Compromising Financial Arrangements in Worldcom and Other Corporations

1272 Words3 Pages
bulb-icon

Recommended: Strategic management decisions

Compromising Financial Arrangements - Personal financial troubles drove the need for success as well as financial gratuities: Bernie Ebbers had obtained multiple loans to support other personal business ventures. He was in financial trouble and was not able to cover margin calls on his WorldCom stocks. He eventually persuaded the board to provide him with corporate loans. To drive loyalty, Bernie Ebbers in turn provided loans to the COO, Ron Beaumont. The CFO, Scott Sullivan also provided personal checks (bonus) to key managers involved in fraudulent accounting activities.

Business Environment - Sudden downturn in industry and incorrect company strategy: By the year 2000, WorldCom was facing a consumer price war with an overcapacity of bandwidth coverage. The rise in mobile usage was another factor that the company neglected to foresee . Failure of the dotcoms industry in 2000 and the expectation for the company to perform based on the Stluka's model for exponential growth were all pressures the company faced.

Limited Regulations and industry demand
SEC, at the time of the event, lacked the means and resources to prosecute individuals to hold them accountable for the actions of those directly responsible for violating requirements. Previously, company insurances would cover any liability and it was rather unusual to go after personal assets. Company transactions were not transparent prior to the SOx Act and no legislation addressed corporate Ethics. The industry had not dealt with major corporations intentionally falsifying accounting records in the billions of dollars.

Inadequate check and balance - Normal internal and external audits were insufficiently in identifying compliance. The Internal Audit is usually the first l...

... middle of paper ...

...hat high ranking officials be held accountable for criminal offenses.
Based on the contributing factors and catalyst in the "Problem Statement" section, few companies have the ability and foresight to address changes in the Business Environment. Though having a good strategy does enable companies to prepare and possibly brace for changes, our goal is to prevent similar reoccurrences from impacting the industry as opposed to a single company. With the many facets of interpreting "good" strategies, it would probably be more beneficial to evaluate other contributing factors before attempting to predict the ever changing climate of the business environment.
Further modifying and prescribing detail black and white boundaries for GAAP may not necessarily work since it will help define limits for extending accounting principles. "Aggressive accounting" is not illegal .

Show More
Related

  • The Lehman Brothers Case

    744 Words  | 2 Pages

    The company was taking the big risks of financial. Due to the firm was started winding down after collapse of the Bear Stearns hedge fund. The firm also had accumulated a very large commercial real estate portfolio. The CEO of the firm believed that it had sufficient funds to tackle the problems after borrow money from the federal reserved investment.

    Read More

  • The Enron Disgrace

    2858 Words  | 6 Pages

    The Fastows headed to Mrs. Fastow's native Houston in 1990, both taking jobs at a young company called Enron. Just five years old, Enron was starting to evolve from a natural-gas and pipeline company into a trading firm. Mr. Fastow was one of the first managers hired by Mr. [Jeffrey Skilling], who himself had only recently arrived, from management consultants McKinsey & Co. Brought into Mr. Skilling's inner circle, Mr. Fastow returned the loyalty, telling colleagues he had named a child after his mentor. When Mr. Skilling became Enron's president and chief operating officer in early 1997, he and Mr. [Kenneth Lay] promoted Mr. Fastow to lead a new finance department. A year later, Mr. Fastow became chief financial officer.

    Read More

  • The Corporate Culture In Enron's Case

    436 Words  | 1 Pages

    The CFO, Andrew Fastow, systematically falsified there earnings by moving company losses off book and only reporting earnings, which led to Enron’s bankruptcy. Any safeguards or mechanisms that were in place to catch unethical behavior were thrown out the window when the corporate culture became a situation where every person was looking out for their own best interests. There were a select few employees that tried to get in front of the unethical accounting practices, but they were pushed aside and silenced. The corporate culture at Enron became a place where if an employee would not make unethical decisions then they would be terminated and the next person that would make those unethical decisions would replace them. Enron executives had no conscience or they would have cared for the people they ended up hurting. At one time, Enron probably was a growing company that had potential to make a difference, but because their lack of social responsibility and their excessive greed the company became known for the negative affects it had on society rather than the potential positive ones it could have had. Enron’s coercive power created fear amongst the employees, which created a corporate culture that drove everyone to make unethical decisions and eventually led to the downfall and bankruptcy of

    Read More

  • Enron Unethical Case Study

    1476 Words  | 3 Pages

    This did not last long because just a quickly as they rose so did they fall. Within a year their stocks were down to little of nothing, and their name was not one someone wanted to be associated with. The downward spiral can be contributed to the organization culture and improper checks and balances.

    Read More

  • Analysis Of Starbucks

    859 Words  | 2 Pages

    ...ell known saying. To be successful; organizations have to make adjustments and adapt to our ever changing society. Change, planned or unplanned is inevitable. Nature of the workforce is change that occurs when the dynamics of the workforce are shifted, such as jobs being outsourced, immigration, gender, cultural and age differences. Technology has changed standard operating procedures for all organizations because of the opportunities that technology creates. Economic shocks have occurred due to the economy. Competitors are more abundant for organizations now because products can be purchased worldwide and cheaper, so a company always has to be aware of what separates them from the rest. Management will have to be educated on the newest tools and techniques used to easily identify and analyze the organizations Strengths, Weakness, Opportunities, and Threats, (SWOT).

    Read More

  • Organisations That Fail to Plan are Planning to Fail

    1624 Words  | 4 Pages

    The contemporary business environment is dynamic, ever-changing and increasingly competitive. Their is potential for success, but even more for failure. Businesses are heavily influenced by the changing organisational environment and this intern creates much uncertainty for managers and organisations. With increasing uncertainty in the external environment, the more important it is that managers engage in continual planning. (Robbins 2012 p. 32) Businesses must be flexible and evolve in accordance with their external environment.

    Read More

  • Levels Of Planning

    1709 Words  | 4 Pages

    Environment is another significant factor that affects the strategic plan. When a major environmental disaster occurs, such as a hurricane, it can affect a company’s production facilities, their sales facilities and the community that the company serves.

    Read More

  • Walgreens Strategic Management

    923 Words  | 2 Pages

    Along with the rapid development of economy and society, the companies have to own skills to adapt, cater, and transfer new knowledge, and try to modify their activities to reflect insights. Strategic management evolves

    Read More

  • Case Analysis Of Hollate Manufacturing

    721 Words  | 2 Pages

    The oversight responsibilities of the board, the CAE lacking of expertise or broad understanding of financial controls and responsibilities, and the understaffed internal audit functions lacking of independence and direct access to the board of directors contributed to the absence of internal controls. To begin with, the board should be retrained to achieve financial literacy to review financial reporting. Other than attending formal meetings, the board of directors should be more involved with the management. For the Audit Committee, the two members who were recruited as acquaintances to Brennahan need be replaced with experts who are more sufficiently knowledgeable about accounting rules beyond merely “financially literate”. Furthermore, the internal audit functions need to expand with different expertise commensurate with the expanded activities of the organization, testing financial reporting rather than internal controls from an operational perspective. The CAE should be more independent and proactive to execute audit plans, instead of following orders from the CFO, and initiate a direct and efficient communication between internal audit and audit

    Read More

  • Corporate Accounting Fraud

    1084 Words  | 3 Pages

    Embezzlement of money from a company can understate cash and show a false picture to the creditors and investors. This can lead them to make decisions on misrepresented information. Another example of misappropriation of assets was of a hedge-fund manager, Philip A. Falcone who borrowed $113.2 million from investors from a hedge fund company (Harbinger Capital) and he used that money fraudulently to pay off his personal taxes. Instead of using the investor’s money for the intended purpose, which was to build a wireless phone network, he deceived them by using the money without their knowledge to pay off his taxes. The company had to file for bankruptcy as it had $23 billion in losses and withdrawals and it could not pay back The company concealed huge debts off its balance sheet, which resulted in overstating earnings.

    Read More

  • Incremental Change Case Study

    1434 Words  | 3 Pages

    In the nutshell, changes in business environment are unforeseeable. It is common that sometimes company’s activity shall change to continues sustainable in the open market. Some company may threat of downsizing, bankruptcy or changing business model due to unfavorably change of business environment. Thus, it is important to manage change of business environment, which involved internal and external forces of change that contribute to incremental changes and transformation quantum changes in the organisation.

    Read More

  • An Overview of Business Strategies

    2251 Words  | 5 Pages

    ...lopment industry as well as the strengths and weaknesses within the company. The Business Strategy should reflect the main issues that determine the long-term

    Read More

  • The History of Auditing

    3399 Words  | 7 Pages

    Auditing has been the backbone of the complicated business world and has always changed with the times. As the business world grew strong, auditors’ roles grew more important. The auditors’ job became more difficult as the accounting principles changed. It also became easier with the use of internal controls, which introduced the need for testing, not a complete audit. Scandals and stock market crashes made auditors aware of deficiencies in auditing, and the auditing community was always quick to fix those deficiencies. Computers played an important role of changing the way audits were performed and also brought along some difficulties.

    Read More

  • How to Prevent Fraud

    982 Words  | 2 Pages

    Overall, the company is having ineffective controls regarding different departments and in the whole organization. An effective internal audit department should be established within the organization which should test the effectiveness of these controls on regular basis and make it sure that all controls are working effectively and efficiently with the different departments of the organization. Also the Internal auditor should implement the most effective processes and measures to prevent and detect the fraud, corruption and non compliance with the laws and regulations in the organization. Establishment of internal audit committee would be helpful in this regard which comprises of executive and non executive directors.

    Read More

  • The Importance Of Strategic Management

    3201 Words  | 7 Pages

    It is only after a firm overcomes its competitors that it can achieve its goals and objectives, especially with regard to its returns. Through strategic scaffolding, an organization is able to construct and reconstruct its strategies with the emerging trends within the industry. This can be prompted by unavoidable changes such as technological revolution and globalization, new entrants among other forces. Therefore, these new factors should not lure the organization into changing the goals, but on the contrary, should slightly change the way to reach the goals. Most organizations are unable to create a long-term strategy that would last over five years, and over that period, the new forces it to change the course to reach the same destination.

    Read More

More about Compromising Financial Arrangements in Worldcom and Other Corporations

Open Document