Ebbers Behind Bars
In 2005, Bernard Ebbers, former CEO of WorldCom, was sentenced to twenty five years in jail in a very controversial ruling. There are many reasons in the World Com case that made sending Bernard Ebbers to jail the right thing to do. As a CEO of WorldCom, Mr. Ebbers had many obligations in order to run the company successfully; some of those obligations he fell far short on. The major one was not realizing when he was in too deep; instead of managing each of the new assets, he obtained he got greedy and kept buying and buying and overlooked many of the details.
“WorldCom is just another case of failed corporate governance, accounting abuses, and outright greed… With 65 acquisitions in six years and several of them large ones, WorldCom management had a great deal on their plate” (Moberg & Romar 1). MCI is just one of many of the companies that WorldCom bought and mismanaged. WorldCom got in over their heads when they kept buying up company after company. I think that WorldCom could have saved itself if it took some time after each merger to manage and integrate their new assets instead of continually looking to buy more. “For all its talent in buying competitors, the company was not up to the task of merging them. Dozens of conflicting computer systems remained, local systems were repetitive and failed to work together properly, and billing systems were not coordinated” (Moberg & Romar 1).
The big question that needs to be answered is if Bernard Ebbers deserved the fate that he received. Many of the articles that I read talked about the harshness of his sentence. The argument from many is that he received more prison time then someone who commits first degree murder. Even if Mr. Ebbers was not malicious in his dealings with the shareholders of his company, the company’s fall did ruin the lives of hundreds of people. Mr. Ebbers had a contractual obligation to the shareholders of his company, and he let them down. “In June 1999 with WorldCom's shares trading at $64, he was a billionaire, and WorldCom was the darling of the New Economy. By early May of 2002, Ebbers resigned his post as CEO, declaring that he was "1,000 percent convinced in my heart that this is a temporary thing." Two months later, in spite of Bernie's unflagging optimism, WorldCom declared itself the largest bankruptcy in American history” (Moberg & Romar 1). “ This is another case of corporate coziness costing investors billions of dollars and raising troubling questions about the integrity of the information investors receive”(Moberg & Romar 7). Publically traded corporations have a contractual responsibility to make sure that their investors are getting reliable information and WorldCom was intentionally giving investors bad information.
There were other top executives and managers that had a better idea of what was going on then Ebbers, but did not try to solve the problems that were eventually going to bring WorldCom down. Bernard Ebbers was too trusting in his top managers and they hung him out to dry. The following are a couple of examples of the problems that were going on under Ebbers.
Regarding financial reporting, WorldCom used a liberal interpretation of accounting rules when preparing financial statements. In an effort to make it appear that profits were increasing, WorldCom would write down in one quarter millions of dollars in assets it acquired while, at the same time, it "included in this charge against earnings the cost of company expenses expected in the future. The result was bigger losses in the current quarter but smaller ones in future quarters, so that its profit picture would seem to be improving." The acquisition of MCI gave WorldCom another accounting opportunity. While reducing the book value of some MCI assets by several billion dollars, the company increased the value of "good will," that is, intangible assets-a brand name, for example-by the same amount. This enabled WorldCom each year to charge a smaller amount against earnings by spreading these large expenses over decades rather than years. The net result was WorldCom's ability to cut annual expenses, acknowledge all MCI revenue and boost profits from the acquisition.” (Moberg & Romar 3).
“WorldCom managers also tweaked their assumptions about accounts receivables, the amount of money customers owe the company. For a considerable time period, management chose to ignore credit department lists of customers who had not paid their bills and were unlikely to do so… In July 2002, WorldCom filed for bankruptcy protection after several disclosures regarding accounting irregularities. Among them was the admission of improperly accounting for operating expenses as capital expenses in violation of generally accepted accounting practices (GAAP). WorldCom has admitted to a $9 billion adjustment for the period from 1999 through the first quarter of 2002” (Moberg & Romar 4). Ebbers had no choice but to resign as CEO in May 2002 because of the lack of management that he let continue. “On March 15, 2005, Ebbers was found guilty of all charges and on July 13th of that year, sentenced to twenty-five years in prison, which was possibly a life sentence for the 63-year-old. He was expected to report to a federal prison on October 12th, but remained free while his lawyers appealed his conviction” (Romar & Calkins 3). “The stiffest in a corporate fraud case in recent memory - was appropriate given the size and scope of the damages”(Belson 1). In this case I feel that Mr. Ebbers received prison time that he deserved although I think that 25 years was a harsh penalty. The justice system does not always work the way we think that it should; a 25 year sentence will make other CEO take better accountability of what is going on underneath them. The failure of WorldCom has been blamed as the top reason why the telecommunication bubble finally popped. Not only did WorldCom self destruct, but since March 2001, nearly “300,000 telecommunication workers have lost their jobs” (Romar & Calkins 1). Obviously not all of those employees were from WorldCom, but WorldCom’s demise brought other companies with it. “By providing the appearance of profitability while cooking the books, WorldCom caused other companies to either lose business or attempt to match unrealistic pricing” (Held, 1). The impact of these failures had far reaching effects on the market. On a positive note, it is good to know that one person with moral integrity can stand up and make a difference. Cynthia Cooper was that person in WorldCom who did just that. It was her job and she did it well. There were many times that she could have given up when people who were her superiors told her to stop.
“No integrity questions can be raised about Cynthia Cooper whose careful detective work as an internal auditor at WorldCom exposed some of the accounting irregularities apparently intended to deceive investors. Originally assigned responsibilities in operational auditing, Cynthia and her colleagues grew suspicious of a number of peculiar financial transactions and went outside their assigned responsibilities to investigate. What they found was a series of clever manipulations intended to bury almost $4 billion in misallocated expenses and phony accounting entries…Ultimately, she and her team uncovered a $2 billion accounting entry for capital expenditures that had never been authorized. It appeared that the company was attempting to represent operating costs as capital expenditures in order to make the company look more profitable. To gather further evidence, Cynthia's team began an unauthorized search through WorldCom's computerized accounting information system. What they found was evidence that fraud was being committed. When Sullivan heard of the ongoing audit, he asked Cooper to delay her work until the third quarter. She bravely declined. She went to the board's audit committee and in June, Scott Sullivan and two others were terminated. What Ms. Cooper had discovered was the largest accounting fraud in U.S. history” (Moberg & Romar 8).
Without the efforts of her team, the WorldCom tragedy could have arguably been much worse. This is a very thought provoking case that raises questions about the difference between white and blue collar criminals. It is interesting that an upstanding citizen like Bernard Ebbers who coaches, has a family, and donates millions of dollars can receive more prison time than a murderer or a rapist. This may seem unfair, but when considered from a Utilitarian perspective, Mr. Ebbers harmed many more people than a murderer. His strict punishment creates a greater good for the whole if it can deter future white collar crime with similar far reaching effects.

References
Belson, K. (July 2005). Stiff Penalty for Ebbers meant as deterrent. The New York Times. Retrieved 21 Dec 2008 from http://www.iht.com/articles/2005/07/14/business/ebbers.php
Benner, K. (October 2006). Lessons from Enron: Just say ‘sorry’. Forbes Magazine. Retrieved on 21 Dec 2008 from http://money.cnn.com/2006/10/25/magazines/fortune/pleabargains/index.htm?postversion=2006102511
Held, G. (September 2003). From the Editor: Take the Hammer to WorldCom.
International Journal of Network Management, Volume 13 Issue 5.
Moberg, D & Romar, E. (2003). World Com. University of Massachusetts-Boston. Retrieved 21 Dec 2008 from http://www.scu.edu/ethics/dialogue/candc/cases/worldcom.html
Romar, E. J. & Calkins, M. (2006) WorldCom Case Study Update 2006. Retrieved 21 Dec 2008 from http://www.scu.edu/ethics/dialogue/candc/cases/worldcom-update.html