Ebbers built WorldCom from a small telecommunications company into a global giant. It all started back in 1984, when he invested in a local long-distance phone company. Soon he was invited to manage it. He made it grow t

Worldcom failure is one of the largest bankruptcy cases in American history, breaking even Enron's record. Ebbers invested in a local long-distance phone company in 1984, which he was invited to manage later. He made it grow into a global giant through a series of mergers. Ebbers played a major role in the fraud. His extravagant spending forced him to take massive amount of bank loans by securing his Worldcom shares. When telecom industry was experiencing a down turn, at the same time Worldcom stock prices also started falling. In order to avoid margin call he needed company's stock to perform well. Ebbers used unethical means to keep the company's stock price up. The fraud was directed by Ebbers and it was implemented through his CFO by reporting false revenues and using accounting tricks to disguise rising expenses. It came out when internal auditors discovered the deficit and reported the same to SEC. There were major corporate governance failures in Worldcom which, mainly, were: internal control failure ineffective board lack of transparency Recommendations to keep future company operations in order and avoid others from following the footsteps of Ebbers An Active, Informed and Independent Board A very high standard is required for the appointment of independent directors who should have adequate experience and qualification. With the exception of the CEO, majority of the members of the board must be fully independent. A Non-Executive Chairman of the Board of Directors This recommendation requires every company to create the position of non-executive chairman of the board. The non-executive chairman shall have defined responsibilities relating to coordinating the board's work, chairing meetings, coordinating with committee chairs, organizing CEO and board performance reviews, and similar issues. The non executive chairman shall not be involved in the day to day management duties. The CEO remains fully responsible for all management decisions, subject to board oversight. The clear separation of the role of Chairman and CEO between two persons will maintain the balance of power and the CEO will be guided & reviewed by the Board. Independent Director An independent director shall hold office for a term up to five years on the Board of a company, but shall be eligible for reappointment on passing of a special resolution by the company for another five years. This recommendation will ensure the independence of Independent Director. Active Board Committees This recommendation prescribes that every company shall constitute an Audit Committee, Governance Committee, Nomination and Remuneration Committee and a Risk Management Committee. The CEO shall not serve as a member of any of these committees, so that each committee is composed entirely of independent directors. Auditor Independence The statutory auditor shall be appointed for a maximum period of 10 years which will ensure the audit quality. An auditor shall provide to the company only such services as are approved by the Board of Directors or the audit committee, which shall not include non audit services. This recommendation will ensure the independence of statutory auditor. Compensation Limits The Nomination and Remuneration Committee shall establish a maximum compensation level for any individual in any year without shareholder approval. A substantial part of the compensation shall not be linked to the share price, as this leads to the manipulation of the financial statements by the top management of the company to secure their own remuneration. Enhanced Transparency, Internal Controls and Finance Department The recommendations suggest that the Company should intensify efforts to develop disclosure practices that will result in transparency of financial information beyond legal requirements.