Management Planning Paper

Management Planning Paper

In 1983, in a coffee shop in Hattiesburg, Mississippi, Bernie Ebbers first helped create the telecommunications business concept of WorldCom (Moberg, 2003). The company grew quickly through acquisitions and mergers. In June 1999, the company's shares traded for $64, and Ebbers was a billionaire (Moberg, 2003). During 2002, accounting scandals were brought to the public's attention, along with SEC investigations for fraud charges against Ebbers, and key senior management of WorldCom. The company went into bankruptcy, which was the largest bankruptcy in US history (Beltran, 2002). This paper will first explain the impact of legal, ethical, and social responsibilities issues have on WorldCom. Second, this paper will explain three factors that influence WorldCom's operational, tactical and strategic planning.

Impact of legal, ethical and social responsibilities

A corporate social responsibility is where a business will maximize its positive effects on society, and minimizes its negative effects. Social responsibilities can be categorized as economic, legal, and ethical (Bateman & Snell, 2007). An organization has a responsibility to its investors and stakeholders to provide accurate and honest information. WorldCom revealed to the public, on June 25, 2002, that it had incorrectly accounted for 3.8 billion in operating expenses (Beltran, 2002). According to WorldCom News, WorldCom did not account for expenses when they were incurred, but they hid the expenses by pushing them into the future, thus giving the appearance of spending less, therefore, making more money. This apparent profitability pleased investors, who pushed the stock up to a high of $64.51 in June 1999 (WorldCom News, 2002).

This scandal had a devastating consequence on the organization. Once the news of the scandal spread to the public, the stock plummeted. WorldCom was valued at around $120 billion at its peak in the summer of 1999, and after the scandal, WorldCom's market capitalization had fallen to $280 million (Gaffin, 2002). The senior executives were brought up on fraud charges, and the company was forced to file for Chapter 11 under bankruptcy court. WorldCom, at one time, was the second largest long distance company (Beltran, 2002), and as a result of the misrepresentation of financial statements, the company went under investigation by the SEC for fraud. The fraud charges were not just illegal, but unethical as well. These factors have dramatically impacted the management planning process. The organization is forced to reorganize its planning in all areas to react to the bankruptcy filing.

Three factors that influence Operational, Tactical and Strategic Planning

Operational. A legal issue that has impacted the operational planning function of WorldCom was the overstatement of profits of the company. This fraud has sent the company to file Chapter 11 with the bankruptcy courts. According to John Sidgmore, the CEO of WorldCom, "Chapter 11 enables us to create the greatest possible value of our creditors, preserve jobs for our employees, continue to deliver top-quality service to customers, and maintain our role in America's national security" (Gaffin, 2002, para. 3). Filing for Chapter 11 will provide that the company still operates on a day-to-day basis, and will allow managers to prepare a plan to reorganize the operations. The funds of the company will be limited due to the restructuring, which will impact the operational planning process. In order to save money, WorldCom laid off over 17,000 employees, which is about 20 percent of its global workforce (CNNMoney, 2002). Management needs to prepare a contingency plan to assist with operations, while under Chapter 11. The plan will help recover the company from their debt with creditors, while continuing to build relationships with their customers. The plan will eventually move the company forward, and take operations out of bankruptcy.

Tactical. The Senior Executives of WorldCom loaned themselves money with company funds. The CEO of WorldCom, Mr. Ebbers, received a $341 million loan, granted by the board, which is the largest amount any publicly traded company has lent to one of its officers in recent memory (Moberg, 2003). Some people question whether such loans are ethical. According to SEC enforcement official, Seth Taube, "A large loan to a senior executive epitomizes concerns about conflict of interest and breach of fiduciary duty" (Moberg, 2003, p5). In response to corporate scandal, Congress passed the Sarbanes-Oxley Act in 2002 to establish stricter accounting and reporting rules in order to make senior managers more accountable, and to improve and maintain investor confidence (Bateman & Snell, 2007). Management needs to create stronger internal controls to protect the company from future fraudulent activity. Managers will have to monitor that these controls are in place, and are being followed by all employees, ranging from line level employees, to low-level managers, up to senior executives. This issue has impacted not only the tactical planning process, but also all levels of management planning.

Strategic. An area of social responsibility is with the stakeholders of a company. WorldCom misled the public in regard to the financial viability of the organization. The harm that WorldCom's corrupt actions have caused is enormous. Anyone with a pension or savings plan containing mutual funds from WorldCom suffered from their crash. WorldCom has renamed itself MCI,