World Com / Ebbers Ethics Violations Essay

Bernie Ebbers should have gone to jail. I disagree with the 25 year length of his sentence but he is at least partially to blame for the WorldCom fiasco. I think the government used the length of the sentence to prove a point and the only prior sentence comparable to this was John J. Rigas from Adelphia Communications earlier in the year . I think the CFO Scott Sullivan got a light sentence and consciously knew what he was doing and could have put a stop to it. He should have been the good advisor telling Ebbers not to proceed with this fraud.

Ebbers probably could not have figured out how to produce this type of fraud without financial experts doing the dirty work. Even if Ebbers was the one telling his accountants to cook the books, his accountants and the auditors should have put a stop to it. There were too many people that knew what was going on. Somebody should have said this is not right and I could not live with myself if I did this. In my searches of information, I tried to find reasoning to why Ebbers should not have gone to jail.

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As much as I looked and thought I had an avenue to say he should not, I kept coming back to the one topic I could not find in any of my readings. That topic is to know your people (the people that work directly for Ebbers). That reason alone I think Ebbers should have gone to prison. People at the level just under the CEO are direct representatives to him. Ebber’s main source for information on what is going on in the company comes from these people. He may not be the expert on financial statements. He hired people that are the experts and can explain the information in a way he could understand.

I could never fathom the amount of information he would have to keep track of running a company the size of WorldCom. All I know is it could be overwhelming. All the more reason he should know his executives that much more. Someone that becomes CEO of a large corporation does not get there without a good support system—people. Also, Ebbers obviously set the tone that it was ethically right to cook the books. Whether he told them to or not, he set the standards it was ethically alright. If he set the standards of a moral corporation, then I doubt this would have happened in the first place.

I bet the former company WorldCom, now MCI, now Verizon has an Ethics officer and ethical standards. So this brings us Ebbers lack of ethics. First off, he used the company as his personal bank account. He made bad investment decisions putting him in a dire situation—the ethical egoist. He bought enormous quantities of stock on margin forcing him to take out a personal loan from WorldCom in the amount of 408 million dollars . Ethically is this loan wrong? I would argue no. I think his arrogance/ego got in the way, thinking the stock would recover and pay off this debt. Living beyond your means, ethically is wrong.

It may maximize an individual’s happiness for a period of time, but it affects many others, not just the money lenders but society with higher interest rates and taxes. Why even bring up this small loan in comparison to the massive 79. 5 billion dollar fraud case? Making major decisions ethically are easier when individuals live by ethical standards on the small everyday decisions. Ebbers got in a bind and found a way to get out without thinking of the consequences, because ethical decisions build on each other. A person doesn’t go out one day and decide from now on I am going to be unethical.

I think this was a stepping stone for things to come. Most of his decisions were based on one topic, the bottom line. The CEO maximizes the bottom line then all the share holders are happy–maximum utility. Should the board of director and shareholders be suspicious of some of the activities? Looking back, there were indicators such as grossly overestimated and unrealistic growth projections. Some of these growth rates and expectations were just astronomical (laying 2200 miles of cable an hour). Suspicious acquisitions above and beyond what the company could maintain or manage.

Then again hindsight is always 20/20. One of the two articles that I found the most interesting was Why CEO’s and Companies Break the Law by Ed Felton . This article argues that greed is not the motivator to break the law, it is pride. Ebbers built this company and proved to be a great success story. He would do anything to keep this company and the status. There is a lot of power to know you are providing for thousands through jobs and a product easily recognized on the marketplace. That has to be an enormous amount of pressure, especially when things are not going well.

This article also mentions the firing of CEO Mike Armstrong of AT&T for being ethical and not keeping pace with the unethical companies. My second favorite article had to be Professional Ethics: Does it Matter Which Hat We Wear? By John Hooker . This justifies why I think Ebbers is guilty. This article mentions a lot of good points that different professions may see things differently ethically and depending on your position in a company or line of work all ethical decisions are necessarily the same. The CEO acts on behalf of the stockholders and promises to act on their behalf.

Stockholders have one objective and that is to raise the stock price. Now Ebbers may not have fully understood financial reports and was not aware of what was going on, but it was his professional obligation to know this information. Ebbers had a contractual right to know what was going on in “his” company as CEO to the employees and representative to the shareholders. This does not excuse the abuse of civil rights to satisfy the people he represents. He also took away the peoples positive rights–job security, retirement funds and medical benefits.

Job security is with the understanding that a job is a privilege and not a right. Losing a job due to gross mismanagement by a CEO would be a violation of a positive right. Researching this topic, there has been a lot of emphasis on Ethics since this case and the fraud cases following it. It is by no means a new topic. At the library I found plenty of books that focused on Business Ethics published before well before 2000. Simple books like the Power of Ethical Management by Blanchard would have made the Ebbers and Sullivan’s decisions much easier on what was the right thing to do.

In the introduction to the Corporate Fraud Handbook by JT Wells, it mentions Cressey’s “Fraud Triangle” and Albrecht’s “Fraud Scale” analyzing why people commit fraud (both were models written well before the WorldCom fraud case). Albrecht listed nine motivators to commit fraud and it would be interesting to analyze this case more and see how many of these fit Ebbers. In a way, we should be glad this happened just so we can get corporate priorities straight. Overall, did Ebbers realize what he was doing? I find it hard for him not knowing something fishy was going on. In fact, it really doesn’t matter.

Society wants one person to blame—the scapegoat. We, society, want one person to say it was their fault. Probably why Sullivan got such a light prison sentence and Ebbers took the fall for everything. Thousands of people were affected by this gross bankruptcy. Considering his background, Ebbers probably never had a formal course in ethics. Even so, I am sure he knows the difference between right and wrong. Deceit, even if it is in the best interest of the thousands of people working for him and the shareholders, is still wrong. Isn’t the road to hell paved with good intentions?

In the long run, WorldCom maximized the pain and suffering of those same people plus the ones that had to clean up the mess. It also caused a downfall in the Telecom industry as a whole which still has not fully recovered. I guarantee Ebbers never thought this deceit would ever have the consequences it did. I doubt it would have changed his decision on what happened even if he knew the risk going into it. I think the pressures to keep the status quo and the notoriety meant too much to him as a person. That is something I could not know without knowing him as a person.


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