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AOL/Time Warner and WorldCom:Corporate Governance and the Effects of the Deregulation Paradox
Unformatted Document Text:  20 Today, falling markets and accounting scandals have tarnished the once-iconic image of the chief executive officer. The self-dealing that characterized a handful of CEO’s have fostered public resentment and called into question a system that would allow senior level executives to enrich themselves at the public’s expense. At issue, are the excesses of senior level executives who pursued personal enrichment schemes and cashed out millions in stock options while employees were losing their jobs and life savings. The problem of corporate misconduct is not unique to the telecommunications field. WORLDCOM Starting in the mid-1990’s, Mississippi based WorldCom quickly rose to become the number two long distance telephone carrier in the US. Along the way, the company used its soaring stock to make 70 acquisitions, including a hostile takeover of MCI in 1998. Beginning in early 2002, WorldCom suffered a stunning reversal of fortune. WorldCom has become the focus of intense scrutiny by regulators and law enforcement officials after the disclosure that the company improperly overstated earnings by $3.8 billion in 2001 and the first quarter of 2002 (“Congress Begins,” 2002). The story of WorldCom’s corporate governance structure illustrates the problem of a large publicly traded company operating without a true independent board of directors. At issue, was the fact that WorldCom’s nine member board was composed of corporate insiders, friends of Bernie Ebbers and executives from acquired companies. Most or all of the company’s board were so beholden to CEO Bernie Ebbers that no one felt confident or able to come forward and raise the kinds of questions that needed asking concerning WorldCom’s finances.

Authors: Gershon, Richard. and Alhassan, Abubakar.
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20
Today, falling markets and accounting scandals have tarnished the once-iconic

image of the chief executive officer. The self-dealing that characterized a handful of CEO’s

have fostered public resentment and called into question a system that would allow senior

level executives to enrich themselves at the public’s expense. At issue, are the excesses of

senior level executives who pursued personal enrichment schemes and cashed out millions

in stock options while employees were losing their jobs and life savings. The problem of

corporate misconduct is not unique to the telecommunications field.
WORLDCOM
Starting in the mid-1990’s, Mississippi based WorldCom quickly rose to become
the number two long distance telephone carrier in the US. Along the way, the company
used its soaring stock to make 70 acquisitions, including a hostile takeover of MCI in 1998.

Beginning in early 2002, WorldCom suffered a stunning reversal of fortune. WorldCom

has become the focus of intense scrutiny by regulators and law enforcement officials after

the disclosure that the company improperly overstated earnings by $3.8 billion in 2001 and

the first quarter of 2002 (“Congress Begins,” 2002). The story of WorldCom’s corporate

governance structure illustrates the problem of a large publicly traded company operating

without a true independent board of directors. At issue, was the fact that WorldCom’s

nine member board was composed of corporate insiders, friends of Bernie Ebbers and

executives from acquired companies. Most or all of the company’s board were so beholden

to CEO Bernie Ebbers that no one felt confident or able to come forward and raise the kinds

of questions that needed asking concerning WorldCom’s finances.


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