An Ethical Dilemma at WorldCom: A case study of Cynthia Cooper The Scenario One May afternoon, while sitting in his cubicle at WorldCom Inc. headquarters located in Clinton, Mississippi, Gene Morse was stunned to find an accounting entry for $500 million in expenses, which was not accounted for with any invoices. He immediately reported this entry to his boss, vice president of internal audit Cynthia Cooper (Pulliam & Solomon, 2002).

Little did they know at the time that this discovery would begin a journey for Cooper and her team that would challenge their core values, ethical beliefs, moral principles, and strain their physical strengths and personal relationships. They would eventually unearth a $3. 8 billion dollar fraud. Cooper was faced with the ethical dilemma of reporting what she had found which she knew would devastate the company and its stakeholders, versus ignoring the problem, and taking no action.

By June of 2002, Cooper had made her choice. On June 25, 2002, Wall Street was shocked by the announcement from WorldCom “that it had inflated profits by $3. 8 billion over the previous five quarters” (Pulliam & Solomon, 2002, p A1). Thus began the downward spiral which would bring an end to an organization that once boasted a reputation of being a Fortune 500 company. Careers and lives would be ruined. Cynthia Cooper’s life would be changed forever. According to Cooper (2008, p. vii), “I never aspired to be a whistleblower.

It wasn’t how I envisioned my life. But life is full of unexpected turns. ” The Merriam-Webster Dictionary defines a whistleblower as “one who reveals something covert or who informs against another. ” Despite its negative connotation, blowing the whistle was the right thing to do in this case. Cooper made “every attempt to resolve the problematic issues through available internal procedures prior to going public” (Kranacher, 2006 p. 80). The day before the WorldCom fraud announcement, Cooper was a private citizen.

The day after, she was a public figure (Cooper, 2008). In an interview with Cooper months after the crisis, she was asked if she would do anything differently to which she responded “there was only one right path to take, and I would take it again. I am fortunate to work with a group of very courageous auditors who held firm in their beliefs and did not waiver” (Barrier, 2003, p. 53). In this paper, Cooper’s journey from the identification of the ethical dilemma to its resolution will be explored.

In addition, value systems that helped form her judgment will be discussed along with the sources that she utilized to research and corroborate her suspicions of fraud, and those sources that gave her guidance. The paper will also delve into how her position within the organization could have influenced her decision to reveal the truth. In addition, the paper will ask the question that if WorldCom had operated by a different set of values would they have found themselves in this dilemma or would those values have prevented the situation from happening?

In conclusion, the paper will summarize lessons learned by the participants and lessons that the reader can apply to business ethics. Sources of Information At a time when business scandals such as Enron seemed to be at the forefront of the media, Cynthia Cooper and her team took their responsibility for financial reporting to great lengths. The team of three, which consisted of Cooper, who was only thirty-eight years old at the time, Gene Morse, and Glyn Smith, worked day and night to uncover the truth (Pulliam & Solomon, 2002).

Cooper utilized many sources to help her in this quest. These sources included: her family, her team, professional standards, the accounting code of ethics, and, most importantly, her personal values. When Morse presented the entries to her, and the overall underlying accounting scheme began to reveal itself, Cooper was able to ask the right question of the accounting department and of both the former (Arthur Anderson) and new (KPMG) external auditing companies (Wharton, 2002).

The question was whether certain accounting entries for capital expenditures were made in accordance with or in violation of generally accepted accounting principles (GAAP). GAAP provides objective standards for judging and comparing financial data and its presentation, and limits the directors’ freedom in showing an unrealistic picture through creative accounting. An auditor must certify that the provisions of GAAP have been followed in reporting an organization’s financial data in order for it to be accepted by its stakeholders which include investors and lenders, as well as tax authorities (Stanwick & Stanwick, 2009).

Cooper brought her problem to Arthur Anderson who refused their cooperation stating they only answered to her boss, Scott Sullivan. Sullivan also refused to cooperate and even went so far as to track her down on her personal time to warn her off the investigation. Pulliam and Solomon (2002, p. A1) write “as she pursued the trail of fraud, Ms. Cooper time and time again was obstructed by fellow employees, some of whom disapproved of WorldCom’s accounting methods but were unwilling to contradict their bosses or thwart the company’s goals. Cooper’s suspicions continued to grow and she became wary of the finance executives’ behaviors, “when I received an E-mail from the controller telling me that I was wasting my time auditing capital expenditures, it made me uncomfortable” (Katz & Homer, 2008, para. 3). She began to rely more and more on her team. “Nobody wants to believe that the CFO is perpetrating a multi-billion-dollar fraud, especially somebody as respected as Scott Sullivan. But as my suspicions grew, my team and I began working at night and behind closed doors because we didn’t want to be detected.

We were running so many queries of the accounting system that we were starting to crash it” (Katz & Homer, 2008, para. 4). Internal auditing is an independent, objective assurance and consulting activity designed to add value and improve an organization’s operations. It helps an organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance processes which can in turn lead to potential conflicts of interest (“Internal Auditing”, 2011).

One conflict of interest that internal auditors face is the reporting of findings to those within their company that have the power to fire and/or compensate those that are doing the reporting. This places a lot of pressure on auditors since they need to report truthful findings which may not always be in the company’s best interest. Guidance towards resolving this conflict has been addressed by the standards of the internal auditors’ professional society.

Since 1941, the Institute of Internal Auditors (IIA) has provided professional standards, guidance and support to its members and the internal auditor profession (“The Institute of”, 2011). The IIA encourages internal auditors to face internal pressures and act in accordance with professional standards set forth in their publications. Professional standards provide guidance in a variety of decision-making situations. Personal values also helped Cooper. In her book Extraordinary Circumstances (2008), she says that ethical ehavior does not have its start at the crossroads of right and wrong, but starts in childhood. She relied upon the personal values with which she was raised to guide her into doing the right thing. Instilling in her these values, were her family. They provided a great source of strength and comfort to Cooper during this difficult time. Value Systems Employed in Forming Judgment Cynthia Cooper’s core principles were based on a personal value system and a strong belief in ethical accounting practices.

Supporting her value system was a belief in the transparency principle that every employee should conduct business in a truthful and open manner, not act in a deceptive manner, and keep accurate and current records (Stanwick & Stanwick, 2009, p. 10). In an interview with TIME Magazine, Cooper attributes the instillation of many of her values to her mother, “She would say ‘Never allow yourself to be intimidated; always think about the consequences of your actions’’’ (Ripley, 2002, para. 24).

The influence of personal values on ethical judgments has been accepted by many ethical decision making models. Shafer et al. (2001), place values within a context of a more general model of the decision making process which includes four basic components: “(1) recognizing a moral issue; (2) making a moral judgment (‘ethical judgment’); (3) establishing moral intent (‘behavioral intentions’); and (4) engaging in moral behavior” (p. 258). Stakeholder and agency theories suggest that ethical judgments are also influenced by peers and managers, professional associations, and family.

These theories “also recognize the importance of the workplace, religious community and emotions to individual decision-makers” (McDevitt & Van Hise, 2002, p. 263). Cooper was influenced by all these factors including her emotions. She writes in her book, “turn off the noise, I tried to encourage myself. Don’t allow yourself to be intimidated. But inside, I felt scared. My hands were shaking. My heart was pounding. Was I over-reacting? People I respected didn’t seem concerned about the entries.

Still, my instinct told me to press forward” (2008, p. ix). Cooper recognized the enormity of the decision facing her and her team. Not only would she and her team stand to lose a lot so would thousands of stakeholders which included WorldCom shareholders and its employees, members of the local community, and family members. Jobs would be lost, retirement funds would disappear, in general; lives would be destroyed by the effects of her decision. Ethical intensity is multidimensional.

Its components include: magnitude of consequences, probability of effect, temporal immediacy, social consensus, proximity, and concentration of effect (Shafer et al. , 2001). Each component of intensity in the WorldCom case had the propensity to be huge which made the ethical intensity of the situation enormous. McDevitt and Van Hise (2002, p. 272) write “that the intensity of the ethical dilemma…affects the decision-making process. ” Cooper considered all of these components prior to making her decision and did not view any of them lightly.

There are ten different ethical perspectives that can be applied to an accountant’s ethical decision making process. These include: self-interest, utilitarian beliefs, personal virtues, religious injunctions, government requirements, universal rules, individual rights, economic efficiency, distributive justice, and contributing liberty (Stanwick & Stanwick, 2009, p. 162). While many of these applied, two particular perspectives that Cooper used to help form her judgment and decision were personal virtues and government requirements.

Regarding accounting based decisions, personal virtues require the individual to adopt a set of values that support virtuous behavior and government requirements require the accountant to adhere to the fundamental rules developed by agreed-on central authorities (Stanwick & Stanwick, 2009, p. 162). Personal virtues provide the courage and integrity to protect accounting’s credibility and government regulations set the standards for ethical accounting practices. Cooper was aware that her continued investigation could result in the loss of her job. I certainly knew it was possible that I would lose my job. I told my husband that I am going to report to the [WorldCom board’s] audit committee what I need to report. I even cleared some things out of my office. But the fear of losing my job was very secondary to the obligation I felt” (“Interview”, 2002, para. 35). Without a strong personal value system and ethical perspective, Cooper may have abandoned her internal audit investigation at this point. Her conviction and value system provided her the strength to continue.

Cooper noted “it’s important to be able to dig down and find your courage, which isn’t always so easy” (Ripley, 2008, para. 12). Role of Various Value Systems Raised in a Baptist family with deep religious roots, Cooper’s family and faith played an important role in the development of her ethical and moral value systems. She was very close to her parents. She felt her father to be a friend and advisor. Her mother provided guidance and tried to build her self-confidence and “to impart the value of perseverance. Don’t be discouraged. Press on.

Don’t give up. Keep your chin up. Fight the good fight. ‘Don’t ev-v-ver allow yourself to be intimidated’…As much as any advice she gave, this was the lesson that helped push me through my fears and find my courage when I needed it most” (Cooper, 2008, p. 14). Cooper’s roots in her faith also shaped her values. She remembers her grandmother instilling in her the importance of God in her life: “Each day, Nannie stopped the busy world to be still with God. I think it’s what helped her run the race well, live by her values, and stay true to her purpose. Remember: God first, others second, yourself third,’ she would say” (Cooper, 2008, p. 150). Cooper incorporated these values into her own beliefs which in turn influenced her judgment. Cooper was also influenced by lessons learned in school. Sometimes accounting principles are ignored to enhance financial results, which is what happened in the WorldCom case. However, Cooper could not ignore the fraudulent entries that were discovered. She incorporated principles established by the American Institute of Certified Public Accountants (AICPA) into her professional practice.

Two of the principles integrity and scope and nature of services (Stanwick & Stanwick, 2009, p. 171), proved to be a strong influence on how she proceeded in this case. Despite this type of auditing not being an area of primary responsibility for her department, and despite her superior demanding she stop investigating; Cooper risked her job to continue to search for the truth because she felt it was the right thing to do and that it was within her scope as an ethically responsible professional.

Based on a Kantian approach, Cooper did what she did because she believed anyone in her position would have done the same thing. How the individual’s Position in the Organization Influenced their Judgment Cooper had spent nearly a decade with the company, working her way through the ranks and was heading a department of twenty-four auditors and support staffers when the possibility of fraudulent activity was brought to her attention. The decisions that Cynthia made and the subsequent consequences of those actions were deeply rooted in her upbringing and the core responsibility that she assumed as an auditor.

Research supports that organizational codes of ethics also serve as a moral compass for employees to work by, but according to the Breeden Report (2003), “there was no formal Ethics Office [at WorldCom], and under Ebbers the company did not communicate values such as truthfulness or transparency to its employee base, and it did not live by them as a company either” (p. 140). Dickson et al. (2001) also found that organizations which deviate significantly from ethical norms of society attempt to hire and indoctrinate new employees into their norms. This appears to have been the case at WorldCom.

The emergence of Cooper as a leader and her effectiveness or lack thereof was a direct result of her middle management position at WorldCom and the situation in which she found herself involved. Pierce and Newstrom (2008) write about Fiedler’s theory on positional power which suggests that power comes with the role an individual occupies in combination with such prerogatives as being able to hire and fire. The extent of Cooper’s ability to reward and punish the individuals involved at WorldCom was limited because of the scope of the individuals involved.

In fact, her position of power was further diminished by the reality that she was working amongst a majority of employees that demonstrated the traits associated with groupthink. Leana (1985) writes about Janis’ characteristics of groupthink as those including feelings of “invulnerability, the ability to rationalize events and decisions, moral superiority within the group, group pressure on dissenters, use of stereotypes, self-censorship within the group, and unanimity” (p. 1). All of these behaviors were fostered by Ebbers and became part of the organizational culture at WorldCom.

Had an appropriate ethical vision been presented and promoted using a framework such as the Total Responsibility Management system (Stanwick & Stanwick, 2009, p. 186) at WorldCom, this incident may never have occurred or grown to such magnitude. However, in the absence of such a vision and as suspicion began to look like reality, Cooper followed the guidance and framework as set forth by her profession and documented in what is referred to as “The Red Book” (“The Institute of”, 2011). This framework includes the following guidelines: working with integrity, performing with objectivity, confidentiality and competence.

The Red Book guidance is reviewed and updated by the IIA based on industry findings. One may think that they know how this story ends, Cooper gains celebrity status and is named “Person of the Year” for Whistle-blowing and goes on to live a very successful life. Yet internally at WorldCom, she was actually penalized for her actions. Her budget was frozen and her autonomy was limited (Cooper, 2008). In this situation, due to the direct involvement of the CEO with the fraudulent activity, a change in Cooper’s position within the organization more than likely would not have impacted the outcome.

One will never know if a change in WorldCom’s code of ethics with stringent oversight would have made a difference in these egregious activities. However, if leadership had embraced ethics and modeled it on a regular basis for employees, a very different culture would have existed. How the Dilemma was Resolved During the winter of 2002, Cynthia Cooper was presented with the TIME Magazine’s “Person of the Year Award” for exemplary ethical judgment and action in discovering what is now known as history’s largest accounting fraud (“Interview”, 2002).

In the summer of 2005, Bernard Ebbers, CEO of WorldCom, was sentenced to twenty-five years in prison and Scott Sullivan, the CFO was sentenced to five years. In addition, other subordinates, including David Meyers the Controller, were served with imprisonment (Cooper, 2008). Cooper tells TIME Magazine, “We don’t feel like we are heroes. I feel like I did my job”, (“Interview”, 2002, para. 22) which was no easy task to take on and one that most would shy away from.

When asked what she felt about being named a “Person of the Year”, Cooper responded “TIME’s choice was largely symbolic in that we represent thousands of men and women who go to work every day, give their best, and try to do the right thing. Sherron, Coleen, and I are ordinary people who were trying to do our jobs and found ourselves in extraordinary circumstances” (Barrier, 2003, p. 53). Known for her “Myers-Briggs personality type of INTJ that reports her as being a ‘natural leader’ and ‘strong-willed’” (Pulliam & Solomon, 2002, p. 3), Cooper led her team through the investigation that uncovered WorldCom’s fraudulent accounting activities.

Even though her department primarily handled operational audits, she and her team became acquainted with the practices of financial auditing through intense scrutinizing of the company’s accounting journal entries. In June of 2002, after directly refuting and challenging her boss and CFO’s request to discontinue her auditing until after the third quarter, Cooper decided to disclose her information to the Audit Committee. Thus began the chain of events that eventually led to WorldCom’s delisting from the NASDAQ Stock Exchange and to the laying off of seventeen thousand employees.

Cooper’s worst fears for the stakeholders involved were realized. Knowing she had made the right judgment did not make the consequences of her decision any easier. There were many, including co-workers, who didn’t share her view and would rather she had not pursued this matter. If Cooper had based her actions on a teleological framework, she would have acted in a way that would have done the greatest good for the greatest number and would have focused her decision on the ramifications that her actions would have had on the stakeholders. Shafer et al. (2001, p. 73) write “that components of moral intensity such as the magnitude of potential consequences and probability of harm to financial statement users have a significant effect on auditors’ propensity to support aggressive accounting treatments. These findings suggest that auditors’ ethical behavior is strongly influenced by economic or utilitarian considerations. ” Considering the ethical intensity and the dimensions of the dilemma she faced, one could argue that not acting and allowing the creative accounting to continue would have been the decision to make.

However, Cooper defied the generic findings of auditor behavior and based her judgment and actions on a deontological framework. This framework focuses the decisions on determining if the actions are right or wrong (Stanwick & Stanwick, 2009, p. 6). She stayed true to the values her family had instilled in her which was “do the right thing”. She knew the immediate effect would be traumatic to the stakeholders involved, but knew the long term outcome would be in the best interest of everyone. A new executive team was brought in to WorldCom and the company name was changed to MCI.

Cooper remained with the company until it successfully came out of bankruptcy in 2004. The company was then sold to Verizon. By this time, many of the former staff had already left the company and all former WorldCom internal auditors were able to find good jobs elsewhere (Cooper, 2008). As for Cynthia Cooper, she spends much of her time travelling and speaking in public forums in hopes that her story will instill ethical values in her listeners. Cooper (2008) writes: As I recall those trying imes, I think of a small group of auditors who stood together during a company’s darkest hours; a priest who held hands and said ‘You can be a wounded healer’; a friend who paused amid the chaos and turned my attention to a beautiful sunset, reminding me that tomorrow the sun would set again… For me, this has been a story of heartbreaks, but also of hope and healing, a faith journey of growth and moving forward. I’ve come to appreciate that while we can’t always choose our circumstances, we can choose how we react to them. (p. 360) Lessons learned

There were a multitude of lessons learned from those involved in the WorldCom debacle. Many involved in the business world have studied this case. Steve Rosenbush from Businessweek is an investigative reporter who outlined some warnings for potential stakeholders who want to invest. He writes that investors should: beware of companies that have cult-like corporate cultures. Charismatic leaders such as Ebbers can lead to blind following by their employees. Beware of companies that rely too heavily on the government for their operations.

WorldCom depended on government contracts and therefore had nothing to fall back on when government policies changed. Beware of companies that expand by merger and acquisition based growth versus internal growth. WorldCom was caught up in acquisitions and failed to look within the company for ways to expand and grow. Beware of companies that have overly personal relationships between the CEO and the board of directors. By allowing Ebbers to borrow as much as he did and by owning investments in WorldCom, the Board lost all objectivity in this situation.

Finally, beware of those companies who may have to defend their actions in a legal arena. Pay attention to early signs of investigatory trouble. There were several WorldCom employees, i. e. Meyers, who knew what they were being asked to do was not quite right but did not say anything (Rosenbush, 2005). Cynthia Cooper (2008) would say that one of her biggest lessons learned was that corporate fraud can happen anywhere and that personal values will hold your decision-making together if one will hold onto them. In addition, treat others as you would want to be treated when making decisions.

She writes “The Golden Rule endures because it is such a central tenet of our existence. It comes as close as any value to being universally accepted, and, though worded differently, is incorporated in each of the world’s major religions” (Cooper, 2008, p. 365). Cooper also warns people to not believe that they are incapable of making bad decisions and that they should practice ethical decision making every day. She also suggests discussing tough ethical dilemmas with people that are close to you such as family, clergy, or friends. Cooper did this during her situation and found them to be sources of courage and strength.

Also, be consistent with your own personal code of ethics. Apply the same code regardless of where you are, work, home, or a house of worship. Stanwick and Stanwick (2009, p. 151) describe this consistency in the application of ethics as a behavior that coincides with strong ethical leadership. Finally, believe in your instincts and stay loyal to your principles. The WorldCom case demonstrates that just because people in authoritative positions tell you it’s okay to do something that you’re uncomfortable with and tell you that you won’t get in trouble, doesn’t make it the right thing to do.

The lessons learned by the accounting industry were widespread and pervasive. There was a revamping of the internal audit function, a change in controls regarding the external independent audit industry, and very large governmental change that came with the passing of the Sarbanes-Oxley Act (SOX). This act is directed towards U. S. corporations with the intention of preventing financial malpractice (Stanwick & Stanwick, 2009). Organizational management and shareholders have come to realize that compliance with SOX and ethics is a form for risk management that is necessary for survival. After far too many lessons learned, firms are beginning to take compliance, and the larger issue of ethics, seriously. Failures in these areas are being seen as the greatest potential type of operational risk – reputational – with significant impact on both earnings (through fines) and market share (through investor action)” (Woodrow, 2005, para. 6). The lessons learned by the accounting industry, corporate boards of directors and government regulators included seeing the significant need for change and taking actions necessary to restore investor confidence in corporate accounting.

The internal audit profession, and in particular the Institute for Internal Auditors, had prided itself s on its professionalism, with the IIA having provided written guidance and professional standards for internal auditors to follow. While Cynthia Cooper provided a shining example of how to respond to this situation, the pressures brought to bear by the CFO, controller, and the entirety of the scandal did illuminate the inherent conflicts of interest in the state of internal auditing of U. S. corporations.

The IIA learned its lessons from having gone far too long without providing specific guidance on handling an ethical violation to its Code of Ethics, and in 2006 rectified the situation with an administrative guide to handling a violation. In their own words, “A code of ethics is necessary and appropriate for the profession of internal auditing, founded as it is on the trust placed in its objective assurance about governance, risk management, and control” (“The Institute of” , 2011). What can the class learn from this experience?

Students can take the lessons learned and create tools that will help them recognize ethical dilemmas, think them through and weigh options, and hopefully, make ethically responsible decisions. Honesty and integrity is very important when it comes to ethical behavior and making the right decisions. In an interview with the National Association of Corporate Directors (2005), Cooper makes it clear that honesty isn’t easy especially when senior leadership places pressures on those below them to act unethically.

Organizations need to establish clear ethical policies and ensure that their employees know about them and know how to pursue questions and report unethical situations without fear of reprisal. The ethics message needs to begin at the top of the organization and cascade down through the staff. Thomas et al. (2004, p. 56) write that “executives must accept their leadership responsibilities to define ethical behavior clearly into a firm’s value system and to pursue it relentlessly as a top priority goal. ” Ethics cannot be left to chance. Policies cannot be written and then placed on shelves.

People need to be trained in the policies and ethics needs to be talked about on a regular basis. This is the only true way for the culture to change. The WorldCom case has demonstrated the importance of embracing these lessons into one’s personal as well as business lives. Cynthia Cooper and her actions have provided a valuable lesson to all. Standing by your beliefs and principles may not be the easiest thing to do but it is the right thing to do. References Ariail, D. (2009). Extraordinary circumstances: The journey of a corporate whistleblower [book review]. Journal of Applied Management and Entrepreneurship, 14(2), 108-112.

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Retrieved June 29, 2011, from http://www. findarticles. com/p/articles/mi_qu5383/is_200507/ai_n21364331/ Shafer, W. E. , Morris, R. E. , & Ketchand, A. A. (2001). Effects of personal values on auditors’ ethical decisions. Accounting, Auditing & Accountability Journal, 14(3), 254-278. Stanwick, P. A. & Stanwick, S. D. (2009). Understanding business ethics. Upper Saddle River, New Jersey: Pearson Prentice Hall. The Institute of Internal Auditors. (2011). International professional practices framework [Brochure]. Retrieved June 29, 2011, from http://www. theiia. org/guidance/standards-and-guidance/interactive-ippf/ Thomas, T. Schermerhorn Jr. , J. R. , & Dienhart, J. W. (2004). Strategic leadership of ethical behavior in business. Academy of Management Executive, 18(2), 56-68. Thompson, C. (2003). Powerful semantics: why does the term “whistleblower” have such a negative connotation? Does being a team player mean ignoring any big organizational problems that may come along? Internal Auditor, 65(3). Retrieved July 2, 2011, from http://find. galegroup. com. libraryproxy. quinnipiac. edu/gtx/infomark. do? &contentSet=IAC- Documents&type=retrieve&tabID=T002&prodId=AONE&docId=A98009247&source=gale&userGroupName=a13qu&version=1. Wharton. (2002, July 3). What went wrong at WorldCom [Article]. Retrieved June 15, 2011, from http://knowledge. wharton. upenn. edu/article. cfm? articleid=587 Whistle-blower. (2011). In Merriam-Webster Online Dictionary. Retrieved from http://www. merriam-websteronlinedictionary. com Woodrow, M. (2005, April). Risk management comes mainstream [Article]. Retrieved June 29, 2011, from http://www. risktalent. com/cm/risk_insights/compliance An Ethical Dilemma at WorldCom: A case study of Cynthia Cooper The Scenario One May afternoon, while sitting in his cubicle at WorldCom Inc. eadquarters located in Clinton, Mississippi, Gene Morse was stunned to find an accounting entry for $500 million in expenses, which was not accounted for with any invoices. He immediately reported this entry to his boss, vice president of internal audit Cynthia Cooper (Pulliam & Solomon, 2002). Little did they know at the time that this discovery would begin a journey for Cooper and her team that would challenge their core values, ethical beliefs, moral principles, and strain their physical strengths and personal relationships. They would eventually unearth a $3. billion dollar fraud. Cooper was faced with the ethical dilemma of reporting what she had found which she knew would devastate the company and its stakeholders, versus ignoring the problem, and taking no action. By June of 2002, Cooper had made her choice. On June 25, 2002, Wall Street was shocked by the announcement from WorldCom “that it had inflated profits by $3. 8 billion over the previous five quarters” (Pulliam & Solomon, 2002, p A1). Thus began the downward spiral which would bring an end to an organization that once boasted a reputation of being a Fortune 500 company.

Careers and lives would be ruined. Cynthia Cooper’s life would be changed forever. According to Cooper (2008, p. vii), “I never aspired to be a whistleblower. It wasn’t how I envisioned my life. But life is full of unexpected turns. ” The Merriam-Webster Dictionary defines a whistleblower as “one who reveals something covert or who informs against another. ” Despite its negative connotation, blowing the whistle was the right thing to do in this case. Cooper made “every attempt to resolve the problematic issues through available internal procedures prior to going public” (Kranacher, 2006 p. 0). The day before the WorldCom fraud announcement, Cooper was a private citizen. The day after, she was a public figure (Cooper, 2008). In an interview with Cooper months after the crisis, she was asked if she would do anything differently to which she responded “there was only one right path to take, and I would take it again. I am fortunate to work with a group of very courageous auditors who held firm in their beliefs and did not waiver” (Barrier, 2003, p. 53). In this paper, Cooper’s journey from the identification of the ethical dilemma to its resolution will be explored.

In addition, value systems that helped form her judgment will be discussed along with the sources that she utilized to research and corroborate her suspicions of fraud, and those sources that gave her guidance. The paper will also delve into how her position within the organization could have influenced her decision to reveal the truth. In addition, the paper will ask the question that if WorldCom had operated by a different set of values would they have found themselves in this dilemma or would those values have prevented the situation from happening?

In conclusion, the paper will summarize lessons learned by the participants and lessons that the reader can apply to business ethics. Sources of Information At a time when business scandals such as Enron seemed to be at the forefront of the media, Cynthia Cooper and her team took their responsibility for financial reporting to great lengths. The team of three, which consisted of Cooper, who was only thirty-eight years old at the time, Gene Morse, and Glyn Smith, worked day and night to uncover the truth (Pulliam & Solomon, 2002).

Cooper utilized many sources to help her in this quest. These sources included: her family, her team, professional standards, the accounting code of ethics, and, most importantly, her personal values. When Morse presented the entries to her, and the overall underlying accounting scheme began to reveal itself, Cooper was able to ask the right question of the accounting department and of both the former (Arthur Anderson) and new (KPMG) external auditing companies (Wharton, 2002).

The question was whether certain accounting entries for capital expenditures were made in accordance with or in violation of generally accepted accounting principles (GAAP). GAAP provides objective standards for judging and comparing financial data and its presentation, and limits the directors’ freedom in showing an unrealistic picture through creative accounting. An auditor must certify that the provisions of GAAP have been followed in reporting an organization’s financial data in order for it to be accepted by its stakeholders which include investors and lenders, as well as tax authorities (Stanwick & Stanwick, 2009).

Cooper brought her problem to Arthur Anderson who refused their cooperation stating they only answered to her boss, Scott Sullivan. Sullivan also refused to cooperate and even went so far as to track her down on her personal time to warn her off the investigation. Pulliam and Solomon (2002, p. A1) write “as she pursued the trail of fraud, Ms. Cooper time and time again was obstructed by fellow employees, some of whom disapproved of WorldCom’s accounting methods but were unwilling to contradict their bosses or thwart the company’s goals. Cooper’s suspicions continued to grow and she became wary of the finance executives’ behaviors, “when I received an E-mail from the controller telling me that I was wasting my time auditing capital expenditures, it made me uncomfortable” (Katz & Homer, 2008, para. 3). She began to rely more and more on her team. “Nobody wants to believe that the CFO is perpetrating a multi-billion-dollar fraud, especially somebody as respected as Scott Sullivan. But as my suspicions grew, my team and I began working at night and behind closed doors because we didn’t want to be detected.

We were running so many queries of the accounting system that we were starting to crash it” (Katz & Homer, 2008, para. 4). Internal auditing is an independent, objective assurance and consulting activity designed to add value and improve an organization’s operations. It helps an organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance processes which can in turn lead to potential conflicts of interest (“Internal Auditing”, 2011).

One conflict of interest that internal auditors face is the reporting of findings to those within their company that have the power to fire and/or compensate those that are doing the reporting. This places a lot of pressure on auditors since they need to report truthful findings which may not always be in the company’s best interest. Guidance towards resolving this conflict has been addressed by the standards of the internal auditors’ professional society.

Since 1941, the Institute of Internal Auditors (IIA) has provided professional standards, guidance and support to its members and the internal auditor profession (“The Institute of”, 2011). The IIA encourages internal auditors to face internal pressures and act in accordance with professional standards set forth in their publications. Professional standards provide guidance in a variety of decision-making situations. Personal values also helped Cooper.

In her book Extraordinary Circumstances (2008), she says that ethical behavior does not have its start at the crossroads of right and wrong, but starts in childhood. She relied upon the personal values with which she was raised to guide her into doing the right thing. Instilling in her these values, were her family. They provided a great source of strength and comfort to Cooper during this difficult time. Value Systems Employed in Forming Judgment Cynthia Cooper’s core principles were based on a personal value system and a strong belief in ethical accounting practices.

Supporting her value system was a belief in the transparency principle that every employee should conduct business in a truthful and open manner, not act in a deceptive manner, and keep accurate and current records (Stanwick & Stanwick, 2009, p. 10). In an interview with TIME Magazine, Cooper attributes the instillation of many of her values to her mother, “She would say ‘Never allow yourself to be intimidated; always think about the consequences of your actions’’’ (Ripley, 2002, para. 24).

The influence of personal values on ethical judgments has been accepted by many ethical decision making models. Shafer et al. (2001), place values within a context of a more general model of the decision making process which includes four basic components: “(1) recognizing a moral issue; (2) making a moral judgment (‘ethical judgment’); (3) establishing moral intent (‘behavioral intentions’); and (4) engaging in moral behavior” (p. 258). Stakeholder and agency theories suggest that ethical judgments are also influenced by peers and managers, professional associations, and family.

These theories “also recognize the importance of the workplace, religious community and emotions to individual decision-makers” (McDevitt & Van Hise, 2002, p. 263). Cooper was influenced by all these factors including her emotions. She writes in her book, “turn off the noise, I tried to encourage myself. Don’t allow yourself to be intimidated. But inside, I felt scared. My hands were shaking. My heart was pounding. Was I over-reacting? People I respected didn’t seem concerned about the entries.

Still, my instinct told me to press forward” (2008, p. ix). Cooper recognized the enormity of the decision facing her and her team. Not only would she and her team stand to lose a lot so would thousands of stakeholders which included WorldCom shareholders and its employees, members of the local community, and family members. Jobs would be lost, retirement funds would disappear, in general; lives would be destroyed by the effects of her decision. Ethical intensity is multidimensional.

Its components include: magnitude of consequences, probability of effect, temporal immediacy, social consensus, proximity, and concentration of effect (Shafer et al. , 2001). Each component of intensity in the WorldCom case had the propensity to be huge which made the ethical intensity of the situation enormous. McDevitt and Van Hise (2002, p. 272) write “that the intensity of the ethical dilemma…affects the decision-making process. ” Cooper considered all of these components prior to making her decision and did not view any of them lightly.

There are ten different ethical perspectives that can be applied to an accountant’s ethical decision making process. These include: self-interest, utilitarian beliefs, personal virtues, religious injunctions, government requirements, universal rules, individual rights, economic efficiency, distributive justice, and contributing liberty (Stanwick & Stanwick, 2009, p. 162). While many of these applied, two particular perspectives that Cooper used to help form her judgment and decision were personal virtues and government requirements.

Regarding accounting based decisions, personal virtues require the individual to adopt a set of values that support virtuous behavior and government requirements require the accountant to adhere to the fundamental rules developed by agreed-on central authorities (Stanwick & Stanwick, 2009, p. 162). Personal virtues provide the courage and integrity to protect accounting’s credibility and government regulations set the standards for ethical accounting practices. Cooper was aware that her continued investigation could result in the loss of her job. I certainly knew it was possible that I would lose my job. I told my husband that I am going to report to the [WorldCom board’s] audit committee what I need to report. I even cleared some things out of my office. But the fear of losing my job was very secondary to the obligation I felt” (“Interview”, 2002, para. 35). Without a strong personal value system and ethical perspective, Cooper may have abandoned her internal audit investigation at this point. Her conviction and value system provided her the strength to continue.

Cooper noted “it’s important to be able to dig down and find your courage, which isn’t always so easy” (Ripley, 2008, para. 12). Role of Various Value Systems Raised in a Baptist family with deep religious roots, Cooper’s family and faith played an important role in the development of her ethical and moral value systems. She was very close to her parents. She felt her father to be a friend and advisor. Her mother provided guidance and tried to build her self-confidence and “to impart the value of perseverance. Don’t be discouraged. Press on.

Don’t give up. Keep your chin up. Fight the good fight. ‘Don’t ev-v-ver allow yourself to be intimidated’…As much as any advice she gave, this was the lesson that helped push me through my fears and find my courage when I needed it most” (Cooper, 2008, p. 14). Cooper’s roots in her faith also shaped her values. She remembers her grandmother instilling in her the importance of God in her life: “Each day, Nannie stopped the busy world to be still with God. I think it’s what helped her run the race well, live by her values, and stay true to her purpose. Remember: God first, others second, yourself third,’ she would say” (Cooper, 2008, p. 150). Cooper incorporated these values into her own beliefs which in turn influenced her judgment. Cooper was also influenced by lessons learned in school. Sometimes accounting principles are ignored to enhance financial results, which is what happened in the WorldCom case. However, Cooper could not ignore the fraudulent entries that were discovered. She incorporated principles established by the American Institute of Certified Public Accountants (AICPA) into her professional practice.

Two of the principles integrity and scope and nature of services (Stanwick & Stanwick, 2009, p. 171), proved to be a strong influence on how she proceeded in this case. Despite this type of auditing not being an area of primary responsibility for her department, and despite her superior demanding she stop investigating; Cooper risked her job to continue to search for the truth because she felt it was the right thing to do and that it was within her scope as an ethically responsible professional.

Based on a Kantian approach, Cooper did what she did because she believed anyone in her position would have done the same thing. How the individual’s Position in the Organization Influenced their Judgment Cooper had spent nearly a decade with the company, working her way through the ranks and was heading a department of twenty-four auditors and support staffers when the possibility of fraudulent activity was brought to her attention. The decisions that Cynthia made and the subsequent consequences of those actions were deeply rooted in her upbringing and the core responsibility that she assumed as an auditor.

Research supports that organizational codes of ethics also serve as a moral compass for employees to work by, but according to the Breeden Report (2003), “there was no formal Ethics Office [at WorldCom], and under Ebbers the company did not communicate values such as truthfulness or transparency to its employee base, and it did not live by them as a company either” (p. 140). Dickson et al. (2001) also found that organizations which deviate significantly from ethical norms of society attempt to hire and indoctrinate new employees into their norms. This appears to have been the case at WorldCom.

The emergence of Cooper as a leader and her effectiveness or lack thereof was a direct result of her middle management position at WorldCom and the situation in which she found herself involved. Pierce and Newstrom (2008) write about Fiedler’s theory on positional power which suggests that power comes with the role an individual occupies in combination with such prerogatives as being able to hire and fire. The extent of Cooper’s ability to reward and punish the individuals involved at WorldCom was limited because of the scope of the individuals involved.

In fact, her position of power was further diminished by the reality that she was working amongst a majority of employees that demonstrated the traits associated with groupthink. Leana (1985) writes about Janis’ characteristics of groupthink as those including feelings of “invulnerability, the ability to rationalize events and decisions, moral superiority within the group, group pressure on dissenters, use of stereotypes, self-censorship within the group, and unanimity” (p. 1). All of these behaviors were fostered by Ebbers and became part of the organizational culture at WorldCom.

Had an appropriate ethical vision been presented and promoted using a framework such as the Total Responsibility Management system (Stanwick & Stanwick, 2009, p. 186) at WorldCom, this incident may never have occurred or grown to such magnitude. However, in the absence of such a vision and as suspicion began to look like reality, Cooper followed the guidance and framework as set forth by her profession and documented in what is referred to as “The Red Book” (“The Institute of”, 2011). This framework includes the following guidelines: working with integrity, performing with objectivity, confidentiality and competence.

The Red Book guidance is reviewed and updated by the IIA based on industry findings. One may think that they know how this story ends, Cooper gains celebrity status and is named “Person of the Year” for Whistle-blowing and goes on to live a very successful life. Yet internally at WorldCom, she was actually penalized for her actions. Her budget was frozen and her autonomy was limited (Cooper, 2008). In this situation, due to the direct involvement of the CEO with the fraudulent activity, a change in Cooper’s position within the organization more than likely would not have impacted the outcome.

One will never know if a change in WorldCom’s code of ethics with stringent oversight would have made a difference in these egregious activities. However, if leadership had embraced ethics and modeled it on a regular basis for employees, a very different culture would have existed. How the Dilemma was Resolved During the winter of 2002, Cynthia Cooper was presented with the TIME Magazine’s “Person of the Year Award” for exemplary ethical judgment and action in discovering what is now known as history’s largest accounting fraud (“Interview”, 2002).

In the summer of 2005, Bernard Ebbers, CEO of WorldCom, was sentenced to twenty-five years in prison and Scott Sullivan, the CFO was sentenced to five years. In addition, other subordinates, including David Meyers the Controller, were served with imprisonment (Cooper, 2008). Cooper tells TIME Magazine, “We don’t feel like we are heroes. I feel like I did my job”, (“Interview”, 2002, para. 22) which was no easy task to take on and one that most would shy away from.

When asked what she felt about being named a “Person of the Year”, Cooper responded “TIME’s choice was largely symbolic in that we represent thousands of men and women who go to work every day, give their best, and try to do the right thing. Sherron, Coleen, and I are ordinary people who were trying to do our jobs and found ourselves in extraordinary circumstances” (Barrier, 2003, p. 53). Known for her “Myers-Briggs personality type of INTJ that reports her as being a ‘natural leader’ and ‘strong-willed’” (Pulliam & Solomon, 2002, p. 3), Cooper led her team through the investigation that uncovered WorldCom’s fraudulent accounting activities.

Even though her department primarily handled operational audits, she and her team became acquainted with the practices of financial auditing through intense scrutinizing of the company’s accounting journal entries. In June of 2002, after directly refuting and challenging her boss and CFO’s request to discontinue her auditing until after the third quarter, Cooper decided to disclose her information to the Audit Committee. Thus began the chain of events that eventually led to WorldCom’s delisting from the NASDAQ Stock Exchange and to the laying off of seventeen thousand employees.

Cooper’s worst fears for the stakeholders involved were realized. Knowing she had made the right judgment did not make the consequences of her decision any easier. There were many, including co-workers, who didn’t share her view and would rather she had not pursued this matter. If Cooper had based her actions on a teleological framework, she would have acted in a way that would have done the greatest good for the greatest number and would have focused her decision on the ramifications that her actions would have had on the stakeholders. Shafer et al. (2001, p. 73) write “that components of moral intensity such as the magnitude of potential consequences and probability of harm to financial statement users have a significant effect on auditors’ propensity to support aggressive accounting treatments. These findings suggest that auditors’ ethical behavior is strongly influenced by economic or utilitarian considerations. ” Considering the ethical intensity and the dimensions of the dilemma she faced, one could argue that not acting and allowing the creative accounting to continue would have been the decision to make.

However, Cooper defied the generic findings of auditor behavior and based her judgment and actions on a deontological framework. This framework focuses the decisions on determining if the actions are right or wrong (Stanwick & Stanwick, 2009, p. 6). She stayed true to the values her family had instilled in her which was “do the right thing”. She knew the immediate effect would be traumatic to the stakeholders involved, but knew the long term outcome would be in the best interest of everyone.

A new executive team was brought in to WorldCom and the company name was changed to MCI. Cooper remained with the company until it successfully came out of bankruptcy in 2004. The company was then sold to Verizon. By this time, many of the former staff had already left the company and all former WorldCom internal auditors were able to find good jobs elsewhere (Cooper, 2008). As for Cynthia Cooper, she spends much of her time travelling and speaking in public forums in hopes that her story will instill ethical values in her listeners.

Cooper (2008) writes: As I recall those trying times, I think of a small group of auditors who stood together during a company’s darkest hours; a priest who held hands and said ‘You can be a wounded healer’; a friend who paused amid the chaos and turned my attention to a beautiful sunset, reminding me that tomorrow the sun would set again… For me, this has been a story of heartbreaks, but also of hope and healing, a faith journey of growth and moving forward. I’ve come to appreciate that while we can’t always choose our circumstances, we can choose how we react to them. (p. 60) Lessons learned There were a multitude of lessons learned from those involved in the WorldCom debacle. Many involved in the business world have studied this case. Steve Rosenbush from Businessweek is an investigative reporter who outlined some warnings for potential stakeholders who want to invest. He writes that investors should: beware of companies that have cult-like corporate cultures. Charismatic leaders such as Ebbers can lead to blind following by their employees. Beware of companies that rely too heavily on the government for their operations.

WorldCom depended on government contracts and therefore had nothing to fall back on when government policies changed. Beware of companies that expand by merger and acquisition based growth versus internal growth. WorldCom was caught up in acquisitions and failed to look within the company for ways to expand and grow. Beware of companies that have overly personal relationships between the CEO and the board of directors. By allowing Ebbers to borrow as much as he did and by owning investments in WorldCom, the Board lost all objectivity in this situation.

Finally, beware of those companies who may have to defend their actions in a legal arena. Pay attention to early signs of investigatory trouble. There were several WorldCom employees, i. e. Meyers, who knew what they were being asked to do was not quite right but did not say anything (Rosenbush, 2005). Cynthia Cooper (2008) would say that one of her biggest lessons learned was that corporate fraud can happen anywhere and that personal values will hold your decision-making together if one will hold onto them. In addition, treat others as you would want to be treated when making decisions.

She writes “The Golden Rule endures because it is such a central tenet of our existence. It comes as close as any value to being universally accepted, and, though worded differently, is incorporated in each of the world’s major religions” (Cooper, 2008, p. 365). Cooper also warns people to not believe that they are incapable of making bad decisions and that they should practice ethical decision making every day. She also suggests discussing tough ethical dilemmas with people that are close to you such as family, clergy, or friends. Cooper did this during her situation and found them to be sources of courage and strength.

Also, be consistent with your own personal code of ethics. Apply the same code regardless of where you are, work, home, or a house of worship. Stanwick and Stanwick (2009, p. 151) describe this consistency in the application of ethics as a behavior that coincides with strong ethical leadership. Finally, believe in your instincts and stay loyal to your principles. The WorldCom case demonstrates that just because people in authoritative positions tell you it’s okay to do something that you’re uncomfortable with and tell you that you won’t get in trouble, doesn’t make it the right thing to do.

The lessons learned by the accounting industry were widespread and pervasive. There was a revamping of the internal audit function, a change in controls regarding the external independent audit industry, and very large governmental change that came with the passing of the Sarbanes-Oxley Act (SOX). This act is directed towards U. S. corporations with the intention of preventing financial malpractice (Stanwick & Stanwick, 2009). Organizational management and shareholders have come to realize that compliance with SOX and ethics is a form for risk management that is necessary for survival. After far too many lessons learned, firms are beginning to take compliance, and the larger issue of ethics, seriously. Failures in these areas are being seen as the greatest potential type of operational risk – reputational – with significant impact on both earnings (through fines) and market share (through investor action)” (Woodrow, 2005, para. 6). The lessons learned by the accounting industry, corporate boards of directors and government regulators included seeing the significant need for change and taking actions necessary to restore investor confidence in corporate accounting.

The internal audit profession, and in particular the Institute for Internal Auditors, had prided itself s on its professionalism, with the IIA having provided written guidance and professional standards for internal auditors to follow. While Cynthia Cooper provided a shining example of how to respond to this situation, the pressures brought to bear by the CFO, controller, and the entirety of the scandal did illuminate the inherent conflicts of interest in the state of internal auditing of U. S. corporations.

The IIA learned its lessons from having gone far too long without providing specific guidance on handling an ethical violation to its Code of Ethics, and in 2006 rectified the situation with an administrative guide to handling a violation. In their own words, “A code of ethics is necessary and appropriate for the profession of internal auditing, founded as it is on the trust placed in its objective assurance about governance, risk management, and control” (“The Institute of” , 2011). What can the class learn from this experience?

Students can take the lessons learned and create tools that will help them recognize ethical dilemmas, think them through and weigh options, and hopefully, make ethically responsible decisions. Honesty and integrity is very important when it comes to ethical behavior and making the right decisions. In an interview with the National Association of Corporate Directors (2005), Cooper makes it clear that honesty isn’t easy especially when senior leadership places pressures on those below them to act unethically.

Organizations need to establish clear ethical policies and ensure that their employees know about them and know how to pursue questions and report unethical situations without fear of reprisal. The ethics message needs to begin at the top of the organization and cascade down through the staff. Thomas et al. (2004, p. 56) write that “executives must accept their leadership responsibilities to define ethical behavior clearly into a firm’s value system and to pursue it relentlessly as a top priority goal. ” Ethics cannot be left to chance. Policies cannot be written and then placed on shelves.