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Ebbers' Costly Legacy

The case is a reminder that the corporate landscape has changed.

March 30, 2005
Related Topics: Corporate Culture, HR & Business Administration
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Certainly, the entire $6 billion that public companies are expected to spend this year to comply with the Sarbanes-Oxley Act can’t be blamed on Bernard Ebbers, the former chief executive of WorldCom Inc. who faces a long prison sentence after his recent conviction on multiple counts of fraudulent activity.

    But the Ebbers case is widely considered the booster rocket that launched Sarbanes-Oxley in 2002, creating a continuing headache for corporate CEOs and finance officers who not only have to pay the bills but put themselves at risk in signing the disclosure statements required by the law.

    The estimate of $6 billion comes from ARM Research, which says that Sarbanes-Oxley will account for the biggest chunk by far of the $80 billion that companies will have to spend over the next five years to comply with various federal regulations.

    The cost of living up to Sarbanes-Oxley is just one of the shock waves from the WorldCom case. Ebbers’ conviction March 15 served as a painful reminder to executives that the corporate landscape has changed.

    Aside from the financial strains of SOX, CEOs should now realize that they can’t rely on the defense, as Ebbers tried to do, that they didn’t know what was going on.

    "Clearly one of the messages out of this case is that juries can find that a CEO is responsible for the activities of other employees of their company," says Michael Missal, a Washington, D.C.-based attorney who served as lead counsel for the examiner in the WorldCom bankruptcy proceeding.

    Missal hopes Ebbers’ conviction will encourage executives to step up when they see questionable activities. He describes the corporate climate created by Ebbers as "a culture of greed that filtered down through the organization.

    "This case should empower gatekeepers--corporate attorneys, boards of directors, internal auditors--to stand up and do their job, even in the face of a dominating CEO or dominating senior management," he says.

    Brent Longnecker, a Houston-based consultant, says human resources executives will also have to step up and convince executives that they can’t "put their head in the sand."

    Human resources executives are well-placed to forge closer working relationships with legal departments and internal auditors to monitor corporate activities, Longnecker says. "There are not a lot of people who want to go down the hall and talk to the chief legal person if they see something that may be questionable," he says. "They may be much more likely to talk to human resources. HR is a good conduit."

    John Boatright, a professor of business ethics at Loyola University Chicago, says Fortune 500 companies these days are just as likely to turn to human resources as they are to the legal department in setting up ethics programs. "The HR function has become much more important," he says.

    Boatright says that with WorldCom, Enron, Global Crossing, Tyco and other cases to explore, he finds no shortage of lecture topics for his MBA students.

    "The business world can be a very dangerous place," he says. "It creates a lot of moral mazes that people have to work their way through. When a boss says, ‘Just do it; don’t tell me how,’ they know they better watch out."

Workforce Management, April 2005, p. 14-16 -- Subscribe Now!

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