Chapter 2

An Introduction to WorldCom


The modern frailty1 of U.S. corporate governance regulation stems largely from an inadequate and overly simplistic conceptual understanding of corporate accounting.2 Without achieving an adequate understanding of the normative role of the accounting function vis-à-vis its current, severely impaired capacity,3 as contained in U.S. GAAP, it is not possible to appreciate the root cause of regulatory failure. As a result, this book begins with an introductory primer so as to provide readers with a conceptual level understanding of accounting, its inherent limitations as reflected in the current U.S. accounting orthopraxy, and its critical relevance to the corporate governance regulatory effort.4 Such themes are illustrated lucidly through the startling context provided by the WorldCom affair.5

To be clear, this discussion is not intended as part of an effort to exculpate management of any particular wrongdoing. Rather, it seeks to encourage a nuanced, three-dimensional understanding6 of the degree to which the corporate environment is fraught with ambiguity—an understanding that is perfectly necessary if regulatory efforts are ever to achieve their desired objective. Simple causal analyses are bereft of explanatory power, and cannot realistically serve as the foundation of efficacious regulatory efforts.

A consistent theme of this book is that the modern era of U.S. corporate governance regulation—beginning with Sarbanes-Oxley7—characterized ...

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