Figure 10.11
You could argue that Bernard Ebbers, of the now defunct
WorldCom, was one of the biggest conflict avoiders in corporate
history. As CEO, Ebbers avoided internal company conflict at all
costs, and he ultimately avoided the reality that WorldCom, once
the dominant company in the telecommunications industry, was in
serious economic trouble. Notorious for his temper, employees were
reluctant to present Ebbers with company information that he didn’t
like. A 2002 Economist article describes
Ebbers as “parochial, stubborn, preoccupied with
penny-pinching.…Mr. Ebbers was a difficult man to work for.” Under
Ebbers, WorldCom’s $9 billion accounting fraud grew in order to
avoid facing its worsening economic reality.
WorldCom’s roots stem from a Mississippi telecom company called
LDDS where Ebbers was CEO. Growing to over 80,000 employees through
multiple acquisitions of other telecom businesses, WorldCom became
the overwhelming industry leader. However, many of WorldCom’s
executives had worked with Ebbers since his start as CEO 2 decades
before. Ebbers, who was regularly seen in cowboy boots and a
10-gallon hat, led his close-knit staff in a “shoot from the hip”
style. He was resistant to new technology and famously refused to
use e-mail to communicate with his employees. A well-known company
mantra was “That’s the way we did it at LDDS.” Ebbers lead WorldCom
through over 60 acquisitions over a period of 15 years. He grew
annual revenues from $1 million in 1984 to over $17 billion in
1998. However, Ebbers had little regard for long-term plans and
avoided making larger strategic decisions as his company
accumulated increasing debt.
As WorldCom acquired new companies, its accounting procedures,
computer systems, and customer service issues became increasingly
more complex, and industry experts note that WorldCom struggled to
keep up with the growth. Company employees who tried to bring
initial problems to Ebbers’s attention were discouraged, and Ebbers
made it clear he only wanted to hear good news. This avoidance of
problems created a company culture that demanded success at all
costs. That ultimately included falsifying financial reports. For
example, former employees admitted to registering “rolling revenue”
to inflate earnings, recording a single sale multiple times.
Another 2002 Economist article reports
that this and other dishonest techniques were “endemic in the sales
hierarchy of WorldCom.…Increasing reported revenues came above all
else.”
Despite efforts to inflate the books, WorldCom’s stock prices
dramatically declined, and Ebbers left the company in 2002 after
pressure from WorldCom’s board of directors. What came to light
after his departure, however, highlighted the significant problems
he avoided confronting. Under new CEO John Sidgmore, internal
auditor Cynthia Cooper uncovered multiple instances of financial
dishonesty and illegal activity overseen by CFO Scott Sullivan, a
close confidant of Ebbers. A 2002 Wall Street
Journal article reports, “As she pursued the trail of fraud,
Ms. Cooper time and again was obstructed by fellow employees, some
of whom disapproved of WorldCom’s accounting methods but were
unwilling to contradict their bosses or thwart the company’s
goals.”
Ultimately Cooper’s investigation revealed the fraud that took
place under Sullivan and Ebbers. Sullivan later admitted to having
booked $3.8 billion of costs as capital expenditures and that five
quarters’ worth of profits should have been recorded as losses.
Ebbers’s refusal to honestly face the harsh economic truth for
WorldCom was ultimately highlighted to be a source of WorldCom’s
financial problems. In 2005, he was found guilty of fraud,
conspiracy, and filing false documentation. WorldCom was purchased
for $7.6 billion and subsequently integrated into Verizon (NYSE:
VE) in 2006, and Ebbers began serving a 25-year jail sentence in
2005.
Based on information from Markham, J. W. (2006). A financial history of modern U.S. corporate scandals:
From Enron to reform. New York: M. E. Sharpe Inc.; Pulliam,
S., & Solomon, D. (2002, October 30). Uncooking the books.
Wall Street Journal, Eastern edition.
Retrieved April 4, 2010, from http://proquest.umi.com.proxy.lib.pdx.edu/pqdweb?RQT=318&pmid=7510&TS=1270430724&clientId=11319&
VInst=PROD&VName=PQD&VType=PQD; The big lie: Inside the
rise and fraud of WorldCom. (2005). CNBC.
Retrieved April 4, 2010, from
www.hulu.com/watch/46528/cnbc...lie#s-p9-so-i0; When something is
rotten: The best defence against “infectious greed” is a healthy
corporate culture. (2002, July 25). Economist. Retrieved April 4, 2010, from http://www.economist.com; Yesterday’s man: WorldCom’s
Bernie Ebbers typified the lionised chief executive. Now he is an
ex-lion. (2002, May 2). Economist.
Retrieved April 4, 2010, from http://www.economist.com.
Discussion Questions
- What potential causes of conflict existed at WorldCom during
Bernard Ebbers’ administration?
- What might have happened if Ebbers had been prone to a
different conflict-handling style, such as compromise or
collaboration?
- How did having a small “inner circle” of leadership affect the
corporate culture at WorldCom?
- If you were Cynthia Cooper, how might you have dealt with being
ignored? What options did Cooper have to deal with the company
conflict?
- What responsibility did the board of directors have to detect
and confront the problems at WorldCom?