Question

. Even when the first multibillion-dollar restatement came, many near Clinton, Mississippi, appeared to be more in mourning than angry. One employee, sharing the shock with bar patrons at Bravo Italian Restaurant & Bar, said, “People are taking it with exceptional grace. In my experience with MCI, I have never worked for a better company.” Others, such as Bernie’s minister, give him the benefit of the doubt, concluding that he might not have known about the distortion of the numbers: “We’ve kind of held judgment until we know the entire story and whether he had knowledge.”

Evaluate the effect of these companies on the hometowns in which they operate. What role do hubris and the fear of letting the locals down play in situations such as WorldCom’s?  

  

Answer 1

Hubris and the fear of letting the locals down play a very significant role in situations like that of WorldCom. WorldCom was embroiled in an accounting scandal in which the management of the company cooked its books to create and maintain the appearance that the company’s profitability is growing at a good rate.

The role of hubris was that the management of the company took excessive pride in the company and its operations and this led to excessive self-confidence. Not only the management of the company took excessive pride and self-confidence in the company but other stakeholders like employees, stockholders, suppliers etc. also took excessive pride in the company. It was this pride that led the management to not be able to accept the declining profitability of the company and this led them to manipulate the books of accounts so as to artificially proper the accounting figures and falsely show that the company is financially healthy.

As far as the fear of letting the locals down is concerned the management of Worldcom was accountable to its stakeholders like investors, shareholders and stockholders, employees etc. The management had a responsibility to run a profitable and a financially healthy operation and it was the fear of diluting and destroying the interests of these stakeholders that led WorldCom’s management to cook its books.