Corporate governance - Essay Example

The Fraud was first discovered when its budget and financial Analyst Kim Emigh blew the whistle in December of 2000 when he asked engineers in Richardson, Texas unit and elsewhere to stop charging their time for long term projects to capital expenditures (Young 2002). It was also when he told his accounting manager Frank Guckes after receiving an email to charge it to another account that it is fraud and that it is a SEC violation that he should make everybody aware of it because Kim Emigh will (Young 2002).

Ten weeks later, Kim Emigh was fired which prompted him to sue WorldCom leading to a congressional and SEC inquiry which eventually led to WorldCom’s filing for Chapter 11 bankruptcy protection in July 21, 2002. Later, its CEO Bernard Ebbers was found guilty on March 15, 2005 and was sentenced to 25 years in prison. WorldCom’s other officials such as its CFO Scott Sullivan, former controller David Myers, former accounting director Buford Yates and former accounting managers Betty Vinson and Troy Normand all plead guilty to fraud, conspiracy and filing of false statements. II. Crisis as a pretext of WorldCom corporate governance failure The WorldCom financial scandal came about from the backdrop of several crises that put pressure on the liquidity of the company that may have triggered its shady accounting practice.

Beginning in late 1990s, the telecom industry was already beginning slow down and the Argentinian bank crisis in 2001 prompted bank to adopt a conservative fiscal policy by increasing its interest rates. This has affected the dotcom companies whose rapid appreciation in the market was propelled mainly by cheap capital afforded by lower interest rates. When the dotcom bubble burst, it contributed to the slowdown of the telecoms industry of which WorldCom is a player. The increasing conservatism of banks led them to pressure WorldCom CEO Bernard Ebbers to cover margin calls of his declining WorldCom stock because it was used to finance his other businesses.

In 2001, Ebbers urged the board of WorldCom to provide him $400 to cover these margin calls whose strategy did not work. This added pressure to the finances of the company to resort to shady accounting practices to cover its deteriorating financial position and save the value of its stocks so as not to add to the margin calls it has to cover. III. Corporate government failures of WorldCom WorldCom’s problem started when its CEO Bernard Ebbers used WorldCom stocks to guarantee his loan from banks that will finance his other businesses.

As a business practice, it is not ideal to juggle funds between companies because they do not only confuse the accounting of both companies but also brings other financial complications not to mention unethical such as what happened to WorldCom. When the series of crisis begun in late 1990’s which was triggered by a multitude of factors such as bank crisis, dotcom burst and Enron scandal, its stocks depreciated because of industry slowdown that can be attributed to the dire macroeconomic condition during that time and the inappropriateness of juggling its funds by Bernard Ebbers was highlighted and sired many problems in the company.

This also put pressure on the finances of WorldCom that instead of restructuring itself as part of good corporate governa