This paper focuses on the unfortunate fall of WorldCom with regard to the problems that happened and an evaluation of these problems using the deontological framework with basis being laid on rights in business management. The thesis is based on the ethical standards that were applied at WorldCom.
What are the ethical problems raised in the WorldCom case?
The Growth Strategy
The WorldCom applied a strategy, whose growth was by acquisition, this technique was complicated and very time consuming undertaking. Doing unions and acquisitions too adjacent to another may result into negative issues which may not be that easy to resolve (Ivans, 2003). The shareholders are normally the ones to suffer when this technique is applied. The main desire when getting a new company is to try and apply similar techniques or even improved, standards of client service using seamless change in the accounting practices and technologies. Notable in the whole process is the high level of costs so operate the two companies for the clients. A large size of this cost is not included in the buying price.
Due diligence when researching the company to be acquired is not considered hence the risk of losing a great deal, moreover trouble places would be hard to note and the accounting may be creative methods which may be reveled with an assessment of the company’s outside market positioning, inside frameworks, operations and financial information.
This was what happened at WorldCom as they undertook big deals to get big companies. These companies allocated WorldCom a bigger share of market and make strong the vital competencies though big does not always result too much income. The WorldCom case study brings to being creative accounting to conceal the correct costs arising in the coming quarters after acquisition. By not offering determination and time to straightening the issues it is facing in services, technology and business practices with the incoming companies, WorldCom was forced to look for ways alternative modes of correcting the stakeholder value. This was through getting another bigger company hence another way of putting in place measures of creative accounting.
The executive level of the WorldCom had a network that was attributed to unethical behavior for the company. The practices of instructing lavish loans at very demeaning small rates and applying costs for instance expensive business dinners with the finances of the company was not illegal but grossly unethical. Adding to the weight of undertaking these networks was the increased weight of keeping a picture of shareholder wealth and increasing market rates. This form of weight starts to thin the interface of undertaking certain processes in the top interest of the company and not undertaking similar processes in the top desire of the shareholder an client. The government stopped the growth of WorldCom steps.
Critically evaluate WorldCom’s ethical problems using the deontological framework?
The ethical guidelines handle the common good as gotten from the instances that are not included by legal restraints (Scharff 2005). In precise, they handle unknown regions where the staff and organizations are faced with on a daily basis. The legal matters come about as a result when there is conflict of the activities or decisions of a company with the rights that are there so as to control that operation with regard to what is acceptable or not acceptable. The rights do not on a constant basis consider the value system that leads to ethical decision making.
The client loyalty at WorldCom operation in information security and confidentiality was affected. The business did not take into consideration the rights of the client as being relevant and information security and confidentiality as being a good practice that all companies ought to consider. With the increase of internet business operations like e-commerce and restructuring of client laws, WorldCom ought to elevate their strategies of ensuring information is private. Businesses has to be active in assessing the form of data that they acquire from business operations and the manner the information is acquired, this did not take place at WorldCom. Considering that the development of technology leads to information security and privatization of information, the use of personal data in networks is an increasing threat to abide by these laws.
Similarly, WorldCom did not have a standard form of protocol for creating networks for purpose of business activities in and outside the company. If offers the backing and framework for advancing complicated business operations (Jackson, n.d). This would limit the programming difficulty and expenses, lead to quick time-to-market processing, elevating operation effectiveness and hence a better ability to acquire new income. This form of best practices lacked at WorldCom, where the networks lacked support and ways to develop its operations.
These operations would have made the business evade poor business practices. These led to WorldCom to have a poor service value, unable to hinder legal impositions, adherence to regulations and brought about income decline.
Immanuel kant (1724-1804) was of the argument that ethic or moral requirements rely in a standard of rationality which he called the “Categorical Imperative.” In this respect, immorality entails a violation of categorical imparative meaning that it is irrational (Paton, 1971). The law of an autonomous will is the fundamental principle of morality, the categorical imparative. Thus, at the core of Kant’s moral philosophy is a holding of reason whose ultimate effect in practical affairs exceed far beyond that of a Human ‘slave’ to the passions. In addition, it is the availability of this self-controlling reason in an individual person that Kant believes gives decisive foundation for seeing each as possessed of not only equal worth but also deserving of equal respect (Paton, 1971).
Worldcom was hit a series of corporate scandals in 2002 including Enron, Global Crossing and Tyco. These scandals exposed the failure in corporate governance, outright greed together with accounting abuses that bedeviled Worldcom because of wanting ethical standards of its management.
WorldCom’s external auditors before and during the scandal, Ather Anderson LLP. and KPMG, failed in their ethical conduct and thus failed to live up to Kant’s Categorical Imperative. Ather Anderson LLP failed in its obligation to protect investors by issuing a faulty audit opinion on WorldCom with the intention of deceiving, manipulaing or defrauding the investors (Brooks & Dunn, 2009). This is a good example of the implications of accountants getting overly intertwined with their clients to the extent that the line between the two becomes almost blurred. The result is that the accounting firm becomes so free with its client to the point of overlooking their responsibility to avert any fraud, something that undermines its ethics and morality as expressed by Kant’s Categorical Imperative.
Similarly, KPMG which replaced Anderson as WorldCom’s auditors, failed in its ethical obligation by givint its client a flawed tax advice. The auditing company assumed the state taxes as it charged subsidiaries in excess of 12 million in royalties in span of four years. The firm also failed to caution WorldCom pertaining to risks of its strategies which amounted to negligence (Flitzpatrick & Bronstein, 2006).
In summary, the entire WorldCom scandal has to do with ethical issues for accountants. The accountants got instructions to conceal bad debts as well as falsify WorldCom’s books of accounts against the code of ethics. The control of WorldCom took instructions for the senior management and made entries to the effect of reducing WorldCom’s reported real costa and hyped WorldCom’s registered earnings. The controller failed an ethical and moral obligation of blowing the whistle to that effect, something that had to be done by an internal audit employee (Brooks & Dunn, 2009).
In line with Kant’s Categorical Imparative, accountants should respect their ethical skills and report any such malpractice. One of the major tasks of an external auditor is to accertain the honesty of the decisions being implemented at the firm, something that clearly did happen in the WorldCom case. Besides the apparent dishonesty of the accountants and executives of WorldCom, there were also a fleet of other financial scandals shrowded with irregularities which are yet to result in prosecutions or thorough investigations (Flitzpatrick & Bronstein, 2006). The lack of a preventative culture has meant that unethical irregularities are allowed to happen and then shoddy investigations follow resulting to downfalls of the neo-corporate culture.
Brooks, J. Leonard, & Dunn, Paul. (2009). Business & Professional Ethics for Directors, Executives & Accountants. Connecticut, Cengage Learning.
Flitzpatrick, Kathy, & Bronstein, Carolyn. (2006). Ethics in Public Relations: Responsible Advocacy. New York, SAGE.
M M Scharff. (2005). WorldCom: A Failure of Moral and Ethical Values. Journal of Applied Management and Entrepreneurship, 10(3), 35-47. Retrieved July 27, 2011, from https://proquest.umi.com/pqdweb?index=15&did=1176439141&SrchMode=3&sid=1&Fmt=4&VInst=PROD&VType=PQD&RQT=309&VName=PQD&TS=1311793787&clientId=29440&aid=1
Ivans, Molly (2003). A WorldCom of Trouble. Alternet. Retrieved July 28, 2006 from
Jackson, P. (n.d.). WorldCom: An Ethical Case Study. Retrieved May 19, 2012, from www.sampledisplay11.com/PJacksonPortforlio/Adm%20Policy-%20WorldCom.pdf
Paton, James, Herbert. (1971). The Categorical Imperative: A Study in Kant’s Moral Philosophy. Philadelphia, University of Pennsylvania Press.
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