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AOL/Time Warner and WorldCom:Corporate Governance and the Effects of the Deregulation Paradox
Unformatted Document Text:  22 accounting disclosure and Worldcom has discharged 17,000 of its employees (or 28% of the company’s workforce). The company has seen its stock plummet from a one time high of $64.50 per share to stock that is trading at 83 cents per share. The company’s bond holders and other creditors have also suffered heavy losses. WorldCom is carrying $30 billion in debt. It must pay $172 million in interest and maturities in 2002, rising to $1.7 billion in 2003 and $2.6 billion in 2004. All this comes at a time when WorldCom’s assets are worth far less than its $32 billion debt due to the softness of the telecom. market. In the meantime, WorldCom’s former Chief Financial Officer, Scott D. Sullivan and accounting director Buford Yates were indicted in August 2002 by US Federal Prosecutors for fraud and misrepresentation. WorldCom also faces pressure from an employee lawsuit over the loss of value in its retirement plan resulting from the accounting disclosures. It isn’t clear why WorldCom’s misstatements weren’t caught immediately by its outside auditors. The answer in part, can be explained by the accounting firm responsible for its financial audit; Arthur Anderson, the same company responsible for the Enron debacle and the shredding of documents. The firm signed off on WorldCom’s financial statements. Anderson later issued a statement that CFO Sullivan had been deceptive in his financial reporting to the company’s auditors. What is also clear is that WorldCom’s board of directors failed in their effort to provide the proper oversight in managing a large, publicly traded company. DISCUSSION The challenges and difficulties faced by today’s media and telecommunications companies call into question some basic assumptions regarding deregulation and corporate governance. This reality overturns several decades of conventional wisdom

Authors: Gershon, Richard. and Alhassan, Abubakar.
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accounting disclosure and Worldcom has discharged 17,000 of its employees (or 28% of the

company’s workforce). The company has seen its stock plummet from a one time high of

$64.50 per share to stock that is trading at 83 cents per share. The company’s bond holders

and other creditors have also suffered heavy losses. WorldCom is carrying $30 billion in debt.

It must pay $172 million in interest and maturities in 2002, rising to $1.7 billion in 2003 and

$2.6 billion in 2004. All this comes at a time when WorldCom’s assets are worth far less

than its $32 billion debt due to the softness of the telecom. market.
In the meantime, WorldCom’s former Chief Financial Officer, Scott D. Sullivan and
accounting director Buford Yates were indicted in August 2002 by US Federal Prosecutors for
fraud and misrepresentation. WorldCom also faces pressure from an employee lawsuit over the
loss of value in its retirement plan resulting from the accounting disclosures. It isn’t clear why
WorldCom’s misstatements weren’t caught immediately by its outside auditors. The answer
in part, can be explained by the accounting firm responsible for its financial audit; Arthur
Anderson, the same company responsible for the Enron debacle and the shredding of documents.
The firm signed off on WorldCom’s financial statements. Anderson later issued a statement
that CFO Sullivan had been deceptive in his financial reporting to the company’s auditors.
What is also clear is that WorldCom’s board of directors failed in their effort to provide the
proper oversight in managing a large, publicly traded company.
DISCUSSION
The challenges and difficulties faced by today’s media and telecommunications

companies call into question some basic assumptions regarding deregulation and

corporate governance. This reality overturns several decades of conventional wisdom


Convention
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