ipl-logo

Case Study: Worldcom

1868 Words8 Pages

Agency problems are problems that arises due to conflicts of interests between a principal and his an agent. An agent is hired by a principal and is supposed to act on behalf of the principal for their own interest with the aim of maximizing the wealth of the principal. However, sometimes, the agent also has his own interests, where he may diverge from working for the principal interest and he will work for his own benefit. In corporate finance, there are two types of agency problems: between shareholders and managers which is the most common one, and between bondholders and shareholders.
To begin with, As mentioned earlier the most common agency problem usually happens due to a conflict of interest between a company`s management and the stockholder …show more content…

WorldCom was established as a small company known as Long distance discount services in 1984 but under the management of Bernie ebbers LLLDS grew to be one to the biggest tele-commutation companies in the whole world. WorldCom had 85000 workers and it operated in more than 65 countries.
WorldCom was known to the public that it was a strong company that had a rapid growth in the market and in reality the appearance was nothing than a perception. In 2002 the company revealed to public that it had been involved in fraud by cooking their books. They stated that they had a $3.8 billion profit in their income statements but in fact they encountered $0.5 billion loss. An Investigation was conducted by the SEC and they concluded that a total of $11 billion in misstatements was revealed
The CEO of the company instructed his employees to record long distance line costs which Is the second largest expense for any tele-commutation company as prepaid capacity in the balance sheets as assets this was done in order to increase the net income which will result to a significant profit not only they recorded it as an asset they rounded the figures to the nearest dollar …show more content…

Shareholders of the company lost all of their money that was invested in WorldCom which $180B, The debtholders lost $37.5B of debt value, the company reached to an agreement with the SEC to settle this case for $750M and in order to settle with the securities class action case twelve of the members of the board of directors had to pay $25M out of their own money. Unfortunately the innocent employees who had no idea about the scandal lost their jobs in addition to their healthcare and retirement funds. All of loans given to WorldCom defaulted as a result of their bankruptcy. The CEO Bernie ebbers was sentenced to 25 years in prison for this roles the biggest accounting scandal in USA history. The scandal also effected its competitors since they had had to fire around 20000 employees to maintain their equal market position with world

Show More
Related
730 Words | 3 Pages

Cash flow was negative by $4 million. The used cash was an outflow of $31 million in payments for plant and equipment. Therefore they had to borrow $70 million to fill the gap and pay a $35 million dividend. Clearly another reason for Dick Smith

Read More
187 Words | 1 Pages

UCM:CPSW did a home visit and met with foster parent (Dorothy Bensalih), Emeri and Cantarah. Cantarah was playing with her IPad and Emeri. CPSW talked with Contrarah briefly and asked about school and any other concerns. Cantarah reported that she is doing well and excited about her new Ipad and plays with it after school. Emeri was sitting and playing with his sister during the meeting.

Read More
1673 Words | 7 Pages

• Conflicts of interest, including transactions and agreements within which a director, executive officer

Read More
1090 Words | 5 Pages

Business Assessment An organization must identify its core competencies and strategically align those competencies with its business objectives to achieve success. In fact, C.K. Prahalad and Gary Hamel explained in the Harvard Business Review that the most powerful way for an organization to prevail is for it to “identify, cultivate, and exploit the core competencies that make growth possible” (2000). Lockheed Martin has thoroughly aligned its competencies, business objectives, and key performance indicators, which has undoubtedly contributed to the corporation’s effectiveness.

Read More
1051 Words | 5 Pages

1. What is required for global product roll-out, including who expends which capital , takes which risk and reaps which reward ? Benecol could be claimed as an important nutritional innovation in the world. It is a unique compound composed of plant stanol esters, which have scientifically proven to help lower cholesterol in humans.

Read More
748 Words | 3 Pages

I believe they should have rebalanced their priorities, by helping their workers more, and getting them involved in decision making. Although, at the same time, looking at it from an executive position, or shareholders position, they wouldn’t have made the money they

Read More
552 Words | 3 Pages

Traditionally, pro forma earnings are lampooned as “earnings before the bad stuff”, which are lower than the figure according the GAAP. Companies may present to the public their earnings and results of operations on the basis of methodologies other than GAAP. And this presentation in the earnings release is often referred to as “pro forma” financial information. Many companies were thought to be using pro forma figures not only to exclude one-time charges, but also to strip put recurrent costs and other elements that they claimed concealed their “true” performance. “Pro forma” financial information can serve useful purposes.

Read More
902 Words | 4 Pages

In addition, The US Justice Department should not let WorldCom to go into merger and acquisition as it was creating monopoly. For that reason, they were able to play high. 3. How could the fraud at WorldCom been prevented?

Read More
1296 Words | 6 Pages

The controversy came about when the president and CEO of the organization who had been in that position since 1970, William Aramony, resigned amid allegations of money laundering among other things. Aramony was under investigation for fraud and mismanagement of funds. The trial that involved Mr. Aramony and the two codefendants lasted until 1995, when Aramony was convicted. He was convicted on charges of 23 of 27 counts of fraud, filing false tax returns, conspiracy, and money laundering. He and two top officials were also convicted of looting $1.2 million to fund an extravagant and lurid lifestyle.

Read More
1023 Words | 5 Pages

The Failure of Dick Smith Electronics Identify: How the latest edition (3rd) of the ASX Corporate Governance Principles plausibly halts the failure of Dick Smith Electronics (DSE) will be discussed in this essay. I argue that 3rd of ASX Corporate Governance Principles might not be the best corporate governance practices for the listed entities in Australia. As can be seen from the DSE case, it complied with the majority of the principles and recommendations, but the DSE’s collapse still happened. Therefore, the better application of this practices should be developed.

Read More
911 Words | 4 Pages

Ebbers leadership style changed from ethical to unethical during the downturn of the stock market and the effects it had on WorldCom shares. Ebber leadership style created an environment that left for little room for error. During telecommunications stock downturns Ebber was unable to come up with a strategy that would turn things around. During the initial phases of the Commission investigation into WorldCom’s accounting practices, Ebber was questioned concerning several low-interest loans he acquired from the board of directors. Shortly after Ebber was forced out by outside board members.

Read More
875 Words | 4 Pages

The case chosen is IBM at the Crossroads, published by McGraw Hill Education. 3 key Issues and Recommendations A rather mind capturing case, talks about the growth story of IBM. The three key issues and future challenges in IBM’s way are: • Slow Reaction to Change: The past trends followed in IBM, show that it lacks responsiveness to change in market trends and revolutions.

Read More
2107 Words | 9 Pages

Background WorldCom, once known as one of the most powerful telecommunication organizations of the world, is now studied as a case of a fraudulent company that carried out unethical financial activities to cover its weakening position in the market. After some aggressive investment decisions, the company started to witness huge financial pressure. The management used various forged accounting entries to conceal its weakening position. Cynthia Cooper, Vice President Internal Audit, discovered the unethical activities and raised the issue with the management and relevant departments and received bitter responses. She carried out internal audits in her own capacity with her colleagues and compiled evidence against fraudulent activities.

Read More
1009 Words | 5 Pages

The false accounting records were unethical because it means management was enriching themselves. They were getting earnings based on the false availability of funds. They also did this to keep their jobs. When a company is not performing financially well the top positions are the ones usually at risk of being retrenched, as a result of implying the company was financially stable they were protecting their jobs. False accounting also results in duping investors that trust the financial records of the company.

Read More
3319 Words | 14 Pages

According to Pearce and Robinson (1997), “strategy is the overall plan for deploying resources to establish a favorable position it comes from the Greek word “Strategos” meaning to lead (agein) an army(stratos) into war. It is a course of action, including the specification of resources required, to achieve a specific objective.” ‘A strategy means making clear-cut choices about how to compete.’ – Jack Welch (Former CEO, General Electric). Volberda et al (2011), writes a strategy is an integrated and coordinated set of commitments and actions designed to develop and exploit core competencies and gain a competitive advantage.

Read More

More about Case Study: Worldcom

Related Topics

Open Document