Print Сite this

CEO Failure: Bernard Ebbers

The position of a CEO is a top of the corporate ladder, which means that a person not only receives great power to take over a large company but also has responsibility for decisions. The evidence shows that the highest leadership is prone to significant mistakes, which should be analyzed to understand their underlying reasons. Bernard Ebbers, the ex-CEO of WorldCom, was one of many top managers, who have become the culprits of major corporate scandals in the United States.

We will write a
custom essay
specifically for you

for only $16.05 $11/page
308 certified writers online
Learn More

The jury found Ebbers guilty of fraud, conspiracy, and falsified reporting to regulators, while the volume of additions to WorldCom amounted to $ 11 billion. The machinations had a detrimental effect on the whole industry, and the losses of shareholders and investors were incalculable (“The 15 worst CEOs,” 2010). Being earlier the embodiment of the American dream, a successful businessman, generous philanthropist, and also a passionate Christian turned into a culprit, mainly due to his erroneous decisions. A stability bias is the first cause of Ebbers’ failure since his only strategy for 17 years was the extensive expansion of the business at all costs. The preservation of a status quo was facilitated by the growth of the American economy that began in the middle of the 1980s under President Reagan and the Internet boom that happened in the 1990s. The given CEO took out a loan by loan for new acquisitions. The attention was paid only to positive experience, while potential difficulties were disregarded.

In the early 1990s, Ebbers decided to buy the companies that own fiber-optic communication lines. Due to the investments in fiber, which quickly became one of the most promising areas in telecommunications, the company, renamed WorldCom in 1994, quickly flew into the list of 500 largest US companies. The pinnacle of Ebbers’ extensive strategy was the acquisition of MCI in 1997 for $ 37 billion (“The 15 worst CEOs,” 2010). However, it seems that a confirmation bias was present in the approach with which Ebbers took his decisions. Namely, the confirmation bias refers to paying more attention to the issues that support a formulated theory, while ignoring those that contradict it (Klein, 2017). Instead of evaluating his decisions from different angles, this CEO continued to obtain loans. For example, this bias is present when only the details that confirm one’s beliefs are remembered. The way a person gathers information and interprets the actions of others are also subjected to the confirmation bias.

Another reason for failure was associated with mistakenly treating a complex situation as complicated. It seems that Ebbers perceived his situation as the one having a transparent cause and effect, but a lavish lifestyle required more and loans. It was also not taken into account that classical analytics does not work in complex cases. As a result, the accumulated credit pyramid crushed the company. In 2000, the company warned that revenues for 2000 would be 40% lower than planned (DiPrimio, 2010). The company ceased further acquisitions, and stagnation turned into the end of WorldCom. In the face of obvious failures, Ebbers resigned in 2002. Compared to complicated problems, complex ones include many unknown factors that cannot be predicted, which is associated with greater risks of failure. Poor decision-making that was largely caused by the underestimation of complexity led to false assumptions and unintended consequences. To manage complexity, it was necessary to shift the traditional approach of resolving problems towards understanding its compound parts.

The billions of financial frauds surfaced a little later. With enviable dexterity, WorldCom accountants, along with Arthur Andersen’s auditors, turned the rent for using communications channels into long-term investments. Two months after Ebbers’s resignation, WorldCom declared itself bankrupt. One may suggest that the method of pre-mortem could be used by Ebbers to avoid such a situation or, at least, minimize its negative outcomes. According to pre-mortem, the existing weaknesses and potential threats are to be examined before introducing actions. In other words, the worst outcomes should be imagined to answer the question of what did go wrong, instead of discussing what might be a mistake (DiPrimio, 2010). Every reason that can lead to the failure should be written down and shared with the team for further examination. In this case, the typical strategy was applied by the CEO without considering the ordinary actions as the cause of potential problems.

To conclude, this paper focused on the reasons for the failure of Bernard Ebbers, who was the CEO of WorldCom and accused in financial fraud. The desire to save the status quo, the stability and pattern recognition biases, as well as the erroneous perception of a complex problem as complicates were found to be the main issues that led to the collapse. It was suggested that the implementation of the pre mortem technique could help this leader in avoiding such detrimental consequences. Therefore, an effective CEO should be aware of potential problems that may occur to prevent them by means of recognizing and avoiding biases as well as practicing conscious decision-making.

References

DiPrimio, A. (2010). The managerial mistakes that a CEO must avoid. Journal of Case Research in Business and Economics, 2, 1-18.

Get your
100% original paper
on any topic

done in as little as
3 hours
Learn More

The 15 worst CEOs in American history. (2010). Business Insider. Web.

Klein, G. A. (2017). Sources of power: How people make decisions. New York, NY: MIT Press.

Cite this paper

Select style

Reference

StudyCorgi. (2022, January 7). CEO Failure: Bernard Ebbers. Retrieved from https://studycorgi.com/ceo-failure-bernard-ebbers/

Reference

StudyCorgi. (2022, January 7). CEO Failure: Bernard Ebbers. https://studycorgi.com/ceo-failure-bernard-ebbers/

Work Cited

"CEO Failure: Bernard Ebbers." StudyCorgi, 7 Jan. 2022, studycorgi.com/ceo-failure-bernard-ebbers/.

* Hyperlink the URL after pasting it to your document

1. StudyCorgi. "CEO Failure: Bernard Ebbers." January 7, 2022. https://studycorgi.com/ceo-failure-bernard-ebbers/.


Bibliography


StudyCorgi. "CEO Failure: Bernard Ebbers." January 7, 2022. https://studycorgi.com/ceo-failure-bernard-ebbers/.

References

StudyCorgi. 2022. "CEO Failure: Bernard Ebbers." January 7, 2022. https://studycorgi.com/ceo-failure-bernard-ebbers/.

References

StudyCorgi. (2022) 'CEO Failure: Bernard Ebbers'. 7 January.

This paper was written and submitted to our database by a student to assist your with your own studies. You are free to use it to write your own assignment, however you must reference it properly.

If you are the original creator of this paper and no longer wish to have it published on StudyCorgi, request the removal.