Posted on 08/26/2003 7:32:50 PM PDT by Calpernia
WorldCom -- soon to be MCI -- received its blueprint for emerging from Chapter 11 today, and, boy, is it a doozy. The plan from court-appointed corporate monitor Richard Breeden contains no less than 78 "recommendations" designed to keep the company from repeating the past abuses under Bernie Ebbers that led to the most massive accounting fraud in history.
Here are the highlights:
A separation of the chairman and CEO positions.
No stock option grants for at least five years; any thereafter must be expensed.
Dividends initially targeted at 25% of net income.
At least one new director to be elected each year.
Ten-year term limits for all directors except CEO.
All directors except CEO must be independent.
Independent auditors must be rotated every 10 years.
$15 million cap on total executive compensation per individual; board is free to set the cap lower.
These governance standards can only be changed with prior shareholder consent.
"As CEO, Ebbers was allowed nearly imperial reign over the affairs of the Company, without the board of directors exercising any apparent restraint on his actions, even though he did not appear to possess the experience or training to be remotely qualified for his position," said Breeden. "One cannot say that the checks and balances against excessive power within the old WorldCom didn't work adequately. Rather, the sad fact is that there were no checks and balances."
Breeden seems pleased with current CEO Michael Capellas and the rest of the management team, saying "there is a deep commitment" to eradicating the harmful practices of the past.
That's probably small compensation for Verizon Communications (NYSE: VZ), AT&T (NYSE: T), SBC Communications (NYSE: SBC), Sprint (NYSE: FON), and other competitors who must soon face a lean and debt-free WorldCom. But that's another story entirely.
WorldCom Rises Anew
By Bill Mann (TMF Otter) April 14, 2003
The company dragged itself through the muck of bankruptcy, beset by shareholder suits, government inquiries, $11 billion in fraudulent revenues, and other awfulness. And now, with an agreement between WorldCom and its creditors, the nation's second-largest long-distance provider is about to come out clean on the other side.
How clean? It's even shedding the soiled mantle of the name WorldCom. It's going to be MCI once more. I, for one, was fooled.
As we expected, all those shareholders who thought that WorldCom stock was "worth a flyer" at pennies per share are going to be wiped out. But the bondholders are going to make out like bandits. And a funny thing, too, because "bandits" is a word that instantly comes to mind when thinking about what has happened with MCI, nee WorldCom, nee MCI. Late this past year, the Justice Department decided not to fine WorldCom any further for its massive frauds, as any additional fines would necessarily come out of the pockets of bondholders.
Telecommunications companies Sprint (NYSE: FON) and AT&T (NYSE: T), among others, must view MCI's emergence from bankruptcy with horror. MCI comes back into the world with a clean balance sheet, where theirs are laden with debt.
It almost seems as if bankruptcy ought to be built into the business plan. Run up debt, build a network, pay itself millions, go into Chapter 11, emerge on the other side, and grant the management team stock options so they can participate in the company's further "success." While MCI's top management will be new, much of the corporate leadership from the bad old days is still in place.
This points to a broken bankruptcy system. Companies that have done it the wrong way, such as MCI, can re-emerge from bankruptcy -- to the almost guaranteed doom of ones that didn't defraud or cheat, ones that tried to keep up with a company that was making up rules as it went along in the first place.
And to those of you that have had MCI and switched carriers: Call your local phone company's business office and ask them to put a "PIC block" or "PIC freeze" (pronounced "pick") on your phone, so that MCI can't slam your account. It's free. (Actually, you ought to do this regardless of what long distance companies you've ever done business with, for your own protection.)
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