Managers are most likely to step across ethical and legal boundaries when the pressure to perform is great. Pressure can be healthy but companies that set high-performance targets and grant large rewards for achieving these must have strong control systems to ensure that people are not tempted to cross boundaries. What are the four important control systems? Please identify each control by name. Strategy
WorldCom never really had a strategic plan, committee, or framework. Their plan was rapid growth and maintaining that 42% E/R ratio. From the beginning it committed itself to high growth strategies that relied on aggressive corporate and fraudulent accounting practices. There was no strategic committee and their decisions were mainly consisted of CFO Ebbers decisions. Corporate Governance
WorldCom’s Board of Directors were inactive, not knowledgeable, and inexperienced. A Board of Directors that is active, involved, and knowledgeable of the organization is an important factor of an effective control system. In addition, they were solely paid based on the appreciation of the company’s stock, therefore with their approvals of the many acquisitions, this allowed them to grow and hence a larger compensation. This practice focused on the growth rather than the best interest of the company. Company Culture
If WorldCom would have created a working culture full of honesty, positive work environment, openness, and assistance there would have never been any fraud. Instead they created an aggressive, individualistic, and competitive culture. Efforts that were made to establish a corporate Code of Conduct received Ebbers disapproval; he described the Code as a “colossal waste of time”. The consistent pressure from management created an aggressive and competitive culture that didn’t contain any communication, honesty, truthfulness, or ethics within the company. Ebbers also created an individualistic culture where the boss was to not be questioned. All this created a culture that was more suitable for a sole proprietorship than a corporation.
Auditing WorldCom’s Audit Committee was established to conduct relations with Arthur Andersen, the external auditor. While there was a Committee it seemed that it was completely useless and practically nonexistent. Arthur Andersen had acknowledgement that WorldCom was a maximum risk client and when mentioned to the Audit Committee, they simply choose to ignore it. The Audit Committees negligence shows the weakness in WorldCom’s control system. Hence, it is very important to have members in the committee that can fulfill their duties.
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