WorldCom Inc.'s incoming chief executive, Michael D. Capellas, hasn't officially started work yet, but he has already drawn up a plan for remaking the scandal-plagued company's board of directors.
"I believe you can't have more than two insiders on the board," Capellas said yesterday. As the incoming chairman, he will occupy one of those insider seats. The only reason to have a second insider, Capellas said, is to provide for an orderly transition in case of an emergency.
New chief executives are often given the opportunity to name new directors, but in the case of WorldCom, the board's composition has taken on added importance because of the $9 billion accounting scandal that has engulfed the company since June. Capellas wants WorldCom to become a model of corporate governance, given the board's legacy of presiding over the biggest case of corporate fraud in history.
The eight board members who served with the company during the period when the improper accounting took place are expected to offer their resignations shortly after Capellas officially takes over his new job Dec. 2.
Capellas said in a telephone interview yesterday that he will be looking for active board members with specific areas of expertise, including finance and accounting. In addition, Capellas, who has no previous experience in the telecommunications industry, said he will look for a board member with experience in the highly regulated industry.
"What is important with the role of the board is that the director bring some special skill," Capellas said.
But Capellas has already found that he can't just walk in and clean house. Because WorldCom is in bankruptcy, he has been forced to jostle with the creditors who effectively control the company. One bondholder is informally calling for former New York mayor Rudolph W. Giuliani to be named to the board and usurp Capellas's title of chairman.
Yesterday, the affable Capellas, who until last week was the president of Hewlett-Packard Co., said he is not at all put off by the aggressive approach of some of the company's creditors. "I'm completely comfortable with it."
Many of the current board members, although technically independent, had close personal and business ties to Bernard J. Ebbers, WorldCom's former chief executive. One board member, Stiles A. Kellett Jr., was pressured to step down after it was revealed that Ebbers had agreed to lease to him a WorldCom corporate jet for $1 a month plus other expenses. During the time of the one-year lease, Kellett, who headed WorldCom's compensation committee, approved $408.2 million in loans to Ebbers. Eventually, Ebbers was forced to resign from the company, largely because of concerns that he would not be able to pay the debt.
Capellas said he will set up a process for finding new board members and creating a governance structure that he hopes will be a model for corporate America. He expects to create a nominating board that will include the three new directors who have joined the company since it revealed the accounting improprieties. He also expects creditors to participate in the nomination process, although it is not clear if they will have a formal role in picking new directors. "I won't be making these decisions in a vacuum," Capellas said.
Capellas said yesterday that he has not talked to Giuliani about a potential role, but did say that he was flattered that the former mayor was interested in working with the company. "There is only one Giuliani," Capellas said.
Earlier this week, Giuliani's investment firm, Giuliani Partners LLC, acknowledged that it is working with Matlin Patterson Global Advisors LLC, which owns much of WorldCom's debt.
The firm is headed by David Matlin, who, sources said, is pushing for Giuliani. Although Capellas declined to discuss any specific position for Giuliani, he suggested there are alternatives to a board seat, including an advisory role.
He declined to comment directly on Giuliani's ties to Matlin. When asked if Giuliani could be considered an independent director while working for a major investor in the company, Capellas said, "I think that is a very good question."
During the last week, Capellas has been traveling across the country, meeting with employees in an effort to build morale. WorldCom has undergone massive layoffs and months of being pilloried in the press as an example of corporate greed. Four of the company's former executives have already pleaded guilty to fraud charges.
Capellas has also been talking with major customers in effort to reassure them about the company's future. One of Capellas's biggest selling points is that as the former president of Hewlett-Packard and former chairman of Compaq Computer Corp., he already knows many of WorldCom's largest corporate clients.
Capellas said yesterday that his top priority is finding a new chief financial officer. The company's former CFO, Scott D. Sullivan, is the only executive who has been charged with fraud but has not pleaded guilty to any charges. Prosecutors claim that Sullivan spearheaded an effort to manipulate WorldCom's books to make the company appear profitable during a period when it actually lost money.
Capellas said it will take some time to find a CFO, but finding the right executive for that position "is absolutely the most important issue going forward."