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WorldCom Inc. – A C orporate Governance Failure

WorldCom Inc. – A C orporate Governance Failure. Group Members. Presented by :- Kumar Sudhakar Smriti Subramanian Rishav Singla Sarada Shindhe Prabhash Aggarwal. Case Description. Company Name: WorldCom Inc.

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WorldCom Inc. – A C orporate Governance Failure

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  1. WorldCom Inc. – A Corporate Governance Failure

  2. Group Members Presented by :- • Kumar Sudhakar • Smriti Subramanian • RishavSingla • SaradaShindhe • PrabhashAggarwal

  3. Case Description Company Name: WorldCom Inc. Global telecommunications company ranked fourth as a Fortune 500 company for the telecom sector Operating in more than 65 countries. Core business activities are divided into two major segments: WorldCom Group Operations MCI Group Operations Areas it catered to – Data Services, Internet Related services, Commercial Voice Services, Design, International Communication Services, Retail and Wholesale Communication Services. Greedy about Mergers & Acquisitions – Major ones – MCI Communications, MFS Communications Company, Williams Telecommunications Group, IDB Communications Group Inc., Resurgens Comm. Group & Metro Media Comm.

  4. Objectives Understanding and assessing the gradual degradation of WorldCom and what led to the downfall of WorldCom from being a Fortune 500 company to a bankrupt organization. Studying situations where the company despite alarms being raised at numerous occassions, did not act upon it and how the fiasco that occurred could have been avoided if preventive and corrective measures were adopted at the right time.

  5. Important Points for Discussion • Failure of corporate governance in the company, greed of the managers and dishonesty in the organization • Accounting malpractices and suppression of the auditors • Unethical business practices, arising out of greed for personal gains • Lack of transparency and keeping stakeholders in the dark with respect to the fraud prevalent in the organization. • What inferences could be derived from the case and recommendations .

  6. An Observation • Classic illustrative case of failure of Corporate Governance • Corporate Governance - the system by which business corporations are directed and controlled • The corporate governance structure specifies the distribution of rights and responsibilities among different participants in the corporation

  7. Participants in Corporation • board, managers, shareholders and other stakeholders internal stakeholders (promoters, members, workmen and executives) • Stakeholder external stakeholders (shareholders, customers, lenders dealers vendors, bankers community, government and regulators)

  8. Failure of Co. at various levels • Internal audit – not in acc with GAAP • Book – keeping errors • $3.3b reserves improperly manipulated in BS & $ 500m income was wrongly booked. • Fortune ranking as one among top five in 2000, 2001, 2002 was by surprise – does not show real picture • Corporate Culture – • Individualistic • Lack of transparency • CEO Mr. Bernard Ebbers – irregularities • Loan of $400 million at rate of 2.15% - failure of Corporate ethics

  9. Stakeholder’s voice – not heard • Failure of HR dept. • Internal auditor Cynthia Cooper’s work is appreciated • However, scope of audit restricted. • External audit – not fair and impartial

  10. OUR RECOMENDATIONS • Company should have adopted an ERP system.

  11. OUR RECOMENDATIONS • The Internal Control should have been strengthened in order to avoid the accounting malpractices prevalent in the organization. • Change in auditors every 3-4 years would have saved the company from downfall. • Investor banks should have monitored the accounts of the company and should have kept a person on the board of WorldCom Inc. • Business Process Re-engineering required to start from scratch because of the confusion in the organization.

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