Examining the Failure of WorldCom
This author will describe how specific theories of organizational behavior could have predicted the failure of WorldCom. The contributions of leadership and management will be compared and the contribution of organizational structure will also be examined.
Description of the Failure
Starting in 1989, WorldCom, then LDDS, began acquiring a long list of companies. In November 1997, WorldCom and MCI Communications became the largest corporate merger in US history. In 1999, under the leadership of CEO Bernard Ebbers, MCI WorldCom attempted unsuccessfully to merge with Sprint after which the company was renamed WorldCom (Kuhn & Sutton, 2006).
Starting no later than that same year, fraudulent accounting methods were used by Ebbers and select top leaders at WorldCom to inflate artificially the value of WorldCom stock (Kuhn & Sutton, 2006). Despite these practices, the WorldCom stock values continued to decline. Ebbers had used his WorldCom stock as collateral for personal loans. According to Patra (2010), in 2001, Ebbers borrowed $341 million from WorldCom, the largest loan a publicly traded company had ever provided to its CEO. Less than a year later, Ebber was no longer the CEO of WorldCom.
Within weeks of that separation, a small group of auditors at WorldCom discovered $3.8 billion in fraud. A subsequent investigation by the US Securities Exchange Commission revealed the assets of WorldCom were over inflated by $11 billion (Beresford, Katzenbach, & Rogers, 2003). The situation culminated in a Chapter 11 bankruptcy for WorldCom and a 25-year prison sentence for Bernard Ebbers (Patra, 2010).
Organizational Behavior Theories
The field of study known as organizational behavior (OB) considers the effects that employees, teams and the structure of the organization have on the manner the organization operates. The results of these studies can then be used to improve the effective operation of the...