Worldcom Case

I/ Introduction

WorldCom’s massive accounting scandal, which was known to be the largest corporate fraud in the US history, has not only caused immeasurable damage to millions of stakeholders but also created a true corporate crisis in corporate America. $180 billion of stock was swept away. Public confidence in the securities market was unprecedentedly shook. Telecommunication industry landscape was entirely changed. A flood of regulatory responses was produced, most notably the Sarbanes-Oxley Act of 2002.

This report assesses what happened at WorldCom and its implications for corporate governance and risk control practices. Section II analyses the broad industry background, which partly explained the pressures leading to WorldCom accounting mispresentation. Section III discusses the company’s failures in corporate governance. Section II reveals the lessons learned accordingly. Finally, section V concludes with an assessment and some final thoughts.

II/ Industry background

The second half of 1990s witnessed American deregulation of telecommunications and spectacular growth of dot-com bubble where “get big fast” was the common strategy in many communication providing companies. Driven by overoptimistic forecast of future growth and fuelled by public eagerness to invest in hot dot-com securities, telecommunication companies were busy to build up their capacity for future use, expand customer base and develop market share. This entailed the threat of costly underutilized capacity if things turned out not as good as expect.

For WorldCom, M&A was its strategic, and legitimate, means of growth. By 1998, after aggressive acquisition sprees, WorldCom became a full-service, second largest telecommunication company in the US, with substantial international market share and large ownership stake in world’s Internet backbone. It was widely viewed as heroic and