V When the federal government announced the forced divestiture of AT&T

in 1982, many small companies leapt at the chance to enter the growing
telecommunications industry. Ebbers had absolutely no experience in the
long distance business, but jumped in on a small scale in 1983 when he
and three friends borrowed $500,000 and bought a struggling phone
company and named it Long Distance Discount Service (LDDS).
V In the early 1990s, Ebbers engineered the acquisition of several
companies that would set the stage for the company's leap to national
prominence. From 1992 to 1995, LDDS (renamed WorldCom in May
1995) bought corporations that expanded its service capabilities.
V Ebbers and WorldCom orchestrated three multi-billion dollar deals in
1998. The largest of these was a proposed merger with MCI
Communications in 1997 for approximately $40 billion, at the time the
largest merger in business history.
V 4eginning in 1999 and continuing through May 2002, WorldCom (under
the direction of Scott Sullivan (CFO), David Myers (Controller) and 4uford
Yates (Director of General Accounting)) used shady accounting methods
to mask its declining financial condition by falsely professing financial
growth and profitability to increase the price of WorldCom's stock.
V The fraud was accomplished in two main ways. First, WorldCom's
accounting department underreported 'line costs' (interconnection
expenses with other telecommunication companies) by capitalizing
these costs on the balance sheet rather than properly expensing them.
Second, the company inflated revenues with bogus accounting entries
from 'corporate unallocated revenue accounts'.
V On July 21, 2002, WorldCom filed for Chapter 11 bankruptcy protection,
the largest such filing in United States history. The company emerged
from Chapter 11 bankruptcy in 2004 with about $5.7 billion in debt.
V 4orn in Edmonton, Alberta, Canada in 1941, 4ernie Ebbers comes from a
working-class family. An intensely private man, little is known about his
past. After high school, he got a job as a milkman.
V He escaped the cold weather by accepting a basketball scholarship at
Mississippi College, a tiny Southern 4aptist school in Clinton, Mississippi.
He graduated in 1967 with a bachelor's degree in physical education.
V After college, Ebbers held a number of jobs. He was a high school
physical education teacher and basketball coach, then managed a
garment warehouse. At one point, he was even a bouncer. Things began
looking up in 1974, when he bought a motel in Colonel, Mississippi.
V On March 15, 2005 4ernard Ebbers was found guilty of all charges and
convicted on fraud, conspiracy and filing false documents with
regulators. He was sentenced to 25 years in prison.
V 4usiness executive, accountant. 4orn Scott D. Sullivan in 1963 in New
York. Scott Sullivan attended 4ethlehem Central High School in Delmar,
New York, and received his 4.S. in Accounting from the State University
of New York at Oswego in 1983. He is an American Certified Public
Accountant and the former Chief Financial Officer, Treasurer, and
Secretary of WorldCom.
V In 2002, Sullivan was convicted on several counts of accounting fraud
relating to his role in WorldCom's $11 billion financial collapse, the largest
scandal of its kind in U.S. history. Sullivan, who is considered the
mastermind behind the WorldCom accounting scheme, pleaded guilty to
the charges and was sentenced to five years in prison as part of a plea
agreement. In exchange, he testified against former WorldCom CEO
4ernard Ebbers, who received a 25-year sentence.
V Scott Sullivan was released from jail in August, 2009, after serving four
years of his sentence. He will be on "home confinement" for another
year.
1. Managers might be motivated or tempted to act on
behalf of his/her self-gain and not in the best
interest of the organization and itǯs stakeholders.
- The deontological principle in ethics states that decision makers must
take into account a personǯs duty to act responsibly and respectfully
toward all individuals in the situation. In the given case, 4ernie Ebbers
used company money which was lent to him not only to finance his
other businesses, but to also to manipulate the stock at WorldCom to
decieve investors of profitability.
2. The negative or harmful effects of hostile
takeovers might be neglected.
- Loss of jobs in the company, decrease in company profability and stock
price. These are just some of the harmful effects of a hostile takeover.
With itǯs rapid growth, WorldCom amassed 65 companies in itǯs wake.
Some of these businesses are large like MCI and MFS, but 4ernie Ebbers
also took in or absorbed small scale companies. The principle of Justice
in ethics states that justice is served when all persons have equal
opportunities and advantages. With Ebbers Dzstrong armingdz every
organization he sees as either a threat or an expansion means there was
no equality.
3. Integration of all stakeholders at the end of a
hostile takeover might be overlooked.
- It is the managers responsibility to ensure that the acquired
organization be integrated smoothly into the operations and
management policies of itǯs now parent company to ensure satisfaction
of all parties involved. The principle of Utilitarianism holds that a
decision maker must consider not only the individualǯs but also the
collectiveǯs interests. In the case, 4ernie Ebbers did a poor job in
integrateing all of the companies he amassed during the 1990ǯs resulting
to the dissatisfaction of their consumers.
Thinking of the Utilitarian principle in ethics, I believe that
the loaning of money of a company to itǯs key executives is a
reasonable business decision which depends on a situation. I
say this because I believe that should the 4oard decide to
lend money to an executive, it is what they believe is good
for the interest of all parties involved. I say situation since
there must be good grounds in lending, especially lending
large sums of money to a single individual. There must be
basis and facts to support the 4oards decision to do this
action with costs and benefits thoroughly measured.
 WorldCom improperly booked $3.8 billion as capital expenditures,
boosting cash flow and profit over the past 5 quarters. In simple terms
WorldCom did not account for expenses when it incurred them, but hid
the expenses by pushing them into the future, giving the appearance of
spending less and therefore making more money. This apparent
profitability pleased investors who pushed the stock up to a high of
$64.51 in June 1999.

The Dzcookingdz of books in WorldCom was apparently a directive

from CFO Sullivan and co-conspired by CEO Ebbers to hide losses and
show company profability. This shows that both men, who were
executives and decision makers, enacted in the interest of their own (self
and organizations)welfare. This is another illustration of how these
executive violated the Utilitarianism principle in Ethics. Another is the
fact that cheated millions of people, customers and investors alike, for
gain. This shows lack of responsibility and respect which is against the
principle of Universalism.