1. What type of dilemmas were faced by the following persons regarding the accounting
& business practices at WorldCom?
a) Bernard Ebbers – CEO - Bernard Ebbers, as the CEO of WorldCom,
encountered a deeply personal and professional ethical dilemma. He had
to choose between maintaining the company’s image and stock
performance or disclosing the financial reality of declining revenues
and rising costs. With a significant portion of his personal wealth
tied to WorldCom shares, Ebbers was under immense pressure to keep
the stock price high, not only to protect his reputation but also to avoid
personal financial collapse due to margin loans. As the business
performance declined, he could have acted with integrity by initiating
internal reforms and alerting stakeholders to the truth. Instead, he tacitly
supported a culture of accounting manipulation, prioritizing short-term
image and stock price over ethical corporate governance. His failure
to promote transparency and his avoidance of difficult truths allowed
systemic fraud to take root under his leadership.
b) Scott Sullivan – CFO - Scott Sullivan faced perhaps the most pivotal ethical conflict in
the entire scandal. His dilemma was whether to report the truth about the company’s
deteriorating financial condition or to engage in fraudulent accounting practices to meet
Wall Street expectations and preserve investor confidence. As CFO, he had direct control
over the company's financial statements and used this power to falsely improve earnings by
releasing accruals and capitalizing ordinary expenses. Sullivan rationalized these acts as
temporary fixes that would ultimately protect the company. However, his true ethical
conflict centered on truth versus loyalty—choosing between honest reporting and
meeting unrealistic targets set by the CEO and market pressures. He ultimately betrayed
his professional duties by initiating and managing the core accounting fraud, becoming the
linchpin of deception within WorldCom.
c) David Myers – Controller - David Myers, serving as WorldCom’s Controller, faced an
ethical dilemma rooted in organizational hierarchy and professional responsibility. He was
forced to choose between following the unethical directives issued by his superiors—
particularly CFO Sullivan—or adhering to proper accounting standards and refusing to
implement fraudulent entries. Myers knew the entries he was asked to book lacked proper
support and violated accounting rules. Nonetheless, he yielded to pressure and became an
enabler of the fraud, instructing staff to post unethical entries and silencing objections
from subordinates. His decision to comply stemmed from a desire to maintain his position
and avoid conflict, but in doing so, he compromised his integrity and became an active
participant in perpetuating accounting misconduct.
d) Betty Vinson – Manager, International Accounting Division - Betty Vinson's ethical
dilemma was a classic case of moral conflict in middle management. She had to decide
whether to follow orders that she believed were unethical or risk losing her job by
refusing to comply. Initially, she expressed concern and even considered resigning when
asked to make improper accounting entries, such as large accrual releases and backdated
transactions. However, after persuasive reassurances from Sullivan and Myers—who insisted
the actions were temporary and not illegal—she eventually gave in. Her dilemma involved
balancing ethical judgment against personal and financial security: do what’s right and
face possible termination, or do what’s asked and keep her job. Though she later admitted
regret and remorse, her decision to comply made her complicit in the ongoing fraud,
highlighting how vulnerable employees can be in unethical corporate environments without
strong support systems.
e) Cynthia Cooper – Member, Internal Audit - Cynthia Cooper, the head of internal audit
at WorldCom, was placed in a profound ethical predicament that tested her personal and
professional values. She had to choose between protecting her job and status by staying
silent, or risking retaliation and backlash by uncovering and reporting financial
wrongdoing at the highest levels. When Cooper and her team discovered discrepancies in
capital expenditure reporting, she faced resistance from senior executives and a lack of
support from those around her. Despite this, she chose to act on her ethical obligations,
escalating her findings to the audit committee and exposing the fraud. Her dilemma
involved enormous personal risk, yet she prioritized truth and accountability over conformity
and self-preservation, demonstrating the critical role of internal auditors in upholding
corporate integrity.
2. What type of ethical / unethical practices were followed by those people (mentioned
above Q.1). Meaningfully and clearly highly their individual / joint role in the
accounting fraud or otherwise, in the company. Also critically examine the role of the
statutory auditor - Arthur Andersen in this accounting fraud.
The following are the ethical / unethical practices were followed by those people :
a) Bernard Ebbers – CEO

Pressured executives to meet unrealistic financial goals, even as performance
declined.

Took over $400 million in personal loans from the company—creating a clear
conflict of interest.

Promoted a culture of silence, fear, and blind loyalty, ignoring ethical red flags.

Role: Did not directly commit fraud but acted as the key enabler, setting the tone for
unethical behavior.
b) Scott Sullivan – CFO

Designed and executed fraudulent accounting schemes, including:
o
Releasing reserves (accruals) without justification.
o
Capitalizing line costs to artificially inflate earnings.

Misled the board and convinced staff the practices were legal.

Role: Primary architect of the fraud, directly responsible for misleading financial
reporting.
c) David Myers – Controller

Carried out fraudulent entries at Sullivan’s instruction.

Coerced staff to comply, threatened to input false data himself if needed.

Suppressed concerns raised by accounting staff.

Role: Operational executor of the fraud, ensuring transactions were posted despite
objections.
d) Betty Vinson – Accounting Manager

Initially resisted, but later complied due to pressure from Sullivan and Myers.

Recorded false and backdated journal entries.

Acted out of fear of job loss, despite knowing the actions were wrong.

Role: A reluctant but complicit participant in executing fraudulent entries.
e) Cynthia Cooper – Director, Internal Audit

Discovered suspicious entries and led a covert investigation.

Faced resistance but reported findings directly to the audit committee.

Demonstrated moral courage, independence, and ethical responsibility.

Role: Whistleblower and ethical leader who exposed the fraud and triggered
accountability.
The following are the joint role in the accounting fraud:

The fraud was collaborative:
o
Ebbers created performance pressure.
o
Sullivan engineered and justified the schemes.
o
Myers and Vinson executed the false entries.

Cooper broke the chain by acting ethically.

Reflects a system-wide ethical breakdown, not just individual failure.
The following are the role of Arthur Andersen in this accounting fraud:

Failed to:
o
Access the general ledger.
o
Question suspicious financial ratios (e.g., stable margins amid revenue
decline).
o
Report audit limitations to the board.

Relied on management-prepared summaries—highly prone to manipulation.

Conflict of interest due to consulting ties with WorldCom.

Showed lack of skepticism, poor oversight, and compromised independence.

Role: While not involved in the fraud, Arthur Andersen was complicit through
negligence and inaction, enabling the fraud to persist.
3. What are your key learnings on the role of a leader and the overall governance
practices of the company related to ethical business practices?
The following are key learnings on the role of a leader and the overall governance practices
of the company related to ethical business practices:
1. Leadership Sets the Ethical Tone

Leaders have a powerful influence over organizational behavior.

At WorldCom, Bernard Ebbers prioritized stock price over ethics, creating
pressure for financial manipulation.

Ethical leadership involves transparency, accountability, and encouraging open
communication.

When leaders ignore wrongdoing, it signals that ethics are optional.
2. Unrealistic Targets Encourage Unethical Behavior

WorldCom’s top management set impossible performance expectations.

Employees were forced to choose between job security and integrity.

Ethical business practices require realistic, sustainable goals and a culture where
failure can be acknowledged and addressed.
3. Board Oversight Must Be Active and Independent

WorldCom’s board and audit committee were passive, uninformed, and overly
dependent on management.

Good governance requires:
o
Regular, informed board meetings.
o
Audit committees with financial expertise.
o
A willingness to question and challenge management decisions.
4. Internal Controls Must Be Strong and Independent

At WorldCom, internal auditors reported to the CFO, who was orchestrating the
fraud.

Internal audit functions must:
o
Report directly to the audit committee or board, not executives.
o
Be given autonomy, resources, and support to act independently.
5. Whistleblower Protection is Essential

Employees feared retaliation for reporting fraud, leading to compliance under
pressure.

Companies must:
o
Provide confidential reporting channels.
o
Enforce strict anti-retaliation policies.
o
Promote a speak-up culture where integrity is rewarded.
6. Ethical Culture Should Be Organization-Wide

WorldCom lacked a code of ethics and did not conduct ethics training.

Ethics should be part of:
o
Hiring and promotion decisions.
o
Performance appraisals.
o
Day-to-day decision-making at all levels.
7. Individuals Can Drive Ethical Change

Cynthia Cooper’s courage shows that ethical individuals can make a difference.

Organizations must empower employees to act when they see wrongdoing.

A culture that values integrity over loyalty can prevent systemic failures.
Actual vs Reported Income
2 000
1 736
Reported Income ($ millions)
1 500
1 000
500
908
988
217
Actual Income ($ millions)
845
159
102
240
0
-500
-1 000
10-Q, 3rd 10-Q, 1st 10-Q, 2nd 10-Q, 3rd 10-Q, 1st
Qtr 2000 Qtr 2001 Qtr (401)
2001 Qtr 2001 Qtr 2002
(578)