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March 16, 2005
What Bernie Ebbers didn’t want to hear?
Did Bernie really do it? Yesterday a federal jury found the former WorldCom CEO guilty of all nine counts of criminal charges, including conspiracy to commit fraud by falsifying financial results.
Jurors didn’t believe Mr. Ebbers’s claims that he knew nothing about the accounting fraud taking place at WorldCom while he was chief executive. As Vincent Wright, juror N. 7, put it, “He was the man who was in charge. It’s just kind of hard to sit there and think he didn’t know what was going on.”
But it’s possible that Mr. Ebbers actually didn’t know what was going on because he didn’t want to hear it. Like other hard-charging, Type A, performance-driven senior leaders, Mr. Ebbers may have shut down the discussion any time the news was bad, troubling, or simply at odds with his beliefs or wishes.
Impossible? Not at all. Although I have no inside information on what went on at WorldCom—honest, Mr. Spitzer—I have seen the inner workings of many corporations that are far less dysfunctional.
Many well-intentioned, honest executives are terrible listeners. And since they’re under such intense pressure to hit their targets, these leaders are even less likely to be receptive to messengers who bring word that there’s a problem with making the numbers.
At WorldCom, approaching the boss with an issue might have gone like this:
- Not meeting an objective? “I don’t want to hear it.”
- Trouble with operations in Tulsa? “Solve the problem—don’t stand there talking about it.”
- Got a nagging suspicion that something’s rotten in Denmark? “I don’t have time for hunches.”
My theory—that Mr. Ebbers really didn’t know—is directly at odds with former WorldCom Chief Financial Officer Scott Sullivan’s extensive testimony that he told Mr. Ebbers everything. But the jury didn’t fully believe Mr. Sullivan, and I find it entirely plausible that a CEO and a CFO can spend a lot of time together without really communicating. I’ve seen firsthand how senior leaders tell the CEO what they think he wants to hear. Mr. Ebbers hired Mr. Sullivan to get the job done, not burden him with a lot of troubling details.
If my speculation is accurate, does that mean Mr. Ebbers was innocent? Actually, no. U.S. District Court Judge Barbara Jones instructed the jury that in order to find Mr. Ebbers guilty, it would be enough to find that he “deliberately closed his eyes” to the fraud, even if he didn’t participate in it directly.
According to Mr. Wright, juror No. 7, “A blind eye is not going to get him an excuse.”
Or, put another way, the thing that Mr. Ebbers may have been most guilty of was not listening, but he was guilty just the same.
Posted by Alison Davis at March 16, 2005 11:15 AM
Comments
Alison: Take it from someone who does have "inside information on what went on at WorldCom" -- I was an employee there for nearly eight years: There is no way Bernie Ebbers had no knowledge of what was going on. Like many "other hard-charging, Type A, performance-driven senior leaders," Ebbers was a micro-managing control freak. Sure, he did not want to hear bad news and frequently shot the messenger; however, none of the executive management team had the authority or (frankly) guts to make a decision on their own, certainly not one of this magnitude. Ebbers' (and WorldCom's) downfall was driven by the confluence of several factors that demonstrate only his greed and lack of real skill as a value-producing businessman: 1) WorldCom bought market share by competing with AT&T, MCI, Sprint and others on price. As a reseller of the network-based service providers' services, WorldCom did not know how to add value to its customers' processes, and it never even tried. 2) As industry consolidation increased (driven in large part by WorldCom's ponzi-like acquisitions), there was less and less room for WorldCom to drive down prices. After the MCI take-over, AT&T, Sprint, Qwest and others could not figure out how WorldCom could afford to continue to cut rates. Of course, as we all learned, WorldCom couldn't afford it. 3) With decreasing rates and no offer of additional value, WorldCom began eroding its own revenue base in order to maintain its customer count (particularly marquee customers such as the Fortune 500 acquired by MCI's legacy sales organization). 4) The decline in WorldCom's hyper-inflated stock price, spurred by a downturn in the telecommunications sector and overall economy, put Ebbers' personal financial empire at risk because he had to cover some $400M in margin calls and could only do so via guarantees of WorldCom stock. That meant the stock price had to stay up. By his greed and compulsiveness, Ebbers built WorldCom in the fashion of a pyramid, but there was no value foundation upon which the top layers could stand. If Ebbers is not guilty of anything, it is of being a responsible, talented businessman who knows how to create economic value for customers, employees and stockholders.
Posted by: Former WorldCom Employee at July 19, 2005 01:27 PM
Thanks for the comment . . . and the insight. I guess I was trying to give Bernie the benefit of the doubt. Obviously, the jury and the judge agreed with your assessment.
Posted by: Alison Davis at July 20, 2005 07:31 AM