In: Accounting
Ethics in Business and Accounting Question.
1. What went wrong with the decision making process at WorldCom?
Bernard Ebbers,the CEO of the now defunct WorldCom, created a culture of poor decision making. As CEO, Ebbers avoided internal company conflict at all costs, and he ultimately avoided the reality that WorldCom, once the dominant company in the telecommunications industry, was in serious economic trouble.Ebbers lead WorldCom through over 60 acquisitions over a period of 15 years.As WorldCom acquired new companies, its accounting procedures, computer systems, and customer service issues became increasingly more complex, and industry experts note that WorldCom struggled to keep up with the growth.Company employees who tried to bring initial problems to Ebbers’s attention were discouraged; Ebbers made it clear he only wanted to hear good news and then based decisions on this good news. This avoidance of factoring in potential problems during decision making created a company culture that demanded success at all costs. That ultimately included falsifying financial reports. Huge amounts of expenses related to building out their telecom system weren’t being treated as a regular cost but as a capital expense which was a defect in the deciision regarding accounting systems to be followed. That resulted in a significant boosting of the company’s earnings before interest, taxes, depreciation and amortization, otherwise known as the EBITDA, which the WorldCom used as a critical gauge of its growth.