WorldCom Inc.'s new chairman and chief executive, Michael D. Capellas, introduced himself to hundreds of the company's Ashburn-based employees yesterday and signaled that the Washington area would again be the center of the telecommunications firm's operations.
"I'm going house hunting right after this," Capellas told the employees, who responded with raucous cheers and applause.
Capellas arrived in Northern Virginia yesterday afternoon after flying down from a press conference in New York where he vowed to lead the nation's second-largest telecommunications firm out of bankruptcy. Capellas said he intended to rebuild the scandal-plagued company, not to sell off its assets.
Until this week, Capellas was the president of Hewlett-Packard Corp. He became a widely admired executive during the last two years largely because of his successful effort to lead a turnaround at Compaq Computer Corp., which merged with Hewlett-Packard in a $19 billion deal earlier this year.
Capellas offered few specifics on how he hoped to rescue WorldCom. He said job No. 1 would be to keep the largest customers in the fold, and he suggested the company might change its name. He warned that WorldCom still needed to cut costs and he did not rule out the possibility of more layoffs at a firm that has lost 17,000 employees in the last six months.
"Nobody likes to stand up here and say that on their first day, but that is part of building credibility," he said.
To help him in his task, Capellas should soon be working with a newly fashioned board of directors. Almost from the day WorldCom filed for bankruptcy in July, the creditors who now effectively control it have been clamoring for the resignations of the eight directors who served during the three-year period in which the company improperly accounted for $9 billion. Those board members are expected to submit their resignations "sooner rather than later," one source said.
But Capellas, who has almost no experience in telecommunications, said he would keep the current management team in place. That may be a disappointment to some analysts and investors who expected to see many of the top executives leave along with the longtime board members.
"It would be a mistake not to bring in experienced outsiders in the next few months," said Drake Johnstone, a telecommunications analyst with Davenport and Co. "It's hard to get investors to believe a turnaround is possible if those people remain in key roles."
Although he is assuming the titles of chairman and chief executive, previously held by Bert C. Roberts and John W. Sidgmore respectively, Capellas made it clear that he expects both men to continue to play some role at the company.
"We don't know exactly what those roles are going to be -- we will sit down and talk about it," he said.
The comings and goings of board members and senior executives were little more than a distraction to the Ashburn employees who welcomed Capellas, to the sound of ear-splitting rock music piped over loudspeakers and broadcast to more than 45,000 other WorldCom workers around the country.
When Capellas began listing the company's top priorities, the workers needed no prompting in shouting back, "Customers. Customers. Customers. Customers."
It was an extraordinary moment for a Washington workforce that never really warmed to WorldCom after it merged with the former MCI Group in 1998. The Ashburn campus is the former headquarters of UUNet, which was absorbed by MCI before it in turn was acquired by WorldCom.
Capellas, who takes over Dec. 2, seemed to quickly win the workers over with his announcement that annual pay increases would soon be reinstituted. When an employee asked if he also would reinstitute Friday afternoon ice cream parties, the energetic Capellas responded, "I think we just made policy."
He even forced the company's senior managers onstage to lead the throng in an enthusiastic chorus of "If you're happy and you know it, clap your hands."
But it is going to take more than camp songs to revive a company mired in bankruptcy. Four of WorldCom's top executives have already pleaded guilty to fraud. The company and other former executives, including its founder and former CEO, Bernard J. Ebbers, continue to be the subjects of a criminal investigation by the Justice Department. Powerful rivals such as the major local telephone companies are lobbying the Federal Communications Commission to strip WorldCom of its licenses to operate.
Analysts have questioned whether Capellas, who spent his entire career until this week in the software and computer industry, is the right executive to lead WorldCom. It is not the first time that Capellas's ability to lead a company has been questioned. When he was tapped to head Compaq in July of 1999, he was largely an unknown who had come to the company as its chief information technology officer. Up until then, he had held a series of top management jobs at major information technology companies including Oracle Corp. and SAP AG, but did not appear to be on the chief executive track. In fact, Compaq's founder and chairman, Benjamin Rosen, chose Capellas only after a three-month executive search failed to turn up another viable candidate.
But Capellas made the most of the job, winning the admiration of analysts with his ability to reverse Compaq's market losses and free operational logjams. Members of WorldCom's executive search committee said they also were impressed with Capellas's ability to find a buyer for Compaq, which had been on a downward trajectory for several years. Capellas was not only able to find a buyer, but he also played a key role in an impressive public relations battle to overcome deep-seated opposition to the merger.
If he is to have success at WorldCom, Capellas will have to move quickly to reassure the company's biggest customers, according to Jay Pultz, vice president and research director with Gartner Group, a research and consulting firm. Pultz said he has been surprised by the number of large customers preparing to desert the beleaguered company. "He has to convince major accounts not to bolt," Pultz said.
Sources familiar with the deliberations of the executive search committee have said one of Capellas' chief selling points is that he already knows many of WorldCom's corporate and government customers from his days at Hewlett-Packard and Compaq. Capellas told employees yesterday that he rarely spends more than three days a week in his office because he often is on the road meeting with customers.
When he was asked if WorldCom would keep its current name, now synonymous with corporate scandal, Capellas said the company was already conducting research into the issue.
Employees were quick to shout out their suggestions, among them "UUNet" and "MCI."