Question

a) What impact, if any, do regulatory activities have on the ethics of the WorldCom case? If not applicable to this case, discuss possible overall impacts of

regulatory activities for ethical situations in general.

Answer 1

       IMPACT OF REGULATORY ACTIVITIES ON THE ETHICS OF THE WORLDCOM CASE:

• WorldCom was a provider of long distance phone services to businesses and residents. It started as a small company known as Long Distance Discount Services (LDDS) that grew tobecome the third largest telecommunications company in the United States.
• From the outside, WorldCom appeared to be a strong leader of growth. In reality, the
  appearance was nothing more than a perception. On June 25, 2002, the company revealed that it had been involved in fraudulent reporting of its numbers by stating a $3 billion profit when in fact it was a half-a-billion dollar loss.
• The employees at WorldCom did not have an outlet to express concerns about company
  policy and behavior either.The mix of the Board and the close ties to Ebbers led
  to the Board's lack of awareness on WorldCom's issues. The Board was inactive and met only about four times a year, not enough for a company growing at the rate that it was.
• The Committee approved the loans to Ebbers without confirming with the Board and asked for the Board‟s approval after the loans had already been paid out.
• After the fraud was announced,new measures were taken quickly to reform WorldCom and restore the public‟s confidence in the company. The first big step was the removal of top management.
• In WorldCom‟s case, which very closely followed the Enron debacle, SOX was put into effect. While the government did take action, most of the regulations listed in SOX were needed to prevent the WorldCom fraud.If the act was passed before the WorldCom debacle, the fraud itself may not have occurred.

In general,regulatory activities create a huge impact for ethical situations.One such example is of consumer protection regulation in ethical drugs.New laws by FDA required firms to demonstrate their efficacy as well as safety of all new drugs.If regulatory activities are properly implemented then good ethics can be easily implemented and bad one can be removed by stringent regulations.