Worldcom Case Essay

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Memorandum To: From: Subject: Date: Brian Ebbers xx Accounting Fraud at WorldCom September 14, 2007 Issues Though WorldCom filed for bankruptcy protection in 2002, its problems were building for many years before they culminated in its failure. Firstly, WorldCom had no long-term vision for the company and the CEO, Brian Ebbers, built the company’s strategy for success on rapid acquisitions that was no longer tenable after 2000. Once the acquisitions strategy failed and the market suffered a downturn, there was nothing to fall back on to guide the company through more difficult times. Secondly, WorldCom lacked a cohesive corporate governance code and had an extremely top down, centralized structure, which became a significant issue when the managers at the top were corrupt. Finally, the Board of Directors was not sufficiently independent or engaged to oversee WorldCom’s affairs. This meant that WorldCom’s leadership did not have checks on its power and there was no oversight to ensure that this privilege was not abused. Analysis Company Strategy When the Sprint merger was turned down in 2000, it resulted in the company losing its strategic direction since acquisitions were no longer a viable option for growth. Deteriorating industry conditions in 2000 meant WorldCom, along with the rest of the 1 telecommunications industry, was suffering. Since the company had lost its strategic direction and had no long-term vision, no re-evaluation of the WorldCom’s direction and performance targets was undertaken. Instead of focusing on improving company performance, the CFO, Sullivan, used accounting tactics – accrual releases followed by capitalization of line costs – as a stopgap measure to achieve targeted goals. This focus on managing numbers was where the company

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