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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

Ethics in Action

Bernie libbers, the CKO of WorldCom, a major telecommunications company, was having personal financial troubles, Ebbers pledged a large stake of his WorldCom stock as security for some personal loans. As the price of WorldCom stock sank, Ebbers’ bankers threatened to sell his stock in order to protect their loans. To avoid having his stock sold, Ebbers asked the board of directors of WorldCom to loan him nearly (400 million of corporate assets at 2.5% interest to pay off his bankers. The board agreed to lend him the money. Comment on the decision of the board of directors in this situation.

To determine

Case study

To comment: On the decision of the board of directors in its CEO personal loan case.

Explanation

Company W agreed to lend $400 miliion of personal loan to its CEO at the rate of 2.5%. This was the largest amount of loan provided by the company to its CEO for the first time in its lifetime. Securities and Excahnge Commission starts investigating Company W, and then CEO has been terminated, since the loan is being cited as part of reason.

The board of directors supposed to lend this large amount of money to its CEO, in order to prevent him from selling his stock, and to prevent the share price crash in the market. The baord of directos reasoned that, it is an activity of helping its shareholders by keeping this shares from being sold...

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