Report: Worldcom Run With Virtually No 'Checks or Restraints'


Former WorldCom executives Bernard Ebbers and Scott Sullivan ruled with unquestioned authority, steering the telecommunications company into multibillion-dollar acquisitions on a whim, while the board of directors and senior managers sat by silently, according to a report released Monday.

The 263-page report by former Attorney General Richard Thornburgh outlined a corporate culture dominated by two individuals, fostering an environment that led to the largest-ever U.S. bankruptcy and an $11 billion accounting scandal.

"WorldCom was dominated by Messrs. Ebbers and Sullivan, with virtually no checks or restraints placed on their actions by the board of directors or other management," according to the report, which was prepared at the request of a bankruptcy judge in New York.

In September 2000, WorldCom, a company built largely through acquisitions, decided to spend $6 billion to purchase a company called Intermedia Communications. WorldCom conducted about 60 to 90 minutes of due diligence research before making the acquisition, which was rubber-stamped by the board of directors after a half-hour meeting that was held on two hours' notice. One director called it an "ego deal" for Ebbers, who was chairman and CEO before resigning last year.

While the Thornburgh report faulted Ebbers and Sullivan's management style, it also criticized the board and senior management for failing to speak up.

"WorldCom could not have failed as a result of the actions of a limited number of individuals," Thornburgh's report said. "Rather, there was a broad breakdown of the system of internal controls, corporate governance and individual responsibility, all of which worked together to create a culture in which few persons took responsibility until it was too late."

WorldCom hopes to emerge from Chapter 11 protection this fall, renamed MCI and headquartered in Ashburn, Va.

Its ability to exit bankruptcy largely hinges on acceptance of a proposed $500 million fine negotiated with the Securities and Exchange Commission. While that fine is by far the largest of its type ever imposed by the SEC, many of WorldCom's competitors and critics say it is woefully inadequate, considering that the accounting fraud wiped out about $180 billion in shareholder value.

Another report being released later Monday was commissioned by the company's new board of directors. A board member who oversaw that report's preparation told The Associated Press on Friday that it details "heavy-handed tactics" by Sullivan--who was CFO--and other executives to override standard accounting procedures. Sullivan has pleaded innocent to federal fraud charges.

The report also linked Ebbers, who has not been charged, to company meetings convened to discuss ways of stretching the company's revenue.