WorldCom corporate history and collapse

WorldCom

The late 1990s and early 2000s saw corporate America rocked with scandal. It seemed that everywhere the public turned, a new ethical scandal was being played out in the media. One, in particular, lead to the largest corporate insolvency in history - WorldCom. This paper overviews the events surrounding the scandal and investigates the ethical considerations behind the WorldCom scandal. Three ethical concepts will be used to analyze the WorldCom scandal: utilitarianism, Kantian ethics, and discursive ethics, and formulate a position on this topic, followed by support of this position, and a conclusion of findings.

In the 1990s, WorldCom was one of the leading players in the telecommunications industry. However, as the industry took a downturn, WorldCom's history of growth faltered and forced the company to eventually abandon a plan to merge with Sprint, in the latter part of 2000. With this downturn came a decline in WorldCom's stock prices.

Between 1999 and May 2002, the organization utilized fraudulent accounting methods to hide their deteriorating financial condition. Then CEO Bernard Ebbers, CFO Scott Sullivan, Controller David Myers, and Director of General Accounting Buford "Buddy" Yates led this unethical strategy ("MCI Inc.," 2006).

This executive financial team utilized a variety of deceptive strategies to give the impression that the organization was still growing financially and profitable, in an effort to turn around the faltering price of WorldCom's stock. One of these strategies was the underreporting of line costs, where the organization capitalized these costs, on their balance sheet, as opposed to expensing them. Secondly, the company inflated revenue figures, with bogus entries. In the end, it was determined that WorldCom had inflated their total assets by approximately $11 billion (Jeter, 2006).

Analysis of the Topic Using Ethical Concepts and Methodologies and how These Concepts are Realized in the WorldCom Scandal:

Three ethical concepts can be used to analyze the WorldCom scandal: utilitarianism, Kantian ethics, and discursive ethics. Utilitarianism occurs in two forms - one theory of personal morality and the other a theory of public choice. Both facets of utilitarianism center on the belief that morality is based on universal, objective and rational rules of decision-making. Utilitarianism seeks to increase pleasure by avoiding pain. Personal morality utilitarianism decision makers base their decisions dependent on the utility they generate for the decision maker. These individuals pursue their own self-interest (Harsanyi, 1953).

WorldCom executives could, at first, be thought to have employed a utilitarianism viewpoint. By skewing financial data to indicate a more lucrative financial position, on the surface, would seem to fit the requirements of utilitarianism. However, upon closer inspection, one realizes that even using utilitarian ethics, the decision was unethical. The short-term pleasure derived by the fraudulent accounting practices led to a far greater long-term pain, and the drove the company into bankruptcy.

Kantian ethics also believes that morality is based on universal, objective and rational rules of decision-making. However, Kant morality focuses on what is the 'right' thing to do, versus the utility that results from the decision. Organizations have the moral obligation to society to behave responsibly. Stakeholders, in Kantian ethics, are not merely means to an end, by are an end in and of themselves (Evan & Freeman, 1988). When this concept is applied to the analysis of the actions of the WorldCom financial team, again, one sees that their actions were not ethical. By fraudulently inflating the growth and profits of the organization, they were not behaving responsibly towards society. Deceiving the public was a disservice to society. However, the damage went beyond their initial deception. Once the fraudulent accounting practices were uncovered, WorldCom served as another example of unethical corporate behavior, further exacerbating societal mistrust of business.

Discursive ethics is based upon the uncoerced and undistorted communications, during open discourse.

There is an assumption that there are no norms, other than reflective, practical and reasonable discourse that involves the mutual recognition and acceptance of other subjects and their ability to add to the discourse.

Since discursive ethics centers on reasoned communication, it is also closely ties to Kantian ethics and the universal principal of ethics that is based on human reasoning. Discursive ethics is a procedural methodology for constructing principles (O'hara, 1996).

When this framework is applied to the WorldCom scandal, again, it reiterates the unethical behavior of the organization. No open discourse was had to make the decisions that led to the accounting strategies that deceived the shareholders and the general public alike. Other stakeholders were not given a voice to participate in the decision- making discourse. Therefore, the principles that were constructed that allowed the executive financial team to make these decisions led to unethical results.

Statement of Position:

Once reviewing these three ethical concepts and using them to analyze the WorldCom scandal, it becomes clear that the actions of WorldCom were unethical. This was not a matter of simply not understanding the effects their deceitful actions would have, but purposeful deceptive strategies to fool investors and other stakeholders into thinking the company was financially healthier than it truly was.

Arguments in Support of this Position:

The events of the WorldCom scandal will forever be replayed in business and accounting history, along with the variety of other corporate fraud activities recorded in the late 1990s and early 2000s. Common to all ethical concepts is the concept of 'good' (Darwall, 2003). WorldCom's actions held none of this intrinsic good. At first glance, it would appear that WorldCom had operated under a utilitarianism ethical system. The select few who were privy to the deceptive accounting measures being utilized to prop up the organization's stocks and give a picture of a much financially healthier corporation, could easily be mistaken for looking out for their own self-interests. Clearly, an easy assumption to make would be that these individuals were choosing a decision that offered the most utility for themselves. Although this was true in the short-run, in the long-run, it cost them dearly. Not only did their unethical decisions lead to organizational bankruptcy, but it tarnished the company's image as a whole, in the eyes of the general public, as well as added to the distrust that had been building in America of corporations following the variety of other scandals, due to unethical behavior prompted by corporate greed.

Clearly there was no social responsibility considered when making this decision as well. The good of society would have been to provide accurate information regarding the organization's financial health, so that investors made their decisions based on real statistics. The good of society would have been to act in a manner that built trust in the organization and their actions, as opposed to helping facilitate a deathblow to corporate trust across the board.