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WORLDCOM: $20 BILLION WORTH OF CLAIRVOYANCE

January 29, 2004

In hindsight, it's hard to credit the executive team of WorldCom with clairvoyance. A management team with the ability to foresee the future should have been able prevent the company's collapse, bankruptcy and accounting scandal. Maybe clairvoyance is part of a Faustian bargain -- a gift given only in tandem with catastrophic incompetence.

But we do know WorldCom management had clairvoyant powers. We know because WorldCom subsidiaries paid royalties of up to $20 billion from 1998 through 2001 to their parent company for "the foresight of top management."

The first definition of "foresight" at dictionary.com is

Perception of the significance and nature of events before they have occurred.

We know that the second definition of foresight, "Care in providing for the future; prudence," didn't apply at WorldCom, so we can only conclude that WorldCom management truly possessed occult powers.

This insight into this previously unsuspected aspect of Bernard Ebbers' management style comes from a 500-page report issued by WorldCom's bankruptcy examiner, former Attorney General Richard Thornborough.

Summoning the spirits?

The report says that the payments were really part of a scheme to save on state income taxes. The report says subsidiaries would reduce their taxable income in the states in which they operated by paying the royalties to a parent located in a no-tax state, artificially reducing their state taxes on operations. This strategy, says the examiner, "was highly aggressive and seriously vulnerable to state challenge."

The tax advisor that set up the plan, however, insists that "Our corporate tax work for WorldCom was performed appropriately, in accordance with professional standards and all rules and regulations, and we firmly stand behind it." The conclusion that the top executive team at WorldCom truly had foresight is inescapable; otherwise, the $20 billion in royalties could be difficult to justify under professional standards.

You can find more insights into the mysterious powers of WordCom management in the examiners report; it is a huge pdf file, so it will take awhile to download.

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