Business Ethics And Deontology

The ethical problems in the WorldCom case

The ethical problems in the WorldCom case revolve around sloppy and inaccurate accounting, where the records were deliberately screwed to conceal the true facts about WorldCom's actual state of fiscal affairs.

WorldCom showed accounting irregularities of $11 billion, which resulted in many of its previous executives being, prosecuted on securities charges (Moberg 2003).

Bernie Ebbers, ex-CEO of WorldCom had nine charges filed against him that included his perpetrating securities fraud, conspiracy to commit securities fraud, and falsely filing with the sec. Some of these charges had arisen due to his generosity, but nonetheless, they violated the law (Romar & Calkins, 2006).

WorldCom had been doing well until the late 1990s when its volume of mergers and acquisitions as well, as its remarkable performance, ceased and dried up. Desperate to preserve its original reputation and fiscal performance, WorldCom struggled to survive while competing telecommunication companies were in decline, even as pressure was put on its price points (Moberg 2010).

Partially assisted by their external auditor Arthur Anderson, as well as receiving advice from financial analysts such as Citigroups' Salomon Smith Barney's telecommunication analyst, Jack Grubman, WorldCom perpetrated various fraudulent accounting practices. Firstly, Grubman issued fraudulent advice and Grubman hyped the company encouraging investors to buy until stock reached its high. Both Sullivan and David Myers had kept Arthur Anderson himself in the dark, WorldCom's ex-controller, regarding the actual state of their business affairs. Citigroup too was involved in colluding to hide affairs receiving in return $107 million from WorldCom for doing so (Moberg 2010).

According to the Securities and Exchange Report (2003) on WorldCom, the company had engaged in fraudulent behavior in three primary areas:

1. They had engaged in unauthorized movement of line costs to capital resulting in stated decreased expenses

2. They had engaged in inaccurate and improper insertion f accruals that reduced their current expenses

3. They had falsified revenue entries that produced a non-existent increase to their earnings.

In more specific terms, they had engaged in the above calumnies by using a liberal interpretation of accounting rules when preparing their financial statements, writing down, for instance, one quarter of millions of dollars in assets that it had acquired while it included in this account their future expected company expenses. This resulted in smaller losses in future quarters, whilst bigger losses remained in current quarters so that it seemed to investors as though the situation of the company was improving. Another instance was the acquisition of MCI where, while reducing the book value of some MCI assets by several billion dollars, the company increased the value of the intangible assets by the same monetary amount and then spread these large expenses over decades rather than years (Moberg 2010). Like this, WorldCom could cut annual expenses and boost profits.

This was aside from the fact of numerous other ethically questionable activities that were perpetrated by both board of directors and members of the executive team.

Other problems included deterioration of customer service with malfunctioning internal operation that caused billing systems to become uncoordinated and local system to fail to work properly.

Their ethical problems, in short, was that not only were they misleading their stockholders and shareholders regarding the true circumstances of their firm, thereby encouraging them to insert more money into shaky foundations, but they were also duping potential shareholders regarding a financial situation that did not exist. Individuals and businesses like to know the true situation of a business in order to decide whether or not to invest in it. By WorldCom falsely leveraging its revenue, they deceived current and potential shareholders.

WorldCom also duped the government and sought for loopholes that would enable it to pay lower tax than it ought to in reality have paid. Ethical ramifications may include the false inclusion of the amount of WorldCom's assets to the National Savings rate, and reliability that the government rested on this. In short, a network of people, business, and government are dependent on WorldCom accurately revealing the amount of its fiscal concerns. By intentionally deceiving people, WorldCom may, at worst, drive other people and business into bankruptcy whilst causing individuals to lose, what may sometimes be great deals of money.

WorldCom had engaged in sloppy and fraudulent bookkeeping, and its post-bankruptcy audit found that WorldCom had, firstly overvalued several acquisitions by more than $5.8 billion and, secondly, that Sullivan and Ebbers had falsely claimed a pretax profit in 2000 for $7.6 billion (Romar & Calkins, 2006). In reality, WorldCom lost $48.9 billion instead of their claimed $10 billion profit that they had alleged to have made form the years 2000 and 2001. In fact, during those years going through to 2002, they had last an excess of $73.7 billion. Adding the $5.8 billion that WorldCom had added for overvalued assets makes their total fraud come out to $79.5 billion (Romar & Calkins, 2006).

WorldCom's ethical problems using the deontological framework

Deontology - also known as normative ethics "duty" or "rule" based ethics says that rules prescribe the action, such as Biblical imperatives.