58). Instead, they were driven by individual desires that influenced them to engage in corruption. Dishonest action impacted the management to participate in misrepresenting the financial statements, and this action affects how the organization was conducting its activities (Kim 71). As a result, a large number of workers lost their jobs because the organization could not be able to cater to the financial requirements.
Additionally, the organization lacked openness when presenting various documents. This unethical practice impacted leaders to submit wrong documents that show false details about financial performance in the organization (Wisner and Brandy 87). Reticence subjects the organization to costly and time-consuming impacts. The unethical issue impacted how the management integrated various projects within the organization (Kim 73). These unethical practices pushed the organization to a state where it would not achieve its long term goals. Furthermore, unethical practice influenced the organization to reduce its productivity, and finally, it could not manage its financial requirements (Banks and Kirsten 91).
Ethical Principles Were Violated and How Were They Resolved
Moral principles are guiding rules which impact the kind of activities people in an organization. These guiding principles ensure management and workers focus on objectives and are not distracted by other laws. Based on WorldCom's performance, management violated their professional competence (Wisner and Brandy 110). Usually, professional expertise is the state in which workers struggle to maintain the highest performance level by undertaking various tasks in a professional way (Banks and Kirsten 81).
In this case, professional competence assists the management in using the available resources to improve work performance. However, in WorldCom, leaders violated the ethic principle by engaging in activities such as fraud, which do not show professionalism (Kim 79) - faking documents and financial statements subjected the organization to a massive loss. For instance, when the telecommunications industries started to decline, most economists believed WorldCom would be affected. The management did not take the necessary steps to ensure how to overcome and control the next challenge.
The corporate culture of a firm is an essential aspect that shows the value and principles. In this case, management has a significant role in creating a corporate culture within an organization. The perception that management creates impacts the kind of behaviors employees follow. The culture acts like a belief and values that employees are supposed to follow (Kim 30). Therefore, when top leaders are violating ethic principles, automatically employees will develop the wrong perception toward the management. Thus, in WorldCom, the management violated the integrity principle by creating a dishonest condition within the organization (Wisner and Brandy 94).
Due to the action, the management reflected a bad image toward society and investors. Integrity is a crucial aspect that creates a pleasant environment where workers can express their wishes (Kim 70). However, violating the principle impacts how employees engage in group performance. The ongoing illegal activities in the company influenced workers to develop a negative attitude toward management. The issue became worse when a large number of employees were laid off by the management.
Responsibility is an ethical principle that impacts how employees and management engage in their daily activities. Every person within the organization is entitled to a particular role. It is the role of the management to ensure all people respect and engage in their respective responsibilities - active participation of the management influence public trust toward services provided (Wisner and Brandy 91). However, the management of WorldCom failed to participate in their role effectively. Instead, they participated in activities that only benefited a particular group. Auditors were unable to join in their characters adequately. As such, they could not follow financial flow within the organization. As such, stakeholders and some top management were severely handled by the board of directors (Kim 12).
Additionally, the company did not engage workers in various activities. Workers were reluctant to share information because they feared they would lose their jobs in case management realizes their actions. The ethical issues were controlled by changing the management system by creating a new Board of Directors. The court ordered the new management to monitor and control company performance effectively (Kim 81). The government intervened by setting principles that people were required to take to manage the ongoing issues. For instance, the corporate culture of openness was introduced to control ethical behavior and monitor company performance.
Based on the case, corporate governance had failed to control various illegal activities that were taking place in the organization. Lack of a better system that controls how management engages in operations was a critical aspect that impacted leaders to engage in fraud. Additionally, the firm lacked effective internal control, and hence, it could not control various challenges. Internal control failed to detect the ongoing fraudulently by the management. Due to a lack of better connection, stakeholders thought that the management was running in the right way.
Therefore, management could easily manipulate accounting and financial systems.Lack of better cooperation between the management and workers was another critical challenge that impacts how the organization would control the issue. For many years, workers were not allowed to engage in the decision-making process. Therefore, workers were not permitted to share problems experienced on the ground level. Additionally, poor working conditions impacted how other members of the organization participated in the day to day operations.
Banks, Sarah, and Kirsten Nohr, eds. Practising social work ethics around the world: Cases and commentaries. Routledge, 2013.
Kim, Young. "Taking the Ethics Test." Continuity (2016). Retrieved from https://epublications.marquette.edu/cgi/viewcontent.cgi?article=1524&context=comm_fac.
Kim, Young. "Toward an ethical model of effective crisis communication." Business and Society Review 120.1 (2015): 57-81.https://epublications.marquette.edu/cgi/viewcontent.cgi?article=1493&context=comm_fac.
Wisner, Deven L., and Brandy A. Brown. "Corporate Toxicity: The WorldCom/MCI Scandal." (2015). Retrieved from https://repository.arizona.edu/bitstream/handle/10150/345957/Mini-Case_MCI_WC_Wisner_2015.pdf?sequence=1.
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