What Are The Pressures That Lead Executives And Managers?

1816 WordsNov 19, 20148 Pages
1. What are the pressures that lead executives and managers to “cook the books”? Since the 1980s when WorldCom was Long Distance Discount Services (LDDS), WorldCom had focused on growth through acquisitions. This created economies of scale, which resulted in the firm’s comparative advantage in costs and market shares over its competitors. However, after the acquisition of Sprint was blocked in 1999, the firm realized that mergers or acquisitions could not be a feasible way of growth any more, and so it began to find alternatives growth strategies. Furthermore, the market conditions became worse in 2000 because of the intense competition and the oversupply in the market. During that time WorldCom acquired several long-term fixed rate…show more content…
2. Why were the managers’ actions not detected earlier? Examine why all internal and external governance systems failed. The reasons that the managers’ actions were not detected earlier are as follows: Corporate culture and structural issues: WorldCom had very strong dictatorship senior level management led by Bernie Ebbers. Special bonus and rewards were granted to selected employees regardless to policy, indicating the lack of transparency of company’s compensation system. In addition, WorldCom had no uniform code of conduct set up for each department of the company to follow, indicating the lack of corporate governance. Moreover, WorldCom had no independent outlet for its employees to whistle blow or express concerns with management. It exercised micromanagement to excessively control the work of its employees, its top down management approach created a disincentive for subordinates to freely express opinions, and functional expertise (e.g.: legal) was undermined if it contradicted senior management. Finally, there was no synergy between business units and decisions were made and filtered through corrupt senior management. Auditing issues: The outside auditing firm Arthur Andersen failed to audit ethically by using an inappropriate analytic audit approach to audit WorldCom as a “moderate-risk” client
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