While reading about the mess Enron created in Smartest Guy’s in the Room, I couldn’t help but think to myself…there is no possible way Enron could have been the only company manipulating accounts in order to bolster their Wal-Street value, especially during a time of unprecedented stock booms. After about three seconds surfing with my dear friend Google, I found that my hypothesis was valid. It is my pleasure, and dismay, to introduce Enron’s cousin, WorldCom.
When Enron collapsed, shocked investors were assured by President George W. Bush that Enron was one “rotten apple” in an otherwise legitimate and ethical corporate system. In typical Bush fashion, his perception of reality was incorrect. Since Enron, a string of collapses of high-profile companies in the U.S. has raised the fear that the corporate system is based on a corrupt and brittle foundation of manipulation and greed. WorldCom, one of the largest telecommunication companies in the U.S., intentionally messed with accounts in order to show inflated profits in the two preceding years, have rekindled the debate on corporate accountability. There is also growing anger about the culture of greed in the boardrooms.
WorldCom was the second biggest long-distance telecom company in the U.S and was also the biggest carrier of Internet traffic and electronic commerce in the world. In it’s 15 years of its existence, the company grew at a unbelievable pace (similar to Enron’s 15% goal), fueled by the almost insatiable appetite of its CEO, Bernard J. Ebbers for acquiring companies. As long as the stock market boomed, along with the incredible rise of dot com business, not a thought was given to the fundamentals of the company. Wall Street analysts and investment bankers looked the other way as auditors failed to exercise due diligence.
Financial experts have pointed out that WorldCom’s accounting practices, particularly those relating to the acquired businesses, made it impossible for investors to gauge the performance of the company. Like Enron, WorldCom hid their massive debts using sketchy accounting mechanisms. Revisions in financial statements were thus the norm in WorldCom. Profitability was overstated; investors were misled by the opaque nature of its regular operating performance, and in the end, the company and investors paid dearly for it. Even in 2001, as the dot com bubble finally busted after unprecedented growth, WorldCom continued to maintain that all was peachy.
So what parallels can we draw between Enron and WorldCom besides the fact they both have futuristic, catchy names? First, both Enron and WorldCom fudged their accounts in order to duped investors in believing their companies were growing at an exponential rate. Secondly, both companies assumed massive amounts of debt by buying up other companies in hopes they would make a profit. When many of them failed, the super corporations were hit hard. Finally, both companies were revealed to be frauds and manipulators of the free market economy, and in response, both companies disintegrated. Now I understand I only scratched the surface of the connections between Enron and WorldCom, so I challenged you to find more.