CASE STUDY 3

Bernie Ebbers built WorldCom, Inc. (now part of Verizon, Inc.) into one of the world’s largest telecommunications firms. Yet he and chief financial officer (CFO) Scott Sullivan have become better known for creating a massive corporate accounting fraud that led to the largest bankruptcy in U.S. history. Two investigative reports and subsequent court cases concluded that WorldCom executives were responsible for billions in fraudulent or unsupported accounting entries. How did this mammoth accounting scandal occur without anyone raising the alarm? Evidence suggests that Ebbers and Sullivan held considerable power and influence that prevented accounting staff from complaining, or even knowing, about the fraud.

Ebbers’s inner circle held tight control over the flow of all financial information. The geographically dispersed accounting groups were discouraged from sharing information. Ebbers’s group also restricted distribution of company-level financial reports and prevented sensitive reports from being prepared at all. Accountants didn’t even have access to the computer files in which some of the largest fraudulent entries were made. As a result, employees had to rely on Ebbers’s executive team to justify the accounting entries that were requested.

Another reason why employees complied with questionable accounting practices was that CFO Scott Sullivan wielded immense personal power. He was considered a “whiz kid” with impeccable integrity who had won the prestigious “CFO Excellence Award.” Thus, when Sullivan’s office asked staff to make questionable entries, some accountants assumed Sullivan had found an innovative - and legal - accounting loophole. If Sullivan’s influence didn’t work, other executives took a more coercive approach. Employees cited incidents where they were publicly berated for questioning headquarters’ decisions and intimidated if they asked for more information. When one employee at a branch refused to alter an accounting entry, WorldCom’s controller threatened to fly in from WorldCom’s Mississippi headquarters to make the change himself. The employee changed the entry.

Ebbers had similar influence over WorldCom’s board of directors. Sources indicate that his personal charisma and intolerance of dissension produced a passive board that rubber-stamped most of his recommendations. As one report concluded: “The Board of Directors appears to have embraced suggestions by Mr. Ebbers without question or dissent, even under circumstances where its members now readily acknowledge they had significant misgivings regarding his recommended course of action.”
Discussion Questions
1. What power bases did Bernie Ebbers and Scott Sullivan rely on to get away with accounting fraud?

2. What influence tactics did Bernie Ebbers and Scott Sullivan use to control employees and the
company’s board?

3. Did Bernie Ebbers and Scott Sullivan engage in organizational politics? Explain your answer.

Evidence suggests that Bernie Ebbers and Scott Sullivan relied on the following power bases (in the order that they were mentioned in the Case Study) to commit massive corporate fraud within Worldcom Inc:

Informational Power: This refers to the ability of a person(s) to manage the flow of information that is required by other people to execute tasks or achieve something(s). The Case Study above indicates that Ebbers's core team controlled information very tightly.

Expert Power: This kind of power is based on a person's perceived level of know-how (that is, knowledge and skill(s)). According to the study above, the CFO Scott Sullivan was the recipient of a very prestigious award which is mentioned in paragraph three above. He used this to his advantage in conning the accountants who believed that if a decision was illegal or didn't make sense, and it came from him, then perhaps, he had discovered a new way of going about things.

Coercive Power: Sullivan mostly deployed the use of "force" if his influence didn't help. When a person uses coercive power, they are simply trying to influence others using the fear of punishment for non-cooperation or non-compliance. One way he did this was to tell the staff who wouldn't budge that he was coming to carry out the unethical or illegal act himself. This kind of statement meant that the person involved would most likely have to take the risk of being fired if they didn't cooperate. Again, if he could come and do it, why would they not?

The other power base mentioned in the study is a similar but slightly varied form of power a mix of Coercive and Referent power bases.

Referent Power stems from a person's ability to seduce others into doing their bidding using their personal charm and charisma. It is understood from the last paragraph of the study that Mr. Ebbers also had a free course with the Board of Directors who were now complacent and non-dissenting with regards to any recommendations that he made.

2. Influence Tactics

The two major forms of tactics that occur throughout the text are:

Legitimating tactics and Pressure.

Legitimating Tactics refers to the act of basing one's request from a position of legal or formal or hierarchical authority.

Pressure Tactics on the other hand refers to the act of insisting on one's requests using threats and or intimidation.

Other forms of influence tactics are:

Rational Persuasion
Inspirational Appeals
Consultation
Ingratiation
Personal Appeals
Exchange and
Coalition Tactics

3. Yes. Bernie Ebbers and Scott Sullivan did engage in Organizational Politics.

Every human action which seeks to influence the organization using any of the powers or tactics mentioned above, in order to achieve an end or interest is called Organizational Politics or Power Politics.

To learn more about Power Bases and Influence Tactics click here:

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