Global Crossing: ethical and legal issues in corporate management planning

Global Crossing was a telecommunications company that was afflicted by serious waste and mismanagement. It was the fourth largest bankruptcy in U.S. history, and its failure in the midst of a recession had serious repercussions for the U.S. economy as well as for shareholders. The company was founded in 1997 by Gary Winnick and was based upon exploiting the expanded use of the Internet by organizations and individuals alike: "it seemed like a no-brainer at the time: As more people surfed the information superhighway, demand for bandwidth would skyrocket" (Behind Global Crossing's failure, 2002, CNET). A common cliche then was to refer to the Internet as the 'information superhighway.' Global Crossing offered to provide the paving for this highway with optical networking that would "transmit data as light through specially made glass fibers. Surrounded by protective cabling, bundles of these fibers can be laid under water to connect distant continents, allowing high-speed traffic to zip back and forth with ease" (Behind Global Crossing's failure, 2002, CNET).

However, while Winnick was a persuasive salesman for the technology, he failed to realize the promises he made about the company's profitability. In 2002, it became clear that the company's profits had been wildly exaggerated through 'creative' accounting in a blatantly unethical as well as illegal fashion. Ethically speaking, Winnick clearly promised more than his company could hope to deliver in an effort to court interest amongst shareholders. "Accounting that tries to cover up bad business sinks a company. Everyone overestimated the demand for these networks. There was a general presumption that the Internet was doubling every three months" (Behind Global Crossing's failure, 2002, CNET).

Winnick exhibited poor planning as a manager, only relying upon the most wildly exaggerated figures for the projected demand for his project, as well as overestimated his company's ability to swiftly meet such demand. When reality did not correspond to the vision he had presented, 'creative' accounting was used to cover this fact up. The company was found to exhibit an egregious lack of social responsibility in terms of the manner it treated employees and investors, who were severely impacted by the company's failure. "Shareholder suits claim that executives made tens of millions of dollars in profits from stock sales while the alleged hanky-panky went on" (Is Global Crossing double-crossing investors, 2002, Bloomberg). The nature of this 'hanky-panky' involved indefeasible rights of use swaps with other carriers which "accounting rules allow them to book an incoming contract as a large chunk of revenue, and then book the outgoing contract as a capital expense, which they typically emphasize as separate from operating results" thus emphasizing the company's profits without recording its losses (Berman 2002).