Corporate Governance - WorldCom Scandal

Added on - 28 May 2020

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1Corporate GovernanceName:CourseProfessor’s nameUniversity nameCity, StateDate of submission
2IntroductionThe WorldCom scandal is the last of the business scandals that have been registered in theUnited States since the fall of Enron, when the energy company went bankrupt, to which othershave followed. WorldCom is being investigated for fraudulent handling, through which ittransferred expenses of $ 3.85 billion dollars to the line of capital investments. The Securitiesand Exchange Commission, the US securities regulator, sued WorldCom and accused it of hidinglosses amounting to 1,220 million dollars through this maneuver.The scandal was a new milestone when a group of 25 banks reported having been subject tofraud by WorldCom for an amount of 2,500 million dollars(Velasquez, 2018). The FBI arrestedtwo former WorldCom officials in New York on charges of conspiracy to defraud and othercrimes.The repercussions of the gigantic fraud of the Enron energetic had not yet been silenced when,on Wednesday, the 26th, the scandalous scam of WorldCom, the second US telecommunicationscompany with branches in more than 60 countries (including several in Latin America),exploded.Corporate governanceThis is how the system works. This is, in effect, to the conclusion that this succession of fraudsgives to the scale of the economy of whole organization with an example of WorldCom.Corruption is inherent in a system that is governed exclusively by the law of maximum gain. Itappeals to any method to increase the benefits and the speed of circulation of speculative capital,while the authors and beneficiaries of gigantic embezzlements enjoy until now the absoluteimpunity(Bowie, 2017).
3The auditors detected in the telephone company WorldCom new accounting errors, worth 3,300million dollars (about 3,416 million euros), with which the figure poorly recorded in booksreaches 7,180 million dollars, as reported by the current administration of the company. TheWorldCom case forced the suspension of payments of the signature, the largest in the history ofthe United States.After a second review of its accounting, WorldCom revealed irregularities in the account registerfor another 3,300 million dollars. Some income comes from reserve funds for investments, whichcompanies usually keep separate to cover extraordinary expenses that arise in the future(Murthy,2010).Those who are excluded from suffering the material consequences are the managers of thecompanies, who appear on TV as honorable gentlemen (although voices are raised claiming jailfor them). With the blessing of their boards of directors, these managers are assured of millionsin compensation and generous compensation in case of forced retirement. Enron gave itsdirectors 745 million dollars in 2001(Vona, 2008).Almost simultaneously, a similar situation appears with Xerox. The large office equipmentcompany acknowledged "accounting errors" for $ 2 billion, but The Wall Street Journalestimates at $ 6 billion the sum of the highest fictitious income accounted for incorrectly in thelast five years. His actions fell short but these are far from the only cases. After Enron, fraudsfollowed that reached the following firms: Global Crossing, Qwest, Adelphia, Dynegy, Tyco,ImClone. Even on Thursday nothing less than General Motors was paralyzed its stock price aftera sharp fall due to current information that was the subject of an investigation for accountingirregularities.
4The items are usually of importance since they include the expenses of acquisition, maintenance,salaries of the driver. The owner of a Limited Company sold clandestinely in time of inflation,goods whose production was consigned to "Special Account", which led to the House tobankruptcy. A stock of preferred shares, which were on the books during inflation at a price of20 marks each, was obtained at the time of sale a high profit. The alienated shares wereaccounted for by the reduced value, so that the benefit disappeared and remained in the owner'spocket, without imposition of excise taxes. Merchandise previously acquired, but not accountedfor in a timely manner, was sold at a very favorable price; After the initial purchase and thesubsequent purchases, with fictitious high prices, in the middle of the period, supposedly hugelosses were posted(Vona, 2008).Causing the collapse in the stock markets, the fall of the Dow Jones and the Nasdaq, the fall ofthe dollar that was practically matched with the euro, massive layoffs of personnel, in addition toenormous damages to the mass of shareholders and public pension funds. The new maneuverwas carried out, in an identical manner to the Enron case, with the clear complicity of theauditing company Arthur Andersen (Steger and Amann, 2008). Between one and anotherfraudulent bankruptcy there were several others, which shows that it is not isolated cases butrather the way the system works.Evaluation of Corporate GovernanceThe evaluation of the corporate governance of a company can be a subjective exercise. However,it is part important part of the risk classification process. Strong corporate governance providesthe company with a directory and top management that allows adding economic value,increasing the probability that the Company is financially healthy in the long term. Also, it can
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