Business_Failure__Worldcom

WorldCom Business Failure 2002 was an eye-opening year for the business world. According to CNN Money (2002), it marked “two of the biggest accounting scandals to rock the financial world,” (para. 1). How can an organization go from one of the most profitable with shares selling for $64 per share to $0.21 per share within a few months' Fraud, greed, and a compliant accounting firm was the crux of the downfall of WorldCom. Fraud within WorldCom The WorldCom executives did not start out with the intentions of “perpetrating the largest accounting fraud in U .S. history,” (All Business, n.d., para. 1) however, the pressures of maintaining the consistent cash flow proved to be the downfall of the CEO of World Com, Bernie Ebbers, according to All Business (n.d.), “these pressures resulted with Ebbers and other WorldCom executives to engage in unethical and fraudulent behavior,” (para. 9). In order to keep the earnings before interest, depreciation, taxes and amortization (EBIDTA) at the level it had been over the recent years the executives at WorldCom engaged in creative accounting. The executives at WorldCom conspired to move expenses from the income statement to the balance sheet and label them as pre-paid assets. WorldCom financial statements claimed to have more assets on account, and less expenses then what they had. Not only did the executives falsify the financial statements, Arthur Anderson did not ask “tough questions of WorldCom's top executives or continuing to demand access to company records, Andersen shrugged its shoulders and acquiesced to a client that paid the firm more than $40 million in auditing and consulting fees in a three-year span,” (CNN Money, 2005). Organizational Behavior Theories Groupthink is one of the behavioral theories that fit the WorldCom scenario involving so many people from the top ranking executives, to the accountants making the entries with no backup, to the outside accounting firm signing off on the integrity of WorldCom’s financial statements. According to Robbins and Judge (2011), groupthink “describes situations in which group pressures for conformity deter the group from critically appraising unusual, minority, or unpopular views,” (p. 296). Groupthink explains why no one would blow the whistle when they realized that what was being done was wrong. “Cohesive groupthink organizations build an aura of invulnerability amongst their members,” (All Business, n.d.). Employees of WorldCom, who understood that the financial statements were inaccurate, or misleading, would have felt their position at the company would be in jeopardy if they went against the collective group. Members of the groupthink mentality may rationalize the behavior of the group, or may even doubt their own knowledge when they are in the minority of a group of respected professionals. Contributing to the Failure Beyond the groupthink mentality and the pressure to perform to a level that was not attainable, the feeling of invulnerability contributes to the overall failure of WorldCom. Once the CEO Bernie Ebbers found that the fraudulent behavior was not being questioned, the illegal and unethical behavior continued. According to All Business (n.d.), “when efforts were being made to establish a corporate Code of Conduct, Ebbers reportedly described the effort as a “colossal waste of time”,” (para. 18). Conclusion When leaders and management lack a moral compass the ethical line becomes difficult for employees to follow. All companies, especially publicly traded companies, owe it to all the stakeholders to behave in an ethical manner. The arrogant behavior of all the executives at WorldCom and Arthur Andersen involved in the WorldCom fraud lost more than money. The public trust in companies, and the accounting profession was tarnished. Even though the people associated have been held accountable, many people lost jobs because of fraud, greed, and groupthink compliance. References: All Business. (n.d.). Understanding WorldCom's accounting fraud: did groupthink play a role' Source: http://www.allbusiness.com/accounting-reporting/fraud/417988-1.html#ixzz1kzguGkDC. Retrieved from http://www.allbusiness.com/accounting-reporting/fraud/417988-1.html CNN Money. (2005). Arthur Andersen class action suit begins. Retrieved from http://money.cnn.com/2005/03/29/news/fortune500/worldcom_andersen.dj/ CNN Money. (2002). WorldCom scandal one of many. Retrieved from http://The paper includes research about a failure within a large organization Robbins, S. P., & Judge, T. A. (2011). Organizational Behavior (14th ed.). Retrieved from The University of Phoenix eBook Collection database.