Should Worldcom Ceo Bernard Ebbers’ Been Sentenced to 25 Years in Prison?
The WorldCom fraud that came to light in 2002 was an example of many things that went wrong within the organization. Unethical conduct by its senior leadership beginning with Chief Executive Officer (CEO) Bernard Ebbers was certainly at the forefront of these problems. The question is should a CEO like Ebbers have been sentenced to prison for his liability in the WorldCom scandal? My answer is yes, he should’ve gone to prison as well as other CEOs who engage in unethical conduct that results in laws being violated. I will support my answer by aking a look at the duties of a CEO, focusing on leadership responsibilities and accountability. I will discuss causes of ethical problems in CEOs and finish by discussing utilitarian and deontological ethical issues as they pertained to Ebbers. Background As the telecommunications industry slowed in the late 1990s, WorldCom’s stock price began to decrease.
Ebbers came under pressure from financial institutions to cover margin calls on WorldCom stock he used to finance other businesses (Vasatka, 2007). From 1999 to 2002, a few WorldCom senior executives engaged in fraudulent accounting practices. These practices were esigned to portray losses as growth to the public. Ebbers resigned as CEO under pressure for several reasons unrelated to the accounting fraud on April 29, 2002 (Beresford, Katzenbach & Rogers, 2003). Cynthia Cooper led an internal audit investigation of suspected accounting irregularities in May-June 2002.
According to Ms. Cooper’s statement, she discussed the investigation with WorldCom Chief Financial Officer (CFO) Scott Sullivan on June 12, 2002. She then discussed her investigation with two others on June 13, 2002. They were Max E. Bobbitt, Chairman of the Audit Committee, WorldCom Board of Directors and Mr.Farrell Malone, engagement partner of KMPG, LLP, an external audit agency. The Board of Directors met on June 25, 2002 and decided to publish a revised financial statement for 2001 and first quarter 2002. They also decided to report this action to the U. S. Securities and Exchange Commission (SEC) and the events leading up to it (WorldCom, 2002). The SEC launched its own investigation into the matter (Vasatka, 2007) and brought civil action against a number of WorldCom executives in June 2002 (SEC, 2002).
WorldCom filed for bankruptcy protection on July 21, 2002. The U. S. Justice Department rought criminal charges against Ebbers and several other WorldCom executives. For his role in the scandal, Ebbers was convicted in Federal court on March 15, 2005 and then on July 13, 2005 sentenced to 25 years in prison. The CEO as a Leader To examine the issues in this case from a normative ethics viewpoint, I believe that we should see what a CEO does in performing the leadership functions of their job as they relate to ethical issues. A good description of the CEO’s leadership role can be found in The Duties of a Chief Executive Officer (Wibowo & Kleiner, 2005). The authors cite information in CEO
Causes of Ethical Problems in CEOs The position of CEO is one that has a great deal of power. There is a quote from British historian Lord Acton (1834-1902): “Power tends to corrupt, and absolute power corrupts absolutely. Great men are almost always bad men” (Lewis, n. d. ). In the article No Fair Shake for Shareholders, the author discusses the CEO personality as possibly contributing to the ethical problems that arise with some CEOs. Traits such as a strong ego, left unchecked can turn into bad behavior. CEOs normally are good salesmen and they often sell themselves on how good they are which inflates their egos.
A weak board of directors can fail to hold a CEO accountable. He stresses board responsibilities relative to CEO accountability (Wilson, 1989). In the article The Responsibility of the CEO – Providing Ethical and Moral Leadership, Lewis says that there is a difference between what is legal and what is ethical. He stresses the need for a culture of ethics within an organization where all team players practice good ethics, including the CEO. He says laws only deal with part of the ethical issues faced by businesses. He cites heavy competition and pressure many employees feel to engage in unethical behavior as some of the keys to the problem.
Good corporate governance, beginning with the CEO, is very important to building a good ethical culture within the organization (Lewis, 2002). Discussion of Ethical Issues Pertaining to Ebbers Ebbers had a responsibility to the employees of the company, investors, and the public to report WorldCom’s finances accurately and honestly. He was accountable to the board of directors for his actions as CEO – both good and bad. Ebbers should’ve had loyalty to these people to help them avoid the monetary losses resulting from WorldCom’s shaky financial situation. This is an example of a utilitarian ethics issue.
Due to his position, he should’ve had the greater good of all these people in mind as he ran WorldCom. However, Ebbers allowed unethical practices to continue with his knowledge, with the consequence that many people lost money when WorldCom went bankrupt. Ebbers had an obligation to provide honest financial statements in order to not to violate the rights of others. He failed in this obligation, violating the rights of many people in the process. This is an example of deontological ethics. Continuing on this track, investors also have a right to know the truth about companies that they are investing in or may invest in.
They also have an obligation to learn as much about the companies they are investing in or planning to invest in. Due to the fraud committed by senior executives and allowed by Ebbers, WorldCom’s public financial statements made it difficult for investors to know the truth about its financial health. Even with the fraudulent statements, some investors were able to learn of some of the irregularities in WorldCom. Shareholders filed a lawsuit against WorldCom in June 2001 alleging widespread fraudulent accounting practices. The case was subsequently thrown out by a judge in Mississippi (Weinberg, 2002).
In this example of deontological ethics shareholders acted to protect their rights. Also by learning the truth about WorldCom they fulfilled their obligation to gain as much knowledge about the company as they could. In addition to Ebbers’ failings, there are others that should be mentioned in this discussion of ethics. First, WorldCom documents and testimony of employees revealed that some employees discovered problems as far back as 2000, tried to do something to correct them, and failed (Waggoner, 2002). The question is how hard did these people try to correct what they saw that was wrong?
From a utilitarian ethics perspective, they had to know many people could get hurt if this continued. Secondly, regarding the shareholder lawsuit previously mentioned why didn’t the board of directors or the SEC act when these allegations were made? The board failed to hold Ebbers accountable for the accounting fraud that was being uncovered nearly two years from the time it went public in 2000. From a deontological ethics viewpoint, they had an obligation to look into these allegations so that the rights of others wouldn’t be violated. Conclusion Ebbers’ conviction and prison sentence were justified.
From a utilitarian ethics perspective, he was responsible and accountable to serve the greater good of others and failed in that capacity. From a deontological viewpoint, he also had an obligation to ensure the rights of others associated with WorldCom wouldn’t be violated and he failed to meet this obligation as well. Contributing factors to the WorldCom fiasco were poor corporate governance and a corporate culture where some employees were aware of problems but failed to get corrective action taken.