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AOL/Time Warner and WorldCom:Corporate Governance and the Effects of the Deregulation Paradox
Unformatted Document Text:  5 The history of most industries in so-called free market economies is the history of the growth of oligopolies, where a few large companies eventually come to dominate. The first examples occurred during the late 1800s in the oil, steel and railroad industries... Antitrust laws eventually were used to break up many of these companies but oligopolistic tendencies continue in these and most other industries (p. 1). A secondary effect of the deregulation paradox can be seen in the area of corporate governance. Corporate governance can be described as the relationship among various corporate participants in deciding the direction and performance of companies. The primary participants being the corporate tripod, comprising management (led by the CEO), the board of directors and the shareholders. In theory, the corporate tripod is suppose to provide a system of checks and balances. The reality, however, belies the fact that many of today’s corporate governance structures are woefully out of balance (Monks & Minow, 1996). This has proven especially true in the fields of media and telecommunications (Lehn, 2002). This paper will consider the direct and indirect consequences of deregulation policy on the performance of two US media and telecommunications companies: AOL/Time Warner and WorldCom. Special attention is given to the deregulation paradox and its effect on corporate governance. A basic argument of this paper is that deregulation in the form of self-regulation can sometimes contribute to a “failure of knowledge conditions” so that neither a corporate board of directors or its individual members take responsibility (or are fully aware) of the actions of senior management (Cohan, 2002). More specifically, self-regulation failed to provide the objective oversight necessary to ensure the proper execution of business strategy at AOL/Time Warner and failed entirely to prevent egregious forms of corporate misconduct at WorldCom.

Authors: Gershon, Richard. and Alhassan, Abubakar.
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5
The history of most industries in so-called free market economies is the history
of the growth of oligopolies, where a few large companies eventually come to
dominate. The first examples occurred during the late 1800s in the oil, steel and
railroad industries... Antitrust laws eventually were used to break up many of
these companies but oligopolistic tendencies continue in these and most other
industries (p. 1).

A secondary effect of the deregulation paradox can be seen in the area of corporate

governance.
Corporate governance can be described as the relationship among various

corporate participants in deciding the direction and performance of companies. The primary

participants being the corporate tripod, comprising management (led by the CEO), the

board of directors and the shareholders. In theory, the corporate tripod is suppose to provide

a system of checks and balances. The reality, however, belies the fact that many of today’s

corporate governance structures are woefully out of balance (Monks & Minow, 1996).

This has proven especially true in the fields of media and telecommunications (Lehn, 2002).
This paper will consider the direct and indirect consequences of deregulation policy

on the performance of two US media and telecommunications companies: AOL/Time Warner

and WorldCom. Special attention is given to the deregulation paradox and its effect on

corporate governance. A basic argument of this paper is that deregulation in the form of

self-regulation can sometimes contribute to a “failure of knowledge conditions” so that neither
a corporate board of directors or its individual members take responsibility (or are fully

aware) of the actions of senior management (Cohan, 2002). More specifically, self-regulation

failed to provide the objective oversight necessary to ensure the proper execution of business

strategy at AOL/Time Warner and failed entirely to prevent egregious forms of corporate

misconduct at WorldCom.


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