Executive summary

Major business organizations in the current world are faced with numerous organizational problems.  The management of these different firms is expected to identify the major problems facing their organizations and put in place measures that will assist in mitigating these challenges. Some of these problems can be easily dealt with while others are very complex and requires special attention in dealing with them. Management is required to identify the different types of organizational problems and design appropriate ways and means of eradicating them.

It is also necessary for the management to clearly understand the possible problems and the ease with which they can be eradicated. Most of the organizational problems have different degree on their impact to the cultural and psychological assumptions of the people involved. Organizational problems are categorized into two major groups namely; strategic vs. operating and human vs. technical. However, it is essential to further understand these problems into finer details(Brooks & Dunn, 2010).

This report wish to explore the human types of organizational problems faced in different organizations in the current world. Ethical issues have been of major concerns in many management practices all over the world. Several distinguished organizations all over the world have suffered immense losses as a result of unethical behaviors by the employees.  This has necessitated intense research and provision of recommendations on how the menace can be reduced to manageable levels.  It is the obligation of management of any single business to put in place measures to solve problems facing their respective organizations.

The paper will discuss unethical behaviors as happened in two major organizations namely WorldCom and American Insurance Group. These two companies have suffered great losses in terms of finances and loss of job opportunities. The paper will unearth how the problem began and the various measures taken by the management to mitigate the problem. It will also discuss at length the recommendations that can lead to preventing such problems in future.

Back ground

WorldCom is a renowned American telecommunication corporation which was established in 1983. The company has its headquarters are in Ashburn, Virginia USA. After a series of mergers and acquisitions, the corporation later changed its name to MCI world com. This was after acquiring of MCI communications which marked the end of its bankruptcy status. For all this time, the company which started as Long Distance Discount Services has been recognized as the second largest long distance telephone company after AT & T.

The company registered tremendous growth in the early 1990s as a result of mergers by different telecommunication companies. Some of the most notable early mergers included; Advanced Communications Corp., Metromedia Communications Corp., IDB Communications Group, Williams Technology and MCI all of which were concluded in the 90s. However, it is essential to note that the merger with MCI Communications was the largest in American history and was estimated to be worth US $ 37 billion. The company had the chance to surpass AT&T as the largest telecommunication company was it not for the failed merger between MCI WorldCom and Sprint Corporation in 1999. The merger was valued at $ 129 billion which could have put the company in a very strong position(Ventura & Russell,  2010).

However, the tremendous growth of the company was brought to an abrupt end. The process of WorldCom downfall began in the year 2000. This was as a result of unethical issues by some of the management members lead by the company’s CEO Bernard Ebbers. WorldCom was faced with serious legal battles which eventually lead to the corporation being declared bankrupt.

American Insurance Group

America international Group (AIG) is a globally recognized property casualty and insurance company. The company is known to serve over 70 million customers worldwide. This has been enabled by the wide range of products and services offered by the company. AIG also enjoys high tech expertise and financial strength which has enabled the company to have a leading role in the industry.

The company was established in 1919 in shanghai china. The multinational company has several branches in different parts of the world. Its central headquarters are in 180 Maiden Lane in New York City. It has other regional headquarters such as in London, Hong Kong, Paris and other different regions in the world. AIG is listed in the NYSE and according to Forbes magazine it is rated as the 29^th largest listed company in the world(Gup, 2007).

Over the years, the company has experienced vast growth both in terms of assets and market share. The company’s initial operations were based in china but later expanded to other parts of the world such as Middle East, United states, Europe and Africa. AIG has also expanded in terms of services offered. For instance, the company purchased the remaining 39% of online auto insurance specialist which was estimated at $749 million in 2007. However, the company also suffered immensely from unethical issues of the staff which lead to downturn of the company. Massive losses were also incurred by the company which also led to decrease in the number of customers.

Ethical problem in AIG and WorldCom

Ethical issues have been of great concern in major organization. This problem has been of great concern to human resource where persons of great integrity should be hired for the purpose of achieving organizational goals.  A lot of measures ought to be put in place to prevent adverse effects of unethical behaviors from organization personnel. Ethical issues have resulted to organizations suffering great financial and non-financial losses. This can be evidenced by the case of AIG and WorldCom scandals which were accomplished by personnel of low ethical standards.

Both AIG and WorldCom suffered immensely as a result of greedy personnel working in an organization.  Selfish personnel who put their own interest ahead of the organizational interests are detrimental to the growth and success of the organization.  Major ethical problems have been experienced in different organizations regardless of the industry and size and proper mechanisms should be put in place to minimize the negative impacts.

To start with, the WorldCom case is termed as the greatest accounting scandal of all time. The problem of this telecommunication firm was first noted in 2000. This was too late as the scandal had happened for several years but it remained a top secret. By this time, the tremendous growth enjoyed by the company had come to a standstill. This was characterized by the failed proposed merger with Sprint Communications in 2000.

The whole scandal began as a result of greedy employees who wanted to take advantage of their positions for their own personal gains. Majority of the frenzy acquisitions by the company were intended to create a rosy picture to the shareholders. The company did not have enough finances to fund the acquisitions and at the end of this long process, its financial position was left a lot to be desired(Jackson, Sawyers & Jenkins,  2009).

As at the end of 1999, the company’s growth in revenue had stagnated and the stock price had fallen significantly. The unethical behaviors of these employees led to increase in the general expenses of the company as compared to the rate of increase in revenue. The overcapitalization nature of the company had resulted in very adverse position of the company. The increasing liabilities of the company had forced the management to act in unethical manner so as to cover the mess.  The company decide to reduce the money it held in reserve in an attempt to increase its revenue. This accounting misappropriation resulted to the company to increase its revenue by $2.8 billion as from the financial statements.  All these unethical behaviors made the WorldCom’s losses to turn into profits which amounted to $ 1.38 billion as at 2001.

All this time, WorldCom CEO Bernard Ebbers was accumulating a lot of wealth as the price of the stock had registered massive increases. It was also alleged that Ebbers the CEO used the company’s resources to finance his other fortunes such as timber and yachting. The whole accounting scandal at WorldCom is believed to cost the company around $ 3.8 billion as later revealed by the company’s internal auditing department. The company’s assets had been inflated by as much as $ 11 billion which not only resulted to massive losses by the investors but also more than 30,000 jobs were lost.

American International Group is another example of an organization where massive losses have been suffered as a result of unethical behaviors from organizations personnel. This clearly indicates that ethical problems are not restricted to a particular industry rather it is a common problem among organizations.

The downfall of AIG was as a result of fraudulent accounting processes that led to the company suffering huge losses. The massive accounting frauds led the company to suffering colossal losses which amounted to $3.9 billion. There were also massive malpractices in stock prices where they were manipulated to a great extent.  The whole saga was spearheaded by the company’s CEO Hank Greenberg(Shelp&Ehrbar, 2009).

Mr. Greenberg had a better scheme to take advantage of his position within the company for his personal gains. During this period, the company’s CEO was busy transacting dubious reinsurance transactions. There were also a series of other accounting scandals which inflated the company’s net worth by more than $ 1.7 billion. These fraudulent activities had also tarnished the company’s reputation since several clients had suffered massive losses as a result of these unethical behaviors.

For the management to conceal the mess resulted from the embezzlement of multi million dollars from the company, the CEO opted to secure large loans from other financial institutions. These loans served as sources of revenue to the company thus providing a false balance between the revenues and expenses of the company. One of the banks involved in the loans was from General Re Corp. which amounted to $ 500 million loan. This was however entered in the books of accounts as premium revenues thus inflating the company’s sagging reserves.

The unethical behavior did not stop there as there was a case involving bid- rigging. According to New York attorney general the company had engaged in a bid-rigging exercise with brokers Marsh and McLennan Cos.  AIG had other grave acts that resulted to the company suffering huge losses both financial and non-financial. For instance, there were allegations that the company had transactions with other companies which were controlled by AIG. There were also other allegations that suggested that some transactions allowed the company to claim gains without necessarily selling bonds. Other unethical behaviors within the organization, such as misclassified losses and differed acquisitions have also been unearthed within the company.

The massive loans acquired by the company had taken its financial position to a coma. By Nov 200, the company’s credit defaults were spreading at an alarming rate. This necessitated the American government to take salvage measures to rescue the falling insurance giant.  This resulted to the infamous 2008 bail out process whereby a lot of taxpayers’ money was spent. After all, the American government managed to rescue the company amid great public resistance.

Analysis of ethical problems in organizations

Ethical problems have been rampant in several organizations indifferent parts of the world. As a result, it is critical for managements of different organizations to understand the problem and design effective measures to mitigate the vice. Ethics are defined as the moral principles that are possessed by a group of people. In an organizational structure, high ethical standards are expected both to stock and stakeholders. However, it is essential to note that dire consequences are likely to face those organizations that fail to prioritize on the ethical standards within the organization.

In an organizational perspective, ethical issues may be analyzed under two approaches. These approaches are the individualistic approach and the communal approach which greatly depends in the perspectives of the organization. However, it is essential to note that either of the approaches taken must advocate of high moral responsibility. The organization should hold every team member accountable of his/her activities.

In order to effectively abolish ethical problems in major organizations, it is essential for the different stakeholders to be involved in the process. It is also essential to integrate both individualistic and the communal approaches while addressing ethical issue in the modern organizations. Once the two approaches are properly integrated, proper understanding of ethical values can be easily realized.  Several options of resolving the menace can also be easily reached at if the process is an inclusive one(Ziegenfuss, 2002).

In most cases, different organizations are faced with different organizational problems. However, ethical problems faced in numerous organizations are in most cases similar regardless of the industry or the company within which it operates.  It is however, of great importance to note that good human resourcing is paramount too high ethical standards in an organization. This is because ethical problem is a human problem which requires human solution. It is for this reason that human resource department should be aggressive in vetting and monitoring the staff in an organization.

Current position of MCI WorldCom

After the greatest ever accounting scandal faced the company, the company was declared bankrupt in July 2002. This is after the company had suffered losses amounting to $ 180 billion.  The filing of this bankruptcy is rated as the greatest in United States history. After intensive legal battle, the company was declared bankrupt on the same year.

However, efforts were underway to revive the fallen giant though numerous changes were to be implemented. After the accounting scandal was discovered, CEO Bernie Ebbers and CFO Scott Sullivan were charged for fraudulently stealing from the company.  Bernie Ebbers has since been found guilty and sentenced for 25 years in prison. In 2004, the company came out of bankruptcy and changed its name to MCI WorldCom under which name it operates till date.

The organization has opted to take strict measures in order to enhance the ethical standards in the organization. All the fraudulent staffs within the organization were dismissed, charged in courts. Scott Sullivan and David Myers were even paraded in front of TV cameras with handcuffs to serve as a strong warning to other fraud perpetrators. The harsh court rulings such as the long ail terms have served effectively in eradicating the vice.

Currently, the company is enjoying smooth running and is registering significant improvement in terms of growth. This can be evidenced by the acquisition of MCI, and the collaboration with Microsoft Corporation which allowed the company to provide windows live messenger which is popularly known as Verizon web calling.

AIG current position

Since 2008, the company has been marketing its assets to offset the huge debts. This has driven the financial situation of the company to a very wanting state. In order to salvage the situation, the company sold the 21^st Century Insurance and later sold its majority ownership to reinsurer Transatlantic Re. the company has also accomplished other several sales such as that of Pine Bridge Investments, AIG Star and AIG Edison life insurance companies. This has helped the company in raising substantial revenues to settle the outstanding debts(Shelp&Ehrbar, 2009). The company’s revival strategy is based on selling of its major affiliates to remain relevant in the current insurance market.  It has also been approved for the company to buy back common stock from the US government.

Just as the case in the WorldCom accounting scandal, the main player in this scandal CEO Hank Green berg was fired. However,it is worth noting that there were no criminal charges leveled against him. It is also astonishing to note that the executives of this company later rewarded themselves with bonuses estimated at $ 165 million. This is after the company had registered the greatest losses in American history and being bailed out with taxpayers’ money. This escalates the need for high ethical standards in an organization whereby the organizations interests should supersede all other interests.

Alternative approaches

Resolving ethical problems in an organization is a tough call. This is because it is a matter of being responsible which may prove difficult at times. However, management of an organization should put relentless efforts in ensuring that high ethical standards within the organization are upheld. Human resource department should invest heavily in this course. Vigorous vetting on the personnel of the organization is highly recommended(Salinger, 2005).

Several workshops, training and capacity building within an organization should be frequently carried out to sensitize the concerned persons on the importance of upholding high moral values. There should be also great collaboration with the states to ensure that rules and regulations of the land are strictly followed. All these strategies should be followed by closely monitoring all the events unfolding in an organization.  This will greatly resolve the menace to a substantial level.

Conclusions and recommendations

In conclusion, it is evident that several corporate bodies have suffered immensely as a result of unethical behavior in the organization. It has also been vividly depicted that unethical issues are not restricted to a certain industry as it has happened in financial sector, communication and in health sectors especially in Health south scandal.

This has proved that this is a common vice in several organizations and quick precautionary measures should be adopted(Kawalek, 2008). The management in every organization should keep a hawk eye in the unfolding events in an organization to ensure that high ethical standards are upheld. Close monitoring is critical as it will enable fast recognition of such vices that hedging potential risks. However, the management should also realize that there are other categories of organizational challenges that ought to be recognized and treated with utmost seriousness.

 

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