In the fall of 2002, Joe Nacchio, the CEO of Qwest Commutations International was on trial after the board of Qwest, kicked him out when Qwest was caught in a multibillion-dollar accounting scandal (Gimein). Nacchio was asked to testify by a congressional panel regarding if Qwest and Global Crossing sold stuff they didn't need to each other so they could inflate revenues and keep stock prices high (Gimein).
EVENTS THAT OCCURRED
In 2000, Nacchio promised investors that Qwest’s revenue would increase at a rate of 15% per year and by 20% by 2005 (Gimein). To help reach those goals, Qwest execs thought they figured out a way to profits immediately, and allow Qwest to spread out the ...view middle of the document...
Another issue with the structure that led to the downfall was that when Joe Nacchio took over the company it was private. Within six months he made it public. When a company goes public, that means that it sells stock which is the primary reason that Qwest had to inflate its numbers. If the company had stayed private, there would have been fewer incentives to play dirty.
The main cause of the Qwest scandal was leadership or lack thereof leadership. The leadership at the top sets the tone for the whole corporation. In the case of Qwest, managers were terrified they wouldn't match Nacchio's expectations. In meetings he would pretend not to listen when he was unhappy, and then attack the weakest point of the executive's presentation, and scare them to death by yelling at them. Down through the hierarchy, Qwest managers believed they had to make their numbers in any way possible. Managers would say 'What can I do? My arm is being twisted. I just gotta do what the boss says,'" recalls Nesbitt." He said Qwest became a company where people would do anything for the boss (Gimein). When the leader of a company is basically threatening his subordinates to achieve his unrealistic goals, something bad is bound to happen. In this case, Qwest managers learned to drive up sales by asking companies that sold equipment to Qwest to buy services in return, which is what got Qwest in deep trouble (Gimein). When the leader of a company is scaring its employees into meeting extremely high goals, people are going to break the rules in order to keep their jobs, and in the case of Qwest that is exactly what happened.
A third organizational cause of the Qwest scandal was the organizational culture of Qwest. The culture of an organization is made up of the values and ideals a company wants to operate under. The culture at Qwest was certainly not a good one. Nik Nesbitt, a former Qwest senior vice president, had a few things to say about the culture at Qwest. He said the demands coming from up top were unrealistic. He said that he was asked to sell a certain amount of hosting services in 90 days, when the lead time to sell those services was 180 days. Nesbitt added that when you would ask questions, they told you not to. They would say do it or you are not part of the team. (Gimein). With an attitude of if you do not do your job of reaching an impossible goal you are not a team member, the company is asking for unethical and shady behavior. Qwest made it very clear to its employees that the only thing that mattered was the bottom line. As an employee of Qwest, the rational choice was to meet Nacchio’s goals at any cost, and rational choice theorists say that when a scandal occurs, it is because the employees breaking the law the the rational choice at the time(Bucy et al). With the attitude at Qwest, a scandal was bound to occur, and it did.
REGULATORY OR OVERSIGHT WEAKNESSES
A key factor of the Qwest scandal was the lack of proper auditing by the now out of practice...