Responsibilities that Impacts WorldCom - Essay Example

WorldCom Table of Contents I. Short Introduction ……………………………………………………… 3 II. Responsibilities that Impacts WorldCom ………………...……………. 3 a. LegalResponsibility ………………………………………………. 4 b. Ethical Responsibility ……………………………………………… 5 c. Social Responsibility ………………………………………………. 6 III. Three Factors that impacts the company’s contingency plan, tactical, Operation, and strategy ………………………………………………… 7 References ……………………………………………………………………… 8 Short Introduction Long Distance Discount Services, Inc. (LDDS) started its operations back in 1983. The company went public 7 years later. When the company merged with Advantage Companies, Inc, the company’s name became LDDS WorldCom in 1995. In April 14, 2003, the name of the company was finally changed into WorldCom. 1 A lot of companies were bought by WorldCom in the past. The companies that were merged with WorldCom were Advanced Communications Corp. (1992), Metromedia Communication Corp. (1993), Reurgens Communications Group (1993), IDB Communications Group, Inc. (1994), Williams Technology Group, Inc. (1995), and MFS Communications Company (1996). WorldCom also acquired the mother company of Digex – the Intermedia Communications and sold all of its intermedia’s non-Digex assets to Allegiance Telecom. Until 2003, WorldCom was considered a telecom giant and second largest long distance provider in the U.S. Responsibilities that Impacts WorldCom 2 A one-time high flyer like WorldCom should be held legally, ethically and socially responsible for having entered into a lot of business contracts with its customers and suppliers. WorldCom should be responsible for its intensive mergers and failure to use the public funds (coming from public shareholders) carefully. It remains questionable for a huge company that has been consistently greedy in entering into mergers with other similar companies to suddenly file a bankruptcy last July 2002. As of 2005, WorldCom is still facing some court trials regarding this matter. Legal Responsibility It is the legal responsibility of WorldCom’s employers to ensure that the company directors operate within the society’s accepted laws and regulations. It is their legal responsibility to register and communicate with the shareholders and ensure them that dividends are paid on time. Top management should also monitor on the company’s financial statement. WorldCom is facing huge financial and legal problems. The company is considered to have defrauded its investors by overstating the company’s earnings up to nearly $10 billion wherein the top management of the WorldCom also gain some profits from their own criminal acts. WorldCom has to be held responsible for taking investors’ money in excess of $176 billion and causing WorldCom’s employees, the state pension funds and shareholders through the lost of jobs, worthless stocks, and losses of 401 (k) savings. 2 The act of overstating of the company’s earning is clearly a criminal act and it is punishable by law. One way or another, someone has to be held responsible for such unprofessional way of doing business.  The impact of legal responsibility of WorldCom on its management planning: It appears like WorldCom is using a bankruptcy protection to avoid paying its creditors, vendors, and suppliers. Without the government penalty or fine, the company could be rewarded for its fraudulent actions – emerging from bankruptcy with an advantage over its competitors, reduced or eliminated debt, and fewer employees. In the absence of filling bankruptcy, the company especially the management and the Board of Directors will be legally held responsible with multiple criminal act against its investors and employees. The easiest way out of an endless legal demands and legal notice is to give up the company by filing a bankruptcy. Ethical Responsibility Business ethics includes avoiding impossible promises and guarantees which are not achievable and accounting staff should reinforce the highest possible reporting and accounting standards and expectations.4 WorldCom is ethically responsible for suddenly filing of a bankruptcy last July 2002. The company should be held ethically responsible for intentionally overstating the company’s earnings up to nearly $10 billion. Speaking of business ethics, a company should always reflect a true financial statement. Any alteration on the accounting figures is considered as fraudulent and is unethical and misleading in the business context.  The impact of ethical responsibility of WorldCom on its management planning: Business ethics in WorldCom is weak that it causes a great impact to many people dealing with WorldCom. These people have suffered from the way WorldCom was running its business. It is clear that the WorldCom management team – particularly the people behind the company is looking only after their own financial gains at the expense of the company’s suppliers, investors, customers, and employees. Based on the ethical business standards, the leader of the company must be responsible for competence, facts and for telling the truth. However, during a court case with Manhattan courtroom with Bernard Ebbers the WorldCom’s former CEO, all the ethical qualities of a leader does not seem to reflect on Mr. Ebbers. He continuously tells a lie in order convince the jury that he has no idea on what is happening with the company. For example: He told the judge that ‘he is not familiar with the technology behind telephone companies and that he does not know anything about finance and accounting.’3 This statement is truly unbelievable and is way below the ethical standards of not telling a lie. Aside from the court care the CEO and other top management officials are facing, the fact that the company was producing a false accounting / financial statement is already considered as unethical or bad business practice. Social Responsibility Social responsibility includes openness and providing a clear dialogue with the stakeholders to ensure a sustainable business and protecting the right of its stakeholders all the time.6 Stakeholders includes any person that has a direct business relationship with the company including the employees, shareholders, customers, suppliers, investors, rating agencies, NGOs and the local communities. The company has to be socially responsible for causing hundreds of people to suddenly lose jobs without notice. The sudden cutting of job opportunity for its employees had caused a lot of financial and emotional security. To think that the 401 (k) savings of these people will remain uncollected and is considered as lost money. Prior to the closure of WorldCom, the total number of state workers in Indiana is around 241,925 employees which has lost a total $66 million in pension fund value. The effect of the WorldCom’s bankruptcy filing caused huge losses in employees’ pension funds – from $351,000 in North Dakota to $1.2 billion in California.2 The sudden closure of WorldCom causes the demand shock for long distance telephone companies. In order that the supply meets the demand for phone calls services between the years 2002 - 2003, the prices of telephone plans have risen between $11 and $23 per month. This issue even added burden to the WorldCom’s stakeholders. The company is also socially responsible for not being open to its stakeholders regarding the performance status of the company. As a company that goes into public, it is a standard operating procedure to declare the actual financial status of the business. WorldCom fails to do this part, instead, they have intentionally altered the company’s financial statement in such a way that they over valued the company’s earnings/profits.7  The impact of social responsibility of WorldCom on its management planning: The inability of WorldCom to protect the right of its stakeholders has caused a lot of mental, emotional and financial suffering to many people. It is clear that the company failed to have a good corporate social responsibility (CSR). In case the top management invested a part of its time and effort in developing a strong CSR within its employees, the gap between employees’ expectations could have been resolved. The huge social responsibility of WorldCom to its employees is one of the major factor which triggered the company’s board of directors to simply file a bankruptcy last 2002. Three Factors that impacts the company’s contingency plan, tactical, operations and strategy: The three main factors which has made WorldCom decide to file a bankruptcy is due to its ballooning corporate debts of around $41B 8; to stop the bleeding in the company’s financial statement by simply accepting the fact the they have lost the business; and to avoid external pressure such as legal demands coming from the creditors, vendors, and suppliers. WorldCom is reported to be the largest company that files the biggest corporate debt of $41 billion. By filing a ‘bankruptcy’, the company could have the reason to stop paying its creditors, vendors, and suppliers for sometime. The company is actually unloading some of its burden from running a business with huge debts. *** End *** References: 1 Wikipedia (2007) ‘MCI, Inc.’ Retrieved: March 26, 2007 < http://en.wikipedia.org/wiki/WorldCom > 2 UCC (2003) ‘Office of Communication of the United Church of Christ, Inc.: An Examination of the Impact of the WorldCom Bankruptcy on the State of Indiana’ March 2003 Retrieved: March 26, 2007 < http://www.ucc.org/ocinc/files/in-rep.pdf > 3 Kidder, R. (2005) ‘WorldCom Ethics: Why the ‘Aw, Shucks’ Defense if Morally Indefensible’ Institute for Global Ethics – Ethics News line. March 7, 2005. volume 8, no. 9. Retrieved: March 26, 2007 < http://www.globalethics.org/newsline/members/issue.tmpl?articleid=0307051742 1372 > 5 BBB (2002) ‘Business Ethics Tips’ Better Business Bureau Retrieved: March 26, 2007 < http://www.bbb.org/BizEthics/tips.asp > 6 Russo, P. (2007) ‘Corporate Social Responsibility’ Alcatel-Lucent Retrieved: March 26, 2007 < http://www.lucent.com/wps/portal/social > 7 Dawn (2002) ‘WorldCom: Debt-for –Equity Deal’ Retrieved: March 26, 2007 < http://www.dawn.com/2002/07/06/ebr8.htm > 8 Beltran, L. (2002) ‘WorldCom Files Largest Bankruptcy Ever’ Retrieved: March 26, 2007 < http://money.cnn.com/2002/07/19/news/worldcom_bankruptcy/ > Read More