WorldCom Organizational Decline and Turnaround - ORGANIZATIONAL DECLINE AND TURNAROUND INSIGHTS FROM THE WORLDCOM CASE Satish C Pandey and Pramod Verma

WorldCom Organizational Decline and Turnaround -...

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T he vast research literature available on organizational decline and turnaround management generally indicates to two main research approaches. The first approach is referred to as a Content approach that is focused on examining various factors related to organizational decline and turnaround on the basis of cross-sectional statistical analysis of data collected from a number of organizations (Khandwalla, 2001, 1992, 1989; Manimala 1991, Barker and Duhaime, 1997; Castrogiovanni and Bruton, 2000; Chowdhury and Lang, 1996; Hambrick and Schecter, 1983; O’Neil, 1986; Pant 1991; Robbins and Pierce, 1992; Schendel and Patton, 1976, Schendel, Patton and Riggs, 1976; Thietart 1988, Bibeault, 1982). In contrast, the process approach is focused on analyzing the processes within the context of a company in relation to organizational decline and turnaround. In other words, it is a narration that describes the sequence of events as they unfold to cause a dependent variable to respond to an independent variable (Van de Ven and Huber, 1990). A group of researchers (Chowdhury, 2002; Hoffman, 1989; O’Neil, 1986; Schendel and Patton, 1976) suggests that it is the process through which turnaround strategies are implemented, not the content per se, that explains the difference between successful and unsuccessful turnarounds. Therefore, both content and process approaches are linked to each other and are equally important for developing a good theory (Bacharach, 1989; Van de Ven and Huber 1990; Whetten, 1989; Pettigrew, 1992; Chowdhury, 2002). Some researchers e.g. Khandwalla (2001, 1992, 1989), Chowdhury (2002), and Maheshwari (2000) had tried to develop theoretical frameworks to understand elements and processes of organizational decline and turnarounds. Unlike content researchers, Chowdhury (2002) tried to develop a four-stage theory to understand organizational decline and turnaround on the basis of process approach rather than content approach. Chowdhury (2002) defined turnaround as a process, ORGANIZATIONAL DECLINE AND TURNAROUND: INSIGHTS FROM THE WORLDCOM CASE Satish C. Pandey and Pramod Verma In 2002, the entire globe was rocked by the WorldCom accounting scandal that led to the bankruptcy of the fourth-ranked Fortune 500 telecom company, and raised several questions in relation to corporate governance, ethical leadership and corrupt practices in American companies. The consequences of this famous scandal led to unrest within the ranks of investors, pension funds, banks and the public at large. Later, the company appealed to the US court for reorganization under chapter 11 of US bankruptcy code and under the leadership of the new CEO, Michael Capellas, the new company (MCI) not only reconsolidated its financial position but also overhauled all its internal systems and transformed itself from a corrupt company to an ethical one. This article presents insights learnt from this case study in the context of managing organizational turnaround. It also focuses on the role that the new chief executive played in installing an ethical work culture in the organization. The authors have used Chowdhury’s four stage theory to analyze the case. They have further tried to integrate insights from other theoretical models to

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