Inserción laboral de los migrantes en Argentina

On 26 June 2002, the SEC formally charged the company with defrauding investors.¹⁸Then on 21 July 2002, WorldCom filed for Chapter 11 bank-ruptcy protection. There were concerns that because of the size of the bankruptcy there would be problems in the wider economy and ramifica-tions for banks, suppliers and other telephone companies. At the time of the bankruptcy substantial numbers of employees were laid off and it was predicted that the shareholders would receive nothing for their shares. For employees who also held WorldCom’s shares, the bankruptcy was a double blow.

It seemed that the political administration was becoming nervous at public reaction to WorldCom’s bankruptcy, which followed soon after Enron’s bankruptcy in December 2001. It was reported that public opin-ion polls were beginning to show signs of a crisis of confidence by the public in business and that a public backlash could partly explain the deci-sion by the White House and Republicans to support corporate fraud and accounting legislation promoted by Senate Democrats.¹⁹On 30 July 2002, President G.W. Bush signed into law the Sarbanes–Oxley Act of 2002 which would initiate radical corporate reforms.

In August 2002 WorldCom revealed that it had found another $3.3 billion in accounting irregularities²⁰and on 10 September 2002 Sidgmore resigned as WorldCom CEO. On 16 December 2002, a compensation plan for the new chief executive of WorldCom, Michael Capellas, was agreed by two federal judges. The compensation package would guar-antee Capellas $20 million in cash and stock over the following three years.²¹Capellas was a former president of Hewlett Packard and it was known that Microsoft had wanted him to become number three execu-tive of Microsoft after Bill Gates, chairman, and Steve Ballmer, chief executive. Hence the justification for the substantial compensation pack-age offered to Capellas.

DISCUSSION

Mississippi was not one of the wealthiest states in the USA and the fact that WorldCom was based in the state was a source of pride to many Mississippians. While WorldCom was successfully growing, it provided employment and a source of wealth to the state. But many who lived in the state and many of WorldCom’s employees bought shares in the company and were badly let down when the share price fell to seven cents in July 2002. This compared with a share price of $62 three years earlier. But while WorldCom was doing well, there is little doubt that it contributed to economic development in Mississippi.

WorldCom represents a fascinating case study since it encompasses a story of massive wealth accumulation based on the telecommunications and internet boom of the 1990s. If the telecommunications and merger boom of the 1990s had not ended so suddenly, there is some justification for believing that WorldCom might have weathered the storm and carried on. As WorldCom’s business declined in 2001 and 2002, Sullivan shifted some expenses from the profit-and-loss account to the balance sheet, thereby showing improved earnings. It seemed that this was a desperate measure, perhaps seen by Sullivan as a temporary measure, to try to pre-vent or delay WorldCom’s bankruptcy.

There is some evidence that Bernie Ebbers was a charismatic figure.

Ebbers and Sullivan held the most important posts at WorldCom and they appeared able to dominate the board of directors. WorldCom’s bankruptcy caused a severe loss of confidence in US business, especially since it came so soon after Enron’s bankruptcy in December 2001. Is it possible for UK busi-ness to argue that such collapses are unlikely to occur in the UK? In other words, is the present state of corporate governance in the UK sufficiently robust to prevent a UK version of WorldCom?

According to the President of the Institute of Chartered Accountants in England and Wales in 2002:

There is no systemic failure in this country in financial reporting, auditing or corporate governance. (Peter Wyman, Accountancy, July 2002: 124) But Beth Holmes – in her article ‘WorldCom: could it happen here?’

(Accountancy, August 2002: 18–19) – makes a number of interesting com-ments. She argues that Peter Wyman is complacent in arguing that scandals such as Enron and WorldCom are unlikely to happen in the UK. Perhaps the UK has simply been lucky in avoiding such major scandals. After all, Maxwell, Polly Peck and BCCI all occurred in the UK over a decade ago and it could be argued that similar episodes could happen again because little radical change has taken place in UK corporate governance in recent years.

There is little doubt that employees and shareholders lost out as a result of WorldCom’s bankruptcy. Creditors were also disadvantaged. One might also think that the banks that made large loans to WorldCom would also

have suffered. Interestingly, Partnoy argues that the banks who lent to WorldCom were effectively insured against the bankruptcy because they had used credit derivatives to hedge their lending risk:

Banks had done an estimated $10 billion of credit default swaps related to WorldCom. That meant that even though banks still held loans to WorldCom and were owed money in WorldCom’s bankruptcy proceed-ings, they had sold the risk with those loans to someone else. The banks didn’t have to worry about WorldCom’s bankruptcy, because whatever they lost on WorldCom’s loans they made up for with credit default swaps. Whatever happened, they were hedged. (Partnoy, 2004: 375–6) By the end of 2002 it was hoped that, with the appointment of Capellas and a new management team, WorldCom would be able to re-establish itself.

The company emerged from bankruptcy in May 2004 and the name

‘WorldCom’ has now been dropped in favour of MCI. There have been several prestigious appointments to the board in order to enhance the company’s credibility. For instance, Nicholas Katzenbach (a former US Attorney General) was appointed chairman of MCI and Dennis Beresford (former chairman of the Financial Accounting Standards Board) was appointed a director.

Although MCI was reporting losses by the end of 2004, there were expecta-tions that the company had a reasonable chance of operating profitably.

Table 8.1 WorldCom: key events

1983 LDDS (Long Distance Discount Services) created 1985 Bernie Ebbers appointed chief executive officer of LDDS 1992 Scott Sullivan joins LDDS

1994 Scott Sullivan promoted to chief financial officer 1995 LDDS changes name to WorldCom

1998 WorldCom completes takeover of MCI

1999 WorldCom begins to reclassify some operating expenses as capital expenditure

2000 WorldCom shareholders approve takeover of Sprint, but regulators block deal

2001 Internal auditors find overpayments on sales commissions March 2002 Public learns that WorldCom has loaned Ebbers $341 million April 2002 Ebbers resigns as CEO; Sidgmore takes over

June 2002 Cynthia Cooper reports to WorldCom audit committee on capital expenditure accounting (13 June); Sullivan is dismissed as CFO (24 June); WorldCom reports cash flows overstated by $3.8 billion (26 June) July 2002 WorldCom files for bankruptcy (21 July); Sarbanes-Oxley Act becomes

law (30 July)

August 2002 WorldCom reports additional $3.3 billion in accounting irregularities September 2002 Sidgmore resigns as CEO

December 2002 Federal judges approve compensation package for new CEO, Michael Capellas

March 2004 Sullivan pleads guilty to fraud and conspiracy and agrees to testify against Ebbers, who faces similar charges

May 2004 WorldCom emerges from bankruptcy and is renamed MCI

Discussion questions

1 Is it possible that the UK quoted company sector could experience its own version of WorldCom?

2 Should short-sellers be described as ‘stakeholders’?

3 Identify the stakeholders who lost out when WorldCom filed for bank-ruptcy and describe the extent of their losses.

4 Identify the main lessons that can be learned from WorldCom’s bankruptcy.

5 To what extent can ethics be considered part of the solution to prevent future bankruptcies such as WorldCom?

REFERENCES

Holmes, B. (2002) ‘WorldCom: could it happen here?’, Accountancy, August: 18–19.

Jeter, L.W. (2003) Disconnected: Deceit and Betrayal at WorldCom. New Jersey: Wiley.

Partnoy, F. (2004) Infectious Greed: How Deceit and Risk Corrupted the Financial Markets.

London: Profile Books.

NOTES

1 Financial Times, 4 March 2004: 28.

2 See, for instance, Jeter, 2003: 54.

3 A particular feature of the ‘pooling of interests’ method of group accounting is that goodwill is not created and the effect on reported profits can be more favourable than under the acquisition method of group accounting.

4 New York Times, 11 November 1997: 1.

5 Jeter, 2003: 98.

6 Jeter, 2003: 91.

7 Jeter, 2003: 118.

8 San Francisco Chronicle, 8 March 2002: B1.

9 See Jeter, 2003: 140–1.

10 Jeter, 2003: 151.

11 Jeter, 2003: 168.

12 Jeter, 2003: 173–4.

13 New York Times, 26 June 2002: 1.

14 New York Times, 26 June 2002: 1.

15 New York Times, 31 March 2002: 1.

16 Jeter, 2003: 63.

17 Financial Times, 11 May 2004: 21.

18 Washington Post, 28 June 2002: E1.

19 New York Times, 2 August 2002: 1.

20 New York Daily News, 11 September 2002: 23.

21 New York Times, 17 December 2002: 10.

Parmalat

NINE

The financial problems of Parmalat first came to the public’s attention in November 2003, when it became clear that the group was struggling to meet its cash commitments; on 8 December 2003, Parmalat was unable to make a bond repayment of €150 million. This quickly led to a sharp fall in the share price in December 2003, when share dealing was suspended, and the group suffered a dramatic financial collapse.

By August 2004, the government-appointed administrator, Enrico Bondi, had calculated that Parmalat’s debts amounted to €14.5 billion and the creditors were likely to receive only a fraction of that amount, proba-bly less than 10 per cent. Up to November 2003, Parmalat had been an apparently successful Italian multinational company, with its shares quoted on the Milan stock exchange. In the decade to 2003, Parmalat had expe-rienced remarkable growth, with sales rising from €845m in 1992 to

€7,590m in 2002 (see Figure 4). In 2002 over 60 per cent of these sales took place outside Europe.

In its Statement of Results and Strategies for the six months to 30 June 2003, the Parmalat Group describes itself as a food group with a focus on milk, dairy products and beverages. There had been remarkable growth in the 1990s, but by 2002 sales revenues seemed to be levelling off. Parmalat was perhaps seen to be a rather unexciting company, not subject to the same kinds of risk as other multinationals, for instance those in technology, media and telecommunications (TMT), still less the types of risk associated with financial trades in options and futures, which led to the downfall of Barings Bank in 1995. This view of a stable organization was reinforced by Calisto Tanzi, chairman and chief executive, who argued that Parmalat was committed to maintaining its global leadership in liquid milk. He also considered that Parmalat’s phase of rapid expansion had been substanti-ally completed, and from 2003 onwards the focus was to be on consoli-dation and maximizing value (see Parmalat Group: Message from the Chairman).

Price (euros)

4.54

3.53

2.52

1.51

0.50

Date

01/01/2002 01/02/2002 01/03/2002 01/04/2002 01/05/2002 01/06/2002 01/07/2002 01/08/2002 01/09/2002 01/10/2002 01/11/2002 01/12/2002 01/01/2003 01/02/2003 01/03/2003 01/04/2003 01/05/2003 01/06/2003 01/07/2003 01/08/2003 01/09/2003 01/10/2003 01/11/2003 01/12/2003 01/01/2004

Figure 3 Parmalat share price, January 2002 to December 2003 Source: Datastream

Parmalat Group: Message from the Chairman

• Parmalat is a food group with a focus on milk, dairy products and beverages

• Parmalat is committed to continue to be the most innovative company in the market

• Parmalat is committed to deliver the best quality products to its consumers

• Parmalat is committed to expand its core brands Parmalat and Santàl

• Parmalat is committed to its consumers’ satisfaction

• Parmalat is committed to providing attractive returns to its shareholders

• Parmalat is committed to its people

• Parmalat is committed to retain its global leadership in liquid milk

• Parmalat considers that the phase of rapid expansion is substantially completed. The focus is now on consolidation, maximizing value of the expansion

Source: Parmalat Group Statement of Results and Strategies for six months to 30 June 2003