Soon after worldcom CEO John Sidgmore revealed the most sweeping bookkeeping deception in history, a marked-up copy of his internal memo on the scandal was e-mailed to folks around the telecom industry. Under his predecessor, Sidgmore announced, WorldCom had overstated a key measure of earnings by more than $3.8 billion over five quarters, dating back to January 2001. The company's reported profits, it turned out, were really losses. In his memo to employees explaining America's latest corporate disgrace, Sidgmore wrote last Wednesday, "Our customers can count on WorldCom to meet their communications needs today and tomorrow." The memo that circulated included one wag's cynical addition: "Friday is sort of doubtful." Sidgmore went on to write, "I know I can count on you to be with me." To which the wag had tacked on: "Don't bother with a resume; no other telecoms are hiring."
As WorldCom--once big and rich enough to swallow No. 2 long-distance carrier MCI--struggles to survive, it is laying off 17,000 workers. Its stock, which peaked at $64.50 three years ago, stopped trading last Tuesday at 83[cents], having all but wiped out employee retirement accounts. The plunge in WorldCom shares has cost investors upwards of $175 billion--nearly three times what was lost in the implosion of Enron. WorldCom is not yet financially bankrupt, but it's clear that it--like a fat slice of corporate America--has been ethically bankrupt for years. We're only now getting a look at the red ink on the moral balance sheets, and new revelations of malfeasance in one company after another are sending shocks around the globe.
The dollar is falling. Stocks are in a swoon. Foreigners are calling home capital. Corporate insiders are dumping shares by the bucketful. Individuals are redeeming mutual-fund shares. Pension funds are getting socked. Banks are taking loan-portfolio hits. This is all a direct result of the spreading collapse of confidence in U.S. companies and the executives and board members who run them--a crisis that threatens to untrack a fragile economic recovery. Speaking at an economic summit in Canada, President Bush said he was "concerned about the economic impact of the fact that there are some corporate leaders who have not upheld their responsibility." The Federal Reserve seems concerned as well. At a meeting last week, it left interest rates unchanged--signaling that the recovery isn't firmly rooted. Some economists speculate that the Fed will soon cut rates to guard against a "double-dip" recession.
In the context of recent developments, President Bush's musings on CEO responsibility are as understated as the expenses in WorldCom's financial statements, the flashpoint for new worries of widespread accounting abuse. WorldCom said that an internal review uncovered huge hidden expenses--mostly line charges that it pays to other telecom carriers--that were characterized as capital investments, a gimmick that boosted its profits.