{"id":182,"date":"2017-08-07T17:23:59","date_gmt":"2017-08-07T17:23:59","guid":{"rendered":"https:\/\/courses.lumenlearning.com\/atd-tc3-management\/?post_type=chapter&p=182"},"modified":"2017-08-07T17:23:59","modified_gmt":"2017-08-07T17:23:59","slug":"case-in-point-bernard-ebbers-creates-biased-decision-making-at-worldcom","status":"publish","type":"chapter","link":"https:\/\/courses.lumenlearning.com\/atd-tc3-management\/chapter\/case-in-point-bernard-ebbers-creates-biased-decision-making-at-worldcom\/","title":{"raw":"Case in Point: Bernard Ebbers Creates Biased Decision Making at WorldCom","rendered":"Case in Point: Bernard Ebbers Creates Biased Decision Making at WorldCom"},"content":{"raw":"
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\r\n\r\nFigure 11.3<\/span>\r\n\r\n\"\"<\/a>\r\n
\r\n\r\nSource: U.S. National Communications System.\r\n\r\n<\/div>\r\n<\/div>\r\n<\/div>\r\n<\/div>\r\n \r\n\r\nYou could argue that Bernard Ebbers, of the now defunct WorldCom, created a culture of poor decision making. As CEO, Ebbers avoided internal company conflict at all costs, and he ultimately avoided the reality that WorldCom, once the dominant company in the telecommunications industry, was in serious economic trouble. Notorious for his temper, employees were reluctant to present Ebbers with company information that he didn\u2019t like. A 2002\u00a0<\/span>Economist<\/em>\u00a0<\/span>article describes Ebbers as \u201cparochial, stubborn, preoccupied with penny-pinching.\u2026Mr. Ebbers was a difficult man to work for.\u201d Under Ebbers, WorldCom\u2019s $9 billion accounting fraud grew in order to avoid facing its worsening economic reality.\r\n\r\nWorldCom\u2019s roots stem from a Mississippi telecom company called LDDS where Ebbers was CEO. Growing to over 80,000 employees through multiple acquisitions of other telecom businesses, WorldCom became the overwhelming industry leader. However, many of WorldCom\u2019s executives had worked with Ebbers since his start as CEO 2 decades before. Ebbers, who was regularly seen in cowboy boots and a 10-gallon hat, led his close-knit staff in a \u201cshoot from the hip\u201d style. He was resistant to new technology and famously refused to use e-mail to communicate with his employees. A well-known company mantra was \u201cThat\u2019s the way we did it at LDDS.\u201d Ebbers lead WorldCom through over 60 acquisitions over a period of 15 years. He grew annual revenues from $1 million in 1984 to over $17 billion in 1998. However, Ebbers had little regard for long-term plans and avoided making larger strategic decisions as his company accumulated increasing debt.\r\n\r\nAs WorldCom acquired new companies, its accounting procedures, computer systems, and customer service issues became increasingly more complex, and industry experts note that WorldCom struggled to keep up with the growth. Company employees who tried to bring initial problems to Ebbers\u2019s attention were discouraged; Ebbers made it clear he only wanted to hear good news and then based decisions on this good news. This avoidance of factoring in potential problems during decision making created a company culture that demanded success at all costs. That ultimately included falsifying financial reports. For example, former employees admitted to registering \u201crolling revenue\u201d to inflate earnings, recording a single sale multiple times. Another 2002\u00a0<\/span>Economist<\/em>\u00a0<\/span>article reports that this and other dishonest techniques were \u201cendemic in the sales hierarchy of WorldCom.\u2026Increasing reported revenues came above all else.\u201d\r\n\r\nDespite efforts to inflate the books, WorldCom\u2019s stock prices dramatically declined, and Ebbers left the company in 2002 after pressure from WorldCom\u2019s board of directors. What came to light after his departure, however, highlighted the significant problems he avoided confronting. Under new CEO John Sidgmore, internal auditor Cynthia Cooper uncovered multiple instances of financial dishonesty and illegal activity overseen by CFO Scott Sullivan, a close confidant of Ebbers. A 2002\u00a0<\/span>Wall Street Journal<\/em>\u00a0<\/span>article reports, \u201cAs she pursued the trail of fraud, Ms. Cooper time and again was obstructed by fellow employees, some of whom disapproved of WorldCom\u2019s accounting methods but were unwilling to contradict their bosses or thwart the company\u2019s goals.\u201d\r\n\r\nUltimately Cooper\u2019s investigation revealed the fraud that took place under Sullivan and Ebbers. Sullivan later admitted to having booked $3.8 billion of costs as capital expenditures and that five quarters\u2019 worth of profits should have been recorded as losses. Ebbers\u2019s refusal to honestly face the harsh economic truth for WorldCom was ultimately highlighted to be a source of WorldCom\u2019s financial problems. In 2005, he was found guilty of fraud, conspiracy, and filing false documentation. WorldCom was purchased for $7.6 billion and subsequently integrated into Verizon (NYSE: VE) in 2006, and Ebbers began serving a 25-year jail sentence in 2005.\r\n\r\n ","rendered":"
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Figure 11.3<\/span><\/p>\n

\"\"<\/a><\/p>\n

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Source: U.S. National Communications System.<\/p>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n

 <\/p>\n

You could argue that Bernard Ebbers, of the now defunct WorldCom, created a culture of poor decision making. As CEO, Ebbers avoided internal company conflict at all costs, and he ultimately avoided the reality that WorldCom, once the dominant company in the telecommunications industry, was in serious economic trouble. Notorious for his temper, employees were reluctant to present Ebbers with company information that he didn\u2019t like. A 2002\u00a0<\/span>Economist<\/em>\u00a0<\/span>article describes Ebbers as \u201cparochial, stubborn, preoccupied with penny-pinching.\u2026Mr. Ebbers was a difficult man to work for.\u201d Under Ebbers, WorldCom\u2019s $9 billion accounting fraud grew in order to avoid facing its worsening economic reality.<\/p>\n

WorldCom\u2019s roots stem from a Mississippi telecom company called LDDS where Ebbers was CEO. Growing to over 80,000 employees through multiple acquisitions of other telecom businesses, WorldCom became the overwhelming industry leader. However, many of WorldCom\u2019s executives had worked with Ebbers since his start as CEO 2 decades before. Ebbers, who was regularly seen in cowboy boots and a 10-gallon hat, led his close-knit staff in a \u201cshoot from the hip\u201d style. He was resistant to new technology and famously refused to use e-mail to communicate with his employees. A well-known company mantra was \u201cThat\u2019s the way we did it at LDDS.\u201d Ebbers lead WorldCom through over 60 acquisitions over a period of 15 years. He grew annual revenues from $1 million in 1984 to over $17 billion in 1998. However, Ebbers had little regard for long-term plans and avoided making larger strategic decisions as his company accumulated increasing debt.<\/p>\n

As WorldCom acquired new companies, its accounting procedures, computer systems, and customer service issues became increasingly more complex, and industry experts note that WorldCom struggled to keep up with the growth. Company employees who tried to bring initial problems to Ebbers\u2019s attention were discouraged; Ebbers made it clear he only wanted to hear good news and then based decisions on this good news. This avoidance of factoring in potential problems during decision making created a company culture that demanded success at all costs. That ultimately included falsifying financial reports. For example, former employees admitted to registering \u201crolling revenue\u201d to inflate earnings, recording a single sale multiple times. Another 2002\u00a0<\/span>Economist<\/em>\u00a0<\/span>article reports that this and other dishonest techniques were \u201cendemic in the sales hierarchy of WorldCom.\u2026Increasing reported revenues came above all else.\u201d<\/p>\n

Despite efforts to inflate the books, WorldCom\u2019s stock prices dramatically declined, and Ebbers left the company in 2002 after pressure from WorldCom\u2019s board of directors. What came to light after his departure, however, highlighted the significant problems he avoided confronting. Under new CEO John Sidgmore, internal auditor Cynthia Cooper uncovered multiple instances of financial dishonesty and illegal activity overseen by CFO Scott Sullivan, a close confidant of Ebbers. A 2002\u00a0<\/span>Wall Street Journal<\/em>\u00a0<\/span>article reports, \u201cAs she pursued the trail of fraud, Ms. Cooper time and again was obstructed by fellow employees, some of whom disapproved of WorldCom\u2019s accounting methods but were unwilling to contradict their bosses or thwart the company\u2019s goals.\u201d<\/p>\n

Ultimately Cooper\u2019s investigation revealed the fraud that took place under Sullivan and Ebbers. Sullivan later admitted to having booked $3.8 billion of costs as capital expenditures and that five quarters\u2019 worth of profits should have been recorded as losses. Ebbers\u2019s refusal to honestly face the harsh economic truth for WorldCom was ultimately highlighted to be a source of WorldCom\u2019s financial problems. In 2005, he was found guilty of fraud, conspiracy, and filing false documentation. WorldCom was purchased for $7.6 billion and subsequently integrated into Verizon (NYSE: VE) in 2006, and Ebbers began serving a 25-year jail sentence in 2005.<\/p>\n

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Candela Citations<\/h3>\n\t\t\t\t\t
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