The document summarizes the WorldCom case study and compares corporate governance between the US and China. It discusses factors that led to WorldCom's failure, including collusion between senior executives, an unalert board of directors, and unreasonable loans given to the CEO. It then outlines key aspects of corporate governance in the US, including ownership structure, board independence, and the role of capital markets, regulations, and gatekeepers. Finally, it compares governance between the two countries, noting similarities based on internal control/external regulation systems, but also differences in culture, ownership concentration, and capital market development.

1. Corporate governance in US and China
—— Worldcom Case Study
Group members: Sisi Jin 200896093
Rui Hua 200884223
Hui Lu 200893795
Wei Zheng 200908791

2. Outline
Case WorldCom
Corporate governance in United States
Compare and Contrast between
Corporate Governance in US and China

3. Why WorldCom
failed????

4. • WORLDCOM LEADERSHIP
Collude
CEO-Bernard Ebbers CFO - Scott Sullivan
• few senior executive officers at its Clinton, Mississippi Headquarters
direct supervisor
• accounting and financial department personnel
Controller - David Myers

5. Unconcerned and Malfunctioning
Board of directors
• Unalert top management
• Non-executive directors neglect of their duties.
• Whimsical CEO
– No technical qualification
– Priority to personal interest
• Unreasonable long tenures of
board members
• Unreasonable loans and
benefits given to Ebbers

6. Other reasons
• Recession of the economy
• Vast oversupply of capacity
• Unhealthy focus on profits

7. Source from: Jackson, Gregory, 2010, ‘Understanding Corporate Governance in the
United States’, Arbeitspapier 223.

8. Internal
Ownership structure
1. Participation in Governance
• Institutional investors: Directly to
• Ownership right voice their governance concerns
2. Access to the Vote
3. Shareholders’ Right to Call a Meeting of
Shareholders
Internal firm corporate structure
1. The majority of the board must consist of
• Board of director independent directors (U.S. stock exchange
listing standards).
2. The position of chairman of the board and
the CEO should be separate.
1. Audit Committee
• Board committee 2. Compensation Committee Mandatory
3. Nominating/Governance Committee
4. Special Committees(e.g. the executive and
finance committees)

9. External
Environment
• Capital market: Liquidity, Efficient, and Transparent
Poor corporate Governance may quickly reflected in its stock price
(market correction mechanism)
• Regulation and Law:
The corporate governance structure in the United States is a hybrid
system of laws, regulations, and best practices. The primary drivers
of corporate governance are state corporate laws, federal and state
securities law, judicial process, stock exchange listing standards, best
practices.
• Gatekeeper:
External Auditors, securities analysts, legal counsel.

10. Compare and Contrast between
Corporate Governance in US and China
Corporate governance in US Corporate governance in China
Similarities 1.Internal control & External regulation based system(Unitary Board).
1.Essential difference -- culture and history
Emphasizes free competition culture, Reinforces submissive culture.
are more likely have whistleblower.
2. Ownership structure
Differences Shareholding are more dispersed. Shareholding are highly
(Internal) concentrated.
3.Board of Directors
NED > ED NED < ED so
More independent directors in the NED + Board of supervision(no
board of directors. voting rights)to achieve
balance.
“one---vote negation system”

11. Cont’d
Corporate Corporate
Governance in US Governance in China
4. Capital Market
Totally market-oriented Less efficient;
economy； Too much government
Differences the Most efficient intervention;
transparent & liquidity. Regulator & Participant.
(External)
5. Law and Code
Company Law（1992 2005）
State corporate laws； --all companies
Federal and state securities Security Law security
laws &regulations. companies（2004）
Codes from CSRC --
listed companies etc（2001）

12. Reference
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