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Editor’s note: Russ McGuire is the online director of Business Reform Magazine. Each issue of Business Reform features practical advice on operating successfully in business while glorifying God.
In 1995 I briefly worked for the company that would become WorldCom. What I saw scared me and within 2 months I had left to launch an Internet startup. This past week’s detailed reports on the behavior that sent the company into bankruptcy brought back those memories, as the culture that I experienced is clearly the main culprit in the crimes that have brought down this once-mighty power. New CEO Michael Capellas’ failure to identify the fact that the very nature that has been bred into his organization is at fault may keep the newly christened MCI from emerging intact from bankruptcy.
In 1994 a relatively unknown reseller of cheap long distance named LDDS offered $2.5 billion to purchase one of its largest suppliers of telecom capacity. I was in charge of new product development at that company, WilTel, and on January 5, 1995 the transaction was completed and I became an LDDS employee. Later that year, the company renamed itself LDDS WorldCom to reflect “its new nature as a global telecom player.” Although, little more than a dream at the time, within a few years WorldCom became that global player. However, clearly its nature had not changed.
I had been a WilTel employee since 1989. In 1991, my group introduced WilView, one of the first customer service applications built using Internet technologies. In 1993, we introduced the telecom industry’s first commercial web site. By 1994, we were working with the rapidly growing community of commercial Internet service providers to bring the power of the Internet to corporate customers across network boundaries. We already housed the primary commercial Internet interconnection points within our facilities and we were working on major initiatives to introduce groundbreaking services to our customers.
Then we met with Bernie Ebbers, LDDS’ CEO and Chairman. Late in 1994, my group reviewed with him all of our new product initiatives. He ordered that we shut down our Internet initiatives. In his view, the Internet would never be more than a toy, a fad that businesses would quickly recognize as a productivity drain. He wanted to have nothing to do with the Internet. The day that I left that meeting, I began developing the business plan with co-workers for our new startup business. We left WorldCom on March 1, 1995 to start what would become a very successful Internet business.
Mr. Ebbers was wrong. Businesses still haven’t gotten over the Internet “fad.” But he was also lucky. A couple of years later, WorldCom acquired another of its key suppliers, MFS. About a year earlier, MFS had acquired UUNET, one of the first commercial Internet providers. Today MCI/WorldCom still owns and operates UUNET which became the largest beneficiary of Internet traffic growth.
However, Mr. Ebbers’ disdain for the Internet has served him well. Up to now, he has avoided criminal charges because he has credibly claimed that he never used e-mail. Therefore, since most of the documents related to WorldCom’s crimes were distributed via e-mail, he has been able to claim that he never saw them and was never aware that crimes were being committed. This past week’s reports may finally have provided non-e-mail evidence that could lead to indictment, but we will need to wait and see if that happens.
However, the more telling aspects of the reports deal with the culture that Ebbers nurtured at WorldCom. During my brief stay at WorldCom, the company’s priorities were clearly communicated. Each department within the company had firm financial goals to meet. Whenever possible, individuals had specific financial goals. If you missed your goals for 1 month, you were put on warning. If you missed them for 3 months, you were gone. It was as simple as that. These requirements were always discussed within the context of creating shareholder value.
Whether or not it was ever codified, clearly the company’s mission was to create shareholder value. In many respects, WorldCom was more successful at managing to its mission than any other company I’ve encountered. Every aspect of the company, down to individual employee performance and termination, was managed in alignment with the company’s mission. And for a long time, WorldCom was very successful at achieving its mission. WorldCom stock was the darling of Wall Street and many shareholders created lots of wealth by buying and then selling the stock.
Unfortunately, creating shareholder value is not really a useful company mission statement. It provides no meaningful direction to employees or managers. Unlike a mission that is focused on innovation or customer experience or serving God or serving humanity, a mission defined around wealth does not create a positive culture. Instead, it creates a culture of selfishness, greed, and “results at all costs.” In the end, it bred lies and deception.
I recall how departments and individuals were always competing with each other. One department wouldn’t help another department unless they could bill the work against the other department’s cost center. Employees and divisions were constantly under pressure to deliver the required results, at times at each others’ expense. Since a person’s job was at risk if he didn’t deliver, there was often the temptation to lie and deceive in order to meet the requirements and stay employed. Since all of this flowed down from, and then bubbled back up to the very top of the company to the executives who had set expectations with investors, the same temptations and the same behaviors existed at all levels within the company.
Last week’s reports make clear that it is this mindset, this management style, this culture that resulted in the massive accounting fraud that has been uncovered over the past 12 months.
Before being acquired by LDDS, WilTel was a division of the Williams Companies. I spent over 10 years working for Williams. Although there are Williams investors who have lost plenty through the company’s struggles in the collapse of the energy trading and telecom markets, I still believe Williams’ culture is a strong counter example to WorldCom. Williams still faces potential legal and financial challenges before it will have completely rebounded from its recent troubles, so I neither hold it up as a sinless corporate saint nor as a fool-proof investment (Note: I no longer own any stock in the company), but merely use it as an example of a different approach to culture building.
Williams shares one flaw with WorldCom. Their stated mission is to provide exceptional returns to shareholders. However, the similarities end there:
- While WorldCom always focused on shareholder value through stock price appreciation (not profit and dividends), Williams focused on managing to profitability and providing returns through both increasing dividends and, when the markets allowed, increasing share price.
- Both WorldCom and Williams have been “transaction-oriented” companies, with a heavy emphasis on buying and selling companies. WorldCom would often pay a high premium for an overpriced asset and then hype the combined value to Wall Street. In contrast, my time at Williams was frustrating at times because of the company’s strict diligence in rational valuation of businesses and assets being purchased.
- WorldCom’s performance evaluations were almost entirely based on “right results.” Williams implemented a performance evaluation system that systematically evaluated employees on both “right results” (accomplishing financial and operational goals) and “right way” (alignment with the company’s core values).
- And it is Williams’ core values that most clearly defined the company’s culture and set it apart from WorldCom. Even now, years after leaving the company, I can name all of Williams’ core values – which indicates how central they were to how the company was managed.
- The first and highest value within Williams is Integrity. Recent company history may indicate that not all Williams employees firmly held to this value, however, I have sat in company board meetings and in the CEO’s office as critical decisions were being made (e.g. acquisitions and spin-offs), and the value of integrity was always at the core of these discussions and decisions.
- As with WorldCom, shareholders are highly valued within the Williams culture, however, at Williams, they are on equal footing with employees and communities. Williams’ values also stress the independence of business units, but balance that with the need to work together towards common goals.
Comparisons are only useful if they make a point. My point is that it is possible to operate a large company with a healthy culture that increases not only profits and shareholder wealth, but also grows employees and honors customers. This type of culture breeds humility and servant-hood at all levels of the organization. I’ve lived it and it breathes life into the entire company.
WorldCom’s culture has bred selfishness, greed, deceit, and sin. The bible tells us that the wages of sin is death, and now, WorldCom may finally be facing its own destruction.
Russ McGuire is Online Director for Business Reform. Prior to joining Business
Reform, Mr. McGuire spent over twenty years in technology industries, performing various roles from writing mission critical software for the nuclear power and defense industries to developing core business strategies in the telecom industry. Mr. McGuire is currently focused on helping businesspeople apply God’s eternal truths to their real-world business challenges through Business Reform’s online services. He can be reached at RMcGuire@businessreform.com.