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Examining A Business Failure Essay

994 words - 4 pages

LDR 531
May 16, 2011
Mary McDonald

In 1983, the company that would become WorldCom started in a small town in Mississippi. Twenty years, billions of dollars, and numerous mergers and acquisitions later, WorldCom filed for bankruptcy protection after a large scale accounting scandal was discovered and the CEO, Bernie Ebbers, drove the company in a tailspin. His unethical business dealings led to over 5100 people losing their jobs, untold people losing money invested with the company as their stock became worthless, and a 25-year prison sentence for Ebbers himself.

Bernie Ebbers started out in the telecommunications industry in 1985 by becoming the CEO for a ...view middle of the document...

WorldCom became the setting for numerous accounting scandals and questionable loans. After the failed merger with Sprint in 2000, the stock price for the company continued to decline. Ebbers, who had used his stock holdings in the company to finance other businesses of his, was being hounded by banks to cover the margin calls he had made. Ebbers was able to persuade the board of directors of WorldCom to provide him with over $400 million in loans to pay the banks and not sell his stock holdings, which would have to drive the company's stock price even lower.
At the same time, WorldCom used fraudulent accounting methods to hide its widening loss of earnings. This allowed the company to provide to investors a rosy picture of steady growth and profitability, thereby increasing the price of the stock. More than $4 billion in false or unsupported accounting entries were found by a team of internal auditors. In the end, the SEC found that WorldCom's assets were inflated by over $11 billion.
Bernie Ebbers was ousted as CEO of the floundering company in April 2002. The board's strategy of providing the loans to Ebbers backfired as he kept all the money and his stock. Less than three months later, as the accounting scandal broke out, WorldCom filed Chapter 11 bankruptcy in July 2002, due to the fraud, the improper accounting of corporate assets, and a lack of leadership on behalf of the board of directors. This failure to reign in Ebbers resulted in over 5100 employees being laid off, the largest bankruptcy filing in the United States at the time and prison sentences and fines for the conspirators behind the scandal.
Leadership Failure
Bernie Ebbers was the primary conspirator behind the fraud of the company because he was the CEO. In order to make the business grow, Ebbers focused on business deals in the 1990s. He used his stock to fund his acquisitions of other companies. The use of the stock was inappropriate...

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