Worldcom Case Essay

1748 Words7 Pages
Questions 1. What are the pressures that lead executives and managers to cook the books? The main pressures were coming from the economic recession and the aftermath of dot-com bubble collapse which then causes the industry conditions began to deteriorate in 2000. The competition among existing company and the new entrants were becoming more heightened; the company became overcapacity and the demand for telecommunication services reduced significantly. And the pressure to maintain a 42% of expense-to-revenue ratio (E/R ratio) had also becoming one of the forces that lead the executives and the manager to cook the books in order to make it looked good at the public’s eyes. From the perspective of the executives, the main pressure would be to ensure that the investor or the shareholder to keep on trusting the company and continue to keep their investment or inject more investment into the company. This is so much important as the shareholders’ trust greatly depending on the company performance. When the performance indicator shown not a good result, the shareholder will most probably take off their investment and this will impacted the company’s stock price. Besides that, the executives were also surrounded by their self-interest. Having a good position, good title in the company with a good salary, had made them comfortable with current situation. If they choose to reveal the actual company performance, then it is just like digging for their own grave. They would lose everything that they had. Therefore, they prefer to ‘cook the books’ or to cover the real performance by doing some improper accounting practices. For example, in the first quarter of 2000, WorldCom was having revenue, pricing and its highly committed line costs pressures that making it hard to maintain an E/R ration of 42%. This was then lead to Ebbers’s emotional speech to the senior staff about
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