Note: Sample below may appear distorted but all corresponding word document files contain proper formattingExcerpt from Term Paper:
WorldCom: The Ethics of Whistle-Blowing
In recent years, it has not been easy for employees to completely trust the corporations for which they work. Accounting scandals have made the average employee question business practices unlike before. The large corporate American framework built in culture; vision, core values, accountability and self-worth seem to have gone out the window with a certain degree of worry. Is it risky to work for a big business corporation? Has greed, ambition, the threat of globalization, lack of competition, poor leadership and the new technologies to make all this seem seamless, changed the rules for corporations and governance? What has happened to the days of trust and inspirational role models of the self-made every man? Has the bottom-line or the need for the last dollar put a shroud upon the business operation standards in this country?
There are no guarantees in life or big business. Michael Pfarrer writes, " Indeed, tales of the powerful and charismatic abusing their position for organizational and personal gain are as old as recorded history" (par. 2) but he elaborates the way in which society studies such corruption has changed. Such things are no longer kept secret but are broadcast for the whole world to hear. This type of communication warrants new implementations of laws and standards by which business operate. No longer can one not be accountable. It society has given it no choice but to allow Big Brother to watch. This paper will discuss the corporation of WorldCom, better known today as MCI. This paper will discuss in detail the accounting scandal that brought the company to its knees and the very public drama that followed. In this case, there was no one specific whistle-blower but a team of auditors that uncovered WorldCom's cooking of books. This act of whistle-blowing seems more prominent in today's society as information travels the speed of light. This paper will define the term whistle-blower as per Mish of the Merriam-Webster's Collegiate Dictionary, "one who reveals something covert or who informs against another and fears reprisal (1427). In this case, it was the internal rumors and then audit of the WorldCom's books that brought the truth to the forefront. Not even the CEO Bernie Ebbers could dispel the rumors growing and publicly came out as a lie and said "WorldCom has a solid base of bill-paying customers, strong fundamentals, a solid balance sheet, manageable leverage, and nearly $10 billion in available liquidity" (Mehta, par. 3). Then what cause the company to crumble?
It is ironic; WorldCom's product would lead to the company's downfall. Still one is left to wonder, what happened? Why weren't there procedure in place to act as damage control agents? Was this drama a cry for help and will WorldCom aka MCI be able to survive the aftermath of its actions? How has this scandal affected the its employees but the common man? What are the long-term effects of such a blunder? What measures can be put into place to stop it from happening again? The paragraphs below will pursue answers to these questions and explore personal perceptions. I believe the truth would have been revealed with time.
Company Profile and Mission Statement
By the time of the scandal, WorldCom had acquired MCI as part of an historical moment in business history, making the company of the nation's largest telecommunications companies. Today, WorldCom fights for survival. As of Spring 2004, it was set to emerge from bankruptcy chapter 11. As of this morning, WorldCom did not have a web site to peruse for information but is doing business as MCI.com. I was able to gather information on MCI, which also struggles with the ramifications of WorldCom's actions. However, sometimes out of the ashes, a phoenix rises, stronger and wiser than before.
Below is company information for MCI's web site. It still remains the United States' number two telecommunications carrier. It is a belief that the only reason MCI was able to continue forward, had nothing to do with its being under the WorldCom umbrella but everything to do with its own corporate brand identity prior to the scandal.
Today, MCI's focus is clear to use our global network and expertise to deliver innovative products that provide simplicity and unsurpassed value to our customers. With millions of business and residential customers, MCI® is a leader in serving global businesses, government offices, and U.S. residential customers.
MCI delivers a comprehensive portfolio of local-to-global business data, Internet and voice services to a 'Who's Who' list of the Fortune 1000. MCI is an established leader in IP network technology and Virtual Private Networking (VPN), delivering VPNs based on private data networks as well as our global Internet backbone, which spans six continents. The portfolio includes SONET private line, frame relay, ATM and a full range of dedicated, dial and value-added Internet services.
MCI today owns and operates some of the world's most complex and sophisticated custom networks, delivering value for a wide variety of customers and more than 75 U.S. federal government agencies. They also are a premier provider of audio, video, and net conferencing services that enable customers to meet and collaborate remotely to effectively conduct business anywhere, anytime.
MCI is the United States' second largest long distance company for residential customers. In April 2002, MCI launched The Neighborhood built by MCI, the industry's first truly any-distance, all-inclusive offering combining local and nationwide long distance calling from home to consumers for one low monthly price. The Neighborhood continues MCI's pioneering tradition, which has been based on opening up monopoly markets and providing innovative services to consumers nationwide.
In the telecom industry, customer communications travel over networks that may or may not actually be owned by the company. Generally, WorldCom employed an "on-net" operating strategy to provide voice calls and data transmissions through its own proprietary communications networks and related facilities. In order to pursue this "on-net" strategy, WorldCom maintained extensive network facilities to connect metropolitan centers and various regions throughout the world. To serve customers that were not directly connected to its owned network, WorldCom paid fees to use or lease "off-net" facilities and connections from other telecommunication companies. The fees paid to use or lease facilities belonging to third parties are referred to as "line costs" or "telco" expenses. Thus, line costs are the costs of carrying a voice or data transmission through any portion of its path from its origin to its destination.
Since WorldCom's own network could not directly connect all potential phones and electronic devices in the world, WorldCom paid outside service providers to carry some portion of its calls. For example, a call from a WorldCom customer in Chicago to London might start on a local Chicago phone company's line, flow to WorldCom's own network, and then get passed to a British phone company to be completed. WorldCom would have to pay both the local Chicago phone company and the British provider for the use of their services. All of these costs are line costs.
Managing line costs was tremendously important to WorldCom's profitability since they represented approximately half of the Company's total expenses. As a result, WorldCom's management and outside analysts paid significant attention to line cost ratios and trends. WorldCom regularly discussed its line costs in its public disclosures. WorldCom's key measure of line cost management, both internally and externally, was the ratio of line cost expense to revenue, called the "line cost E/R ratio." An increase in the line cost E/R ratio indicates deteriorating performance: either under-usage of leased capacity or overpayment for leased capacity. The Company's reported quarterly line cost E/R ratio hovered within an incredibly narrow range around 42% from late 1999 through early 2002, even though the period was an extremely volatile time for the telecom industry.
Many of WorldCom's problems began with product and leadership. Mehta writes, "WorldCom blames many of its troubles on the broader economic slowdown" (par. 4). Then why invest all your money in an already outdated infrastructural network and lie about your assets? Poor leadership is the key. WorldCom was trying to present itself as a high growth organization with a competitive in valued high-end technologies. The company was also trying to accomplish these tasks in an unfavorable market. It is the nature of telecommunications that the hardware and services are constantly changing. WorldCom could not keep up with market demands and instead relied on the more traditional telephone services to keep the company above water (Mehta, par. 5). This was not a good strategy. Because of the nature of how their product is maintained, they were able to "wipe the costs off their books by restructuring the debt" (Mehta, par. 13). Still it was upper-managements sloppy and misguided journal entries on post-it notes that served as the main clue. Eventually, company stock took a plunge to only seven dollars a share and this sent the company into a spiral of endless pressure. The numbers did not add up but mostly, made the leaders look…[continue]
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