Either you believe him, or you believe WorldCom’s lead internal auditor.
In my June 17 column I mentioned a few tech companies that have contributed to the overall stock market malaise. These included Qwest, Microsoft, and Cisco, but not WorldCom or Xerox. It turns out, the last two have participated in more accounting malfeasance than Enron. WorldCom’s $3.88 billion boo-boo is double the total misdeeds of Enron. If Xerox’s misstatements had not come out a few days after WorldCom, they would have received the same attention as Enron’s. After all, they are about the same magnitude. No wonder the market has crashed since that June 17 column.
But since everyone’s talking about WorldCom, including its new CEO John Sidgmore, I might as well follow suit. Last Wednesday, the Wall Street Journal ran a front-page story about the chief witness for the prosecution in criminal proceedings against WorldCom–WorldCom Vice President of Finance Cynthia Cooper. She claims that in the spring she performed an internal audit of the company and found the accounting problems. But, when she showed them to then-CFO Scott Sullivan she was rebuffed. And when she showed them to the head of the board’s audit committee, he delayed action for nearly a month. She also claims that there are other accounting issues–potentially $1 billion–that need further attention.
The day after the Journal ran that story, we reported on a speech Sidgmore gave to the National Press Club. The speech was a combination of cover your butt, deny wrongdoing, and try to elevate investor confidence. The problem is, he came off as another lying CEO just when an honest, straight-talking CEO is needed. He apologized for the company’s “transgressions.” He patted the company on the back for out-auditing its auditors (Arthur Andersen, at the time), and for first reporting the problem to the SEC (before the SEC’s own investigation found them). Finally, he said it is “highly unlikely” there would be any significant revelations in the company’s clarifications to the SEC.
I like Sidgmore. He has been a leading spokesperson of the Internet since his days as CEO of UUNet (which was one of Bernard Ebbers’ 60 acquisitions). But given that such a high-profile credible witness indirectly called into question much of what he said, I find it hard to believe him. It would have been better if he declined comment on the accounting practices until all the filings are in and the SEC makes its judgment. Absent that, all his assurances that UUNet would stay lit and that critical infrastructure to the Regional Bell Operating Companies would continue to work are believable. But his questionable statements about accounting practices cast doubt on the infrastructure statements as well.
This does not bode well for one of the nation’s foremost infrastructure providers. Since EbbersÕ ouster, I have often thought, “If anyone can save WorldCom, Sidgmore can.” Now I’m not so sure that even Sidgmore is up to the job. And I know the market can’t handle another accounting scandal. Happy 4th of July indeed.
James Mathewson is editor of ComputerUser magazine and ComputerUser.com