Extraordinary Circumstances Summary
<1 min read ⌚
The Journey of a Corporate Whistleblower
Who Should Read “Extraordinary Circumstances”? And Why?
Cynthia Cooper moved from being the head of internal auditing at WorldCom to a true hero.
Cynthia’s story of how she handled her supervisors’ pressure, and scaring-techniques, she stayed true to herself and her principles and exposed the massive WorldCom corporate fraud.
When the information she shared entered the public eye, it moved the earth from under WorldCom, which filed for bankruptcy. The investors were left with hands full of worthless stock. CEO Bernie Ebbers was sentenced to a 25-year prison sentence. Other executives went to prison as well.
We recommend “Extraordinary Circumstances” to all people interested in the WorldCom scandal, as well as to those who want to learn the importance of following your internal moral compass.
About Cynthia Cooper
Cynthia Cooper is the former head of internal auditing at WorldCom.
“Extraordinary Circumstances Summary”
In June 2002, WorldCom reported that it was in a financially bad place.
They announced it as it follows: “because of an inward review of the organization’s capital consumption bookkeeping, it was resolved that specific transfers…were not made as per sound accounting standards.”
At the season of the statement, WorldCom told the U.S. Securities and Exchange Commission (SEC) that it needed to “restate its financials by $3.8 billion.”
The SEC did not stand still: it rapidly brought a civil suit against WorldCom, despite the fact that its stock had for quite some time been a Wall Street top pick.
Before its destruction, just four other organizations had more stockholders.
However, after its first 17,000 cutbacks and the SEC civil suit, WorldCom’s stock plummeted from its record-breaking high of $64 to $0.09. Soon, NASDAQ suspended its trade.
WorldCom stockholders lost everything, and its sudden demise stunned the world.
But, how did WorldCom manage to rise so rapidly and fall so quickly?
Let’s start from the beginning.
In 1983, agent Murray Waldron chose that it was time to get into the telecommunications business.
His decision was fueled by the fact that the government as of late had requested the breakup of media communications giant AT&T, which needed to disperse its local phone business among seven provincial spinoffs.
Waldron intended to purchase long-distance minutes discount from AT&T and then sell them.
He and his partner started the Long Distance Discount Company (LDDC), soon renamed LDDS ” (the “s” standing for “services”).
Be that as it may, the organization was in need of some $650,000 in the capital.
To find that kind of money Waldron searched for an investor. He found his answer in motel proprietor Bernie Ebbers, who was worth about $3 million in the mid-’80s.
He invested in the company and became the owner of 14.5% of the new organization.
By 1985, LDDS had piled up about $1.5 of debt and was losing some $25,000 month to month.
Ebbers progressed toward becoming CEO to ensure his speculation. He knew the organization couldn’t pivot without decreasing its long-distance costs, and such a move required securing more clients.
Ebbers, who had made his motel fortune through acquisitions, sought after the similar economies-of-scale procedure at LDDS.
Ebbers’ methodology worked. When it acquired an extensive local client base, the organization could bring down costs for the long-distance minutes it exchanged.
It rapidly started to make a profit.
Buying a publicly traded company, Advantage Companies of Tennessee, empowered LDDS to go public without the obstacles of an IPO.
By 1991, its yearly incomes surpassed $700 million.
In 1993, Cynthia Cooper moved toward becoming a leader of its internal auditing division.
LDDS had developed so quick and ingested such a large number of firms, that internal controls were flimsy and numerous tasks were excess.
Cooper’s first review suggested extensive changes, including dividing to compute sales commissions, part deals and tasks at the official level, and solidifying call and administration focuses.
Ebbers was incensed that she wanted to introduce internal controls, a recommendation he translated as an individual assault. He also advised her not to utilize the expression “inside controls” ever again.
In 1995, LDDS changed its name to WorldCom.
Not long after, President Bill Clinton endorsed the Telecom Act of 1996, making telecom a go-to industry overnight.
Ebbers rapidly exploited this new condition and partnered with GTE and Ameritech, two large phone firms.
WorldCom joined the S&P 500 and Forbes included Ebbers on its rundown of the most potent U.S. corporate pioneers.
In 1997, WorldCom obtained MCI, a firm three times its size.
In 1999, Ebbers and WorldCom endeavored to purchase Sprint for $127 billion. The U.S. government and the European Union nixed the arrangement.
In the end, Ebbers made 65 acquisitions.
He and WorldCom stood on the top of the world, having nowhere to move but down.
Key Lessons from “Extraordinary Circumstances”
1. Drowning in Debt
2. Doing the Right Thing
3. A Lesson in Character
Drowning in Debt
When the stock prices of WorldCom dropped, Ebbers did not want to give up. He asked for a loan from WorldCom’s compensation committee and got it. Then he continued getting more money to cover for more price drops, further deflating the stock.
Ebbers has ultimately borrowed more than $400 million from WorldCom and more than $900 million from the banks.
Doing the Right Thing
Before Ebbers left the company, because of the piling up of his debt, Cooper and her team found a commission fraud scheme at WorldCom.
Everyone told her to downplay it in her audit report, but she decided not to follow the orders. She did not feel comfortable in hiding the facts.
A Lesson in Character
This story teaches you to trust your instincts and your internal moral judge. Be brave.
Do not sacrifice your principles just because you are trying to stay loyal.
You have to know what is right and what is wrong and stand up for the things you believe are important.
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“Extraordinary Circumstances” Quotes
Neither the fraud not the discovery of the fraud caused the downfall of WorldCom. The fraud simply masked the true state of the business. WorldCom should have gone into bankruptcy long before it did. Click To Tweet Asking internal auditors not to use the words ‘internal controls’ is like asking a physician not to use the word ‘prescription. Click To Tweet If you’re an auditor, and someone is acting hostile, and out of character, you want to find out why. Click To Tweet It’s not easy to wrap your mind around billions of dollars in potentially fraudulent accounting entries. Click To Tweet The entrepreneur who builds a company is often not the best person to lead it as the company matures. Click To Tweet
Our Critical Review
Being a whistleblower is not easy, but Cooper made it through.
She tells the story of a “World”’s ending in a personal manner, making “Extraordinary Circumstances” a gripping, inspiring book, which serves as a cautionary tale to all people out there who do not know if they should stay quiet or raise their voice.
