Worldcom failure 1

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Business faliure

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  • 1. WORLDCOM’S FAILURE
  • 2. OVERVIEW It began as small company in Jackson, MS by Bernie Ebbers andbecame the darling of Wall Street The industry provided : • Internet services • Long distance services WorldCom was the second largest telecommunication provider in theUnited State. • Grew rapidly through acquisitions and increased demand for telecommunication services • Continuous increase in stock values facilitated acquisitions
  • 3. WO R L D C O M ’ S AC QU I S I T I O N S 75 mergers of acquisitions of other companies MCI acquisition • The largest merger in the US history • On November 1997, WorldCom and MCI Communication announced their $37 billion merger to form MCI WorldCom Proposed Sprint merger • On October 1999, Sprint and MCI WorldCom announced a $129 billion merger agreement • The deal did not go through due to concerns of it creating mnopoly
  • 4. ORGANIZATION’S FAILURE The collapse of the organization • In July of 2002 WorldCom filled the biggest bankruptcy ever in the U.S history with a $41 billion dollar debt load and more than $ 107 billion dollars in assets • Filling chapter 11 bankruptcy due to: • Fraud • Accounting misstatements • Managerial issues after the mergers • Bored of director failures
  • 5. ACCOUNTING FRAUD $ 11 billion accounting fraud over 3 year period ( 1999-2002) The fraud was accomplished in two main ways: • Understatement of operating expenses by capitalizing these costs on the balance sheet rather than properly expensing them • The company inflated revenue by $ 1 billion dollars
  • 6. I S S U E S A F T E R T H E M E RG E R S Management • WorldCom needed time to learn how to run and manage acquired companies • Failure to inform Wall Street of the time needed for consolidation and digestion of acquisitions • Ebbers desire to protect and build his personal financial condition • Falsification of net growth.
  • 7. BOARD OF DI RECTORS FAI LURE  Neglected the unethical and fraudulent behavior of Ebbers  Failed to take initiative to step in and prevent financial fraud
  • 8. IN CONCLUSION How it happened? • The domination of Ebbers and no checks and constraints placed on his actions. • For personal gains under pressure to meet numbers • Employees failure to communicate fraudulent activities • A financial system with no control mechanism • Audit company’s failure of the company and its culture understanding • Inadequate audit by independent auditors