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Organizational Decline and Turnaround: Insights from the Worldcom Case

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  • Satish C. Pandey
  • Pramod Verma

Abstract

In 2002, the entire globe was rocked by the WorldCom accounting scandal that led to the bankruptcy of the fourth-ranked Fortune 500 telecom company, and raised several questions in relation to corporate governance, ethical leadership and corrupt practices in American companies. The consequences of this famous scandal led to unrest within the ranks of investors, pension funds, banks and the public at large. Later, the company appealed to the US court for reorganization under chapter 11 of US bankruptcy code and under the leadership of the new CEO, Michael Capellas, the new company (MCI) not only reconsolidated its financial position but also overhauled all its internal systems and transformed itself from a corrupt company to an ethical one. This article presents insights learnt from this case study in the context of managing organizational turnaround. It also focuses on the role that the new chief executive played in installing an ethical work culture in the organization. The authors have used Chowdhury's four stage theory to analyze the case. They have further tried to integrate insights from other theoretical models to focus on both the process of turnaround and the role of ethical leadership in bringing about the turnaround.

Suggested Citation

  • Satish C. Pandey & Pramod Verma, 2005. "Organizational Decline and Turnaround: Insights from the Worldcom Case," Vision, , vol. 9(2), pages 51-65, April.
    • Handle: RePEc:sae:vision:v:9:y:2005:i:2:p:51-65
    DOI: 10.1177/097226290500900207
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    References listed on IDEAS

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    1. Chowdhury, Shamsud D. & Lang, James R., 1996. "Turnaround in small firms: An assessment of efficiency strategies," Journal of Business Research, Elsevier, vol. 36(2), pages 169-178, June.
    2. Andrew H. van de Ven & George P. Huber, 1990. "Longitudinal Field Research Methods for Studying Processes of Organizational Change," Organization Science, INFORMS, vol. 1(3), pages 213-219, August.
    3. John M. Stopford & Charles Baden‐Fuller, 1990. "Corporate Rejuvenation," Journal of Management Studies, Wiley Blackwell, vol. 27(4), pages 399-415, July.
    4. Vincent L. Barker Iii & Irene M. Duhaime, 1997. "Strategic Change In The Turnaround Process: Theory And Empirical Evidence," Strategic Management Journal, Wiley Blackwell, vol. 18(1), pages 13-38, January.
    5. Castrogiovanni, Gary J. & Bruton, Garry D., 2000. "Business Turnaround Processes Following Acquisitions: Reconsidering the Role of Retrenchment," Journal of Business Research, Elsevier, vol. 48(1), pages 25-34, April.
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    Cited by:

    1. Jun Xia & David D. Dawley & Han Jiang & Rong Ma & Kimberly B. Boal, 2016. "Resolving a dilemma of signaling bankrupt-firm emergence: A dynamic integrative view," Strategic Management Journal, Wiley Blackwell, vol. 37(8), pages 1754-1764, August.

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