Marionne Rafael Saubon

BUSINESS ETHICS RESEARCH PROJECT

WORLD COM

WorldCom has become a byword for accounting fraud and a warning to investors that

when things seem too good to be true, they just might be. Its CEO, Bernie Ebbers—a larger-

than-life figure whose trademark was cowboy boots and ten-gallon hat—had built the company

into one of America’s leading long-distance phone companies by acquiring other telecom

companies. At the peak of the dotcom bubble, its market capitalization had grown to $175

billion. When the tech boom turned to bust, and companies slashed spending on telecom services

and equipment, WorldCom resorted to accounting tricks to maintain the appearance of ever-

growing profitability. By then, many investors had become suspicious of Ebbers’ story—

especially after the Enron scandal broke in the summer of 2001. Shortly after Ebbers was forced

to step down as CEO in April 2002, it was revealed that he had, in 2000, borrowed $400 million

from Bank of America to cover Margin calls, using his WorldCom shares as collateral. As a

result, Ebbers lost his fortune. In 2005 he was convicted of securities fraud and sentenced to 25

years in prison.

This topic interests me because it is related to accounting. I am taking the course

accounting and the topic I chose talks about accounting fraud. I can also learn more about

accounting fraud and how to avoid it. It also interest me to know why a lot of rich companies or

individuals still do these illegal things just to become even more richer knowing that in the end,

they still get caught.

 Marionne Rafael Saubon

Ethical Dilemma

In 1998, Betty Vinson was promoted to a senior manager in the firm’s corporate

accounting division. Two years later in her position she experienced a major ethical dilemma.

The company WorldCom was a very successful company up until the middle of 2000 when the

telecommunication industry entered a protracted slump. The company’s earnings were not Wall

Street expectations, and it was saddled with unpaid bills. Vinson’s job was to repair the problem

by doing some wrong accounting practices. The ethical dilemma is weather she should or

shouldn’t do and the consequences if she does or doesn’t do. What ethical decision should Betty

Vinson take?

The first right decision is to do the wrong accounting practice. Vinson was told that it was only

one-time transaction. In this situation it is not wrong to do bad accounting practices if it can help

the company out. One of the ethical theories to support the dilemma is utilitarianism. Helping out

the company would help everyone in the business. It seems like in the accounting department

there is none ethical practices and therefore causing this cultural relativism to exist. To some

extended surprise it is odd that the upper management would order to do something like that.

They have created this culture not to question superiors. Emotism engages some part in this

ethical decision too. Sullivan was considered one of the top CFO’s in the country and approved

the transaction, than it must be satisfactory. Teleological she would act morally right or

acceptable if it produces some desired results such as career growth.

 Marionne Rafael Saubon

Potential/actual benefits of World Com to society

As we know, from its humble beginnings as an obscure long distance telephone company

WorldCom, through the execution of an aggressive acquisition strategy, evolved into the second-

largest long distance telephone company in the United States and one of the largest companies

handling worldwide Internet data traffic.

 Provided mission-critical communications services for tens of thousands of businesses

around the world

 Carried more international voice traffic than any other company

 Carried a significant amount of the world's Internet traffic

 Owned and operated a global IP (Internet Protocol) backbone that provided connectivity

in more than 2,600 cities and in more than 100 countries

 Owned and operated 75 data centers…on five continents. [Data centers provide hosting

and allocation services to businesses for their mission-critical business computer

applications.

Potential/actual detriments of World Com to society

We see six major results from the WorldCom scandal.

 First and foremost, the negative perception of corporate America has only been

reinforced.

 The second result of the WorldCom scandal is that the government is moving to re-

regulate the economy.

 The third result is that WorldCom's customers are likely to leave it in large numbers.
 Marionne Rafael Saubon

 A fourth result will be a reexamination of U.S. telecom policy. This is complicated as the

Securities Exchange Commission sees WorldCom as one of the worst accounting

scandals in history and will want to take enforcement action of considerable harshness.

 The fifth result is that WorldCom and the other scandals are weakening the dollar.

 The sixth factor and closely related to number five is the impact of WorldCom beyond

U.S. shores.

The World Com scandal really proves that even the richest among the rich is still taken over

by greed. It is sad to hear that a lot of people that works for World Com that time is now

unemployed due to the accounting fraud.

Sources:

The rise and fall of World Com:

https://www.investopedia.com/terms/w/worldcom.asp#:~:text=WorldCom%20was%20a

%20telecommunications%20company%20that%20went%20bankrupt,as%20well%20as%20one%20of

%20the%20largest%20bankruptcies.

The World Com scandal explained: https://www.thebalance.com/worldcom-s-magic-trick-356121

World Com ethical dilemma: https://studyhippo.com/worldcom-ethical-dilemma/

Benefits of World Com to society:

https://www.scu.edu/ethics/focus-areas/business-ethics/resources/worldcom/#:~:text=From%20its

%20humble%20beginnings%20as%20an%20obscure%20long,Web%20site%2C%20at%20its%20high

%20point%2C%20the%20company
Marionne Rafael Saubon