The origin of WorldCom can be tracked to 1983. The firm invested in LLDS and took advantage of the split-up of AT&T, developed fast then became the second largest long distance telecommunication company. As time went on and the company grew larger, problems of high E/R ratio and decrease of revenue began to arise. In order to keep the good performance in stock market, the board decided to do fraudulent bookkeeping. After the investigation of SEC on WorldCom’s overstating revenue and concealing expenditure, the company announced bankruptcy in 2002.
1. The decentralized organizational structure and centralized management prevent executives and managers from discovering and solving problems.
2. Executives’ failure of performing legally and morally directly led to the accounting fraud.
3. Failure of internal and external monitor made the situation worse.
WorldCom’s company culture was extremely centralized. The advent of expanding the company led to pitfalls that management did not address. WorldCom acquired a lot companies and continued to manage these companies as different divisions. The disconnection of the departments within the company impeded the performance and governance of the WorldCom. Ebbers’s attitude towards corporate governance spearheaded very unwelcome climate of the company. Upper management wanted fully control of the lower parts. The employees can only listen to their boss. The chain of command only flowed downward. Employees did not feel at liberty to disclose inadequacies within the company, because the lack of the code of conduct that Ebbers felt was a waste of resources to pursue. If Ebbers had fostered a culture where employees at all levels followed a chain of command when reporting issues, several problems could have been foreseen and prohibited. At least the board would know the inadequacies of the firm. Sullivan, CFO, took advantage of the lack of a direct chain of command and ran the business how...