Global Crossings

Global Crossing Ltd. was founded by Gary Winnick and three business associates in 1997. (Wikipedia, 2007) The company than when public in August of 1998, and seven months after going public Global’s shares jumped threefold. Global Crossings rose to greatness quickly, and just as quickly fell. What was the cause of its fall? Was it bad planning, or poor management? How did it emerge after filling for Chapter 11 bankruptcy? What social, legal, and ethical problems did it face, and what were the three factors that influenced this companies planning.

Gary Winnick was the chairman of the company from 1997 to 2002. Some say that he was the reason for its fall others say that Winnick can’t blamed, as it was his fortune that fell so quickly. Winnick sold somewhere around $420 million of Global Crossings stock. Winnick’s office was said to furnished with $1 million dollar furnishing and was called the oval office. Winnick also reportedly gave over $148 million to charities during the time that he was the chairman of Global Crossings (Wikipedia, 2007)

While Winnick’s spending might have been a reason for Global Crossings quick fall, one must look at the spending of the entire company. Four of Global’s CEO’s were giving personal loans totaling of about $23 million. These loans were also forgiven while bankruptcy was on Global’s horizon. This same four CEO’s were give bonuses of about $13.5 million. The office space of Global Crossing was very pricey and the renovations do on the rented space were extravagant. Global also operated five corporate jets and spent of $150 million on accounting software. (Wikipedia, 2007)

Poor planning was definitely a factor in this company’s quick fall. One area that the company showed poor planning in was it seemed to go through CEO’s rather quickly. John Scanlon became the first CEO in 1998 and was only the CEO until February of 1999. Then came Robert Annuziate. Robert Annuziate was the CEO through two of the company’s major acquisitions: Frontier Corp., which cost the company $11.2 billion and Global Marine which the company acquired for $850 million (Wikipedia, 2007). It was also during Annuziate’s reign that Global lost out on the acquisition of US West to Qwest communications (Labarba, 1999) Some believe that losing this acquisition was a major reason for the company’s fast fall. During Annuziate’s reign the company also went from a medium sized company with about 150 employees to a large company of over 14,000 employees (Wikipedia, 2007).

In March of 2000 Leo Hindery became the CEO of the company during this time the stock of the company went from 61 dollars to 25 dollars a share in a month’s time. By November of 2001 the company’s shares were down to five dollars a share (Wikipedia, 2007).

One of the legal issues that Global Crossings faced was the investigation by the SEC (Security and Exchange Commission) for illegal accounting practices. It was said that the company used paper transactions to pad its books. These paper transactions were transactions that no goods or services were exchanged, but instead were just generated to make it look like the company was making a profit (Gutman, 2002). In April of 2005, the SEC settled with Global Crossings. The SEC stated that while Global Crossings did not comply with certain reporting obligations it cooperated fully with the SEC investigation. According to the SEC no “ monetary penalty was assessed against the company, which neither admitted nor denied the allegations that it failed to disclose the extent to which its results depended on swaps of fiber-optic network capacity with other telecom companies ” (List, para.2,2007). Regulators imposed fines of $100,000 on three executives, which is a small amount compared to what this executives made in their insider trading. While Winnick admitted to no wrong doing, he agreed to pay back $30 million to settle company lawsuits. Winnick also paid out $25 million for employee retirement funds (List, 2007). The impact this had on the company’s management planning was that it had to step back, re-group, and re-organize how the company reported its financial earnings.

One of the ethical issues that Global Crossing faced was, capacity swapping. “Capacity swapping is the act of two or more telecom companies swapping network capacity. In this way, the companies would simultaneously sell each other the right to use a part of their respective fiber-optic network, which in effect created a long-term lease allowing the other company to take control of part of the other company’s network.” (List, para.4, 2007). What was unethical about this was that both the companies would report the selling of the rights to use the networks but they did not report the expense of buying the rights. Global Crossing added $375 million to their bottom line in 2001